A Political and Economic Dictionary of Western Europe, First Edition
Germany, officially the Federal Republic of Germany (FRG), was founded in 1949 through the inauguration of the new Constitution, the Basic Law (Grundgesetz). The Constitution applied initially to the territory of the military zones occupied by the western Allies—the United Kingdom, the USA and France. The Soviet-occupied zone in the east became the German Democratic Republic (GDR). The Basic Law was a temporary constitution, the validity of which it was possible to extend to other German states (Länder). The Constitution was extended to the state of Saarland in 1957 and the process of German unification entailed the extension of the Basic Law to the five new Länder in the former GDR. During the Cold War the FRG’s relations with the GDR were initially adversarial. They were subsequently characterized by a policy of détente and co-existence brought about through Willy Brandt’s Ostpolitik. A Basic Treaty was signed between the two German states in December 1972 which obliged each to respect the authority and independence of the other, though the FRG remained committed to the goal of unification. When the GDR collapsed on 9 November 1989, FRG Chancellor Helmut Kohl pursued a policy of formal German unification and the process was completed on 3 October 1990. German unification entailed the transfer of the Basic Law and the political institutions of the FRG to the five new Länder of East Germany, rather than the drafting of a new constitution. However, since unification some of the traditional characteristics of the German political system have altered.
Area: 357,000sq km; capital: Berlin; population: 82m. (2001).
The Federal Republic of Germany is often characterized as a semi-sovereign state because Germany was an occupied state, and because sovereignty is divided between the federal government and a number of alternative political and non-political institutions. A federal state, power is shared between the federal government and the 16 German Länder (until 1990 there were 11). The Länder have autonomy in the domains of policing, culture, broadcasting and education and share responsibility with federal government in joint tasks such as higher education and regional economic development. Each state (Land) elects its own parliament and government to carry out these tasks. The German federal system is referred to as co-operative rather than competitive federalism as complex rules of financial equalization (Finanzausgleich) redistribute resources from the richer to the poorer Länder, and from the federal state to the Länder.
The head of state in the FRG is the non-executive Federal President who is elected by an electoral commission made up of members of the national Bundestag and the Länder parliaments. The incumbent President, Horst Köhler, was elected in June 2004. Legislative power is vested with the bicameral parliament comprising the Bundestag and the Bundesrat. Executive power at federal level lies with the Chancellor—since 1998 Gerhard Schröder—who is granted sole responsibility for setting the direction of government policy. The Chancellor is nominated by the largest party in the Bundestag, and appointed following a formal vote in the lower house.
In contrast to its democratic predecessor, the Weimar Republic of 1919–33, the political system of the FRG has been characterized by a high degree of stability. Post-war politics have been dominated by two main parties, the Christian Democratic Union (CDU) and the Social Democratic Party of Germany (SPD)—referred to as Volksparteien or People’s Parties. The smaller, liberal Free Democratic Party (FDP) has traditionally acted as a pivot party, forming coalitions with parties of the left and right, and a fourth political party, The Greens (now Alliance 90/The Greens) entered the Bundestag in 1983 and formed a national coalition with the SPD in 1998. Following German unification the Party of Democratic Socialism, the successor party to the communist party of the GDR, gained significant representation in the Bundestag though its support has fallen in recent elections. The low number of parties represented in the Bundestag is the consequence of the electoral law which requires a party to gain either 5% of the vote or three direct mandates in order to be allowed to claim its full allocation of seats. Also, anti-democratic parties can be banned by the Federal Constitutional Court and such measures were taken in 1952 and 1956. Parties of the extreme right wing do exist, but their electoral successes have been in local and state (Land) elections.
The CDU dominated politics in the early years of the FRG, forming governments in 1949–66 under Konrad Adenauer and Ludwig Erhard. The CDU and SPD formed a Grand Coalition in 1966–69 until the 1969 election when the SPD, under the leadership of Willy Brandt, chose to govern with the FDP. Following Brandt’s resignation in 1974 Helmut Schmidt was SPD Chancellor until his government was brought down by a constructive vote of no confidence in 1982. Chancellor Helmut Kohl led a CDU-FDP coalition for 16 years, in 1982–98. The end of the Kohl era was marked by the election of the SPD-Alliance 90/The Greens coalition in September 1998. This event was remarkable because it was the first time ever that a complete change of government had come about as a result of an election rather than a change in coalition preferences. It was the first time that Alliance 90/The Greens had participated in government at national level, and it was the first wholly left-of-centre coalition. The red-green coalition was re-elected on 22 September 2002. At that election the SPD gained the same share of the vote as the CDU (38.5%), but support for the Greens rose to its highest ever level (8.6%). Much of the party’s success can be attributed to the popularity of its foreign minister and Vice-Chancellor, Joschka Fischer.
Germany has also been described as a semi-sovereign state as, initially an occupied state, it had a limited capacity to act alone on the international stage. Instead, it committed itself to multilateralism, pursuing its goals in regional and international organizations. Germany joined the North Atlantic Treaty Organization (NATO) in 1955. A civilian power, it has traditionally refused to commit troops to military activities. The FRG was also a founder member of the European Coal and Steel Community and has from the start been the largest net contributor to the European budget, though it has not had political power in European institutions commensurate with the size of its economy and population.
Although no new German constitution was written at the time of German unification in 1990, some have used the label ‘the Berlin Republic’ to characterize the post-1990 German state. This refers not only to the change of capital from Bonn to Berlin, agreed by the Bundestag in 1991 and completed in 1999, but also to the more confident and less consensual mode of politics in Germany. Politicians have expressed discontent at Germany’s role as paymaster of the European Union (EU) and at the fact that it ‘punches beneath its weight’ in EU institutions. Moreover, the Federal Constitutional Court ruled in 1994 that it was no longer unconstitutional for German military forces to take part in NATO military missions if they were justified on humanitarian grounds. Consequently, Germany committed troops to NATO out-of-area missions in Kosovo in 1999 and in Afghanistan in 2001. However, the red-green government refused to participate in the US-led war against Iraq in 2003.
Economy: The German economy is the largest in Europe and the third largest in the world. It is an open, export-oriented economy specializing in the production of machinery, tools, cars and chemicals. Germany industrialized in two phases: the south of the country developed networks of small and medium-sized firms in the 17th century and the centre and north industrialized during the second industrial revolution in 1830–70, developing large-scale autarkic firms. The service sector in Germany has been slower to develop.
GNP: US $1,939,600m. (2001); GNP per caput: $23,560 (2001); GNP at PPP: $2,078,000m. (2001); GNP per caput at PPP: $25,240 (2001); GDP: $1,846,069m. (2001); exports: $657,453m. (2001); imports: $619,920m. (2001); currency: euro; unemployment: 8.7% (2002).
During the division of Germany in 1945–90 the German economy was separated into the command economy of the German Democratic Republic (GDR) and the capitalist social market economy of the Federal Republic of Germany (FRG) in the west. West Germany reconstructed its economy in the post-war era with funds from the Marshall Plan, the precondition of which was that it would integrate into the Western alliance. West Germany was a founder member of the European Coal and Steel Community, a project that allowed Germany to develop key areas of its industrial economy, without this being perceived by its neighbours as a strategy to rearm.
West Germany experienced a period of rapid economic growth and prosperity during the 1950s. With this economic miracle, or Wirtschaftswunder, developed a distinct model of capitalism, referred to as the Rhineland model or the social market economy. While many features of the Rhineland model predate 1933, others were innovations for the FRG. This German model of capitalism is traditionally characterized by a close, consensual relationships between industry, finance and labour. Industry is financed by long-term loans from banks which in turn sit on the supervisory board of the firms they fund. Labour is represented in the decision-making process in industry through institutions of codetermination both on supervisory boards (since 1952 and 1976) and in elected works councils (since 1972). Most trade unions reorganized in the post-war period into a unified trade union federation, the German Trade Union Federation, according to the principle of one union per industry. In 1948 social partners were granted the right to negotiate wages autonomously. Wage agreements are negotiated between employers’ organizations and trade unions for a whole sector or industry. German industrial workers are generally highly paid. This is compensated by high levels of productivity made possible by a highly skilled labour force and investment in modern technology. Labour is also protected by workers’ rights that make dismissal difficult. The German state has a minimal role in the economy except to set rules and regulate. Control over monetary policy and the German currency—until 2002 the Deutsche Mark (DM)—was handed to the independent Bundesbank.
In post-war Germany a comprehensive corporatist welfare state developed. This partially built on the legacy of Otto von Bismarck, who introduced a social security system in the late 19th century as a means of guaranteeing the loyalty of civil servants to the state and reducing the political standing of the social democrats. The welfare system in the FRG is an insurance-based scheme funded by payroll taxes levied on employers and employees. This scheme traditionally offers generous benefits calculated according to prior earnings in the event of unemployment or sickness, and in old age. A less generous, means-tested tax-funded scheme for non-insured citizens offers last-resort benefits. In line with the Christian democratic principle of subsidiarity—that policy should be developed as close as possible to the citizen—the welfare state in Germany relies on women and families to provide unpaid services such as child-care and care for the elderly. In the traditional male-breadwinner welfare state, women have, until recently, had low economic activity rates.
The German economy adapted comparatively well to the oil shock of the early 1970s. Industry was not subsidized by the state and so was forced to absorb increases in fuel prices by reducing fuel consumption and using its highly skilled workforce to adapt production methods from uniform mass production to flexible specialization. The manufacture of high-quality niche products was particularly successful in the south of the country in the Länder of Baden-Württemberg, Bavaria and Hesse. The German economy began to experience difficulties in the 1980s when other exporting nations—in particular Japan—became more efficient and innovative in the production of niche products. Demand for Germany’s exports fell and the economy struggled to maintain the virtuous circle of its high-wage, high-skill, and high-productivity levels. The problems of rising unemployment and public debt in the 1980s were addressed by cutting the working week (to 38.5 hours in 1985 for metalworkers) and moderate cuts in welfare spending. More ambitious reform of the social market economy was abandoned at the time of German unification in 1990.
The collapse of the GDR on 9 November 1989 led to a rapid unification of the economies and polities of the two German states. Monetary, economic and social union came first and was formally completed on 1 July 1990. This introduced the DM to the GDR at the economically unviable rate of one-to-one. Also, the institutions of the Rhineland model and corporatist welfare state were transferred wholesale to the new Länder. The eastern economy boomed for a couple of years, mostly on the back of the construction industry, but fell into deep recession in 1993. East German industry suffered from the parity exchange rate and from the fall in demand for East German products, both domestically, as eastern Germans spent their DM on western goods, and in its former markets in Central and Eastern European Countries. Moreover, despite the fact that productivity in GDR industry was one-third of that of the west, trade unions demanded rapid equalization of wages to avoid the emergence of a low-wage economy in the new Länder. The privatization of state-owned GDR industry through the Treuhand also led to the closure of thousands of firms which could not compete in market conditions.
West Germany’s unification policy aimed to promote, as Helmut Kohl put it, ‘flourishing landscapes’ in the east and rapid convergence of the two economies. By the mid-1990s the objective had switched from aiming for convergence to promoting innovative ‘lighthouse regions’ in the east around Dresden, Leipzig or Chemnitz. To achieve this, the old Länder made substantial transfer payments to the new Länder, funded partially by an income tax surcharge, and partially by increasing the public debt, which doubled within five years of unification. The aid—by 2004 a total of €1,250,000m.—has been predominantly in the form of cash payments to meet the obligations of the welfare state rather than as investment in industrial capital, human capital or research and development. As a consequence, the eastern economy has not caught up with the west. Since the recession of 1993 unemployment in unified Germany has soared in the east and currently stands at double the rate of that in the west (17.7% compared with 7.8% in 2002) and is in some regions as high as 19%. Productivity in the east remains lower than the west, and wages in most sectors have not been equalized.
The coalition of the Social Democratic Party of Germany (SPD) and Alliance 90/The Greens that took office in September 1998 made a promise to reduce unemployment by 2002. Having failed to meet this pledge, it convened a commission (the Hartz Commission) composed of politicians, businessmen and social partners to devise solutions to Germany’s mass unemployment. The government stated that it would implement the commission’s recommendations one by one if returned to office following the election of September 2002. Since re-election the SPD-Green coalition has implemented a series of controversial labour market and welfare reforms to speed up the transition of the unemployed from welfare to the labour market, encourage the creation of low-paid starter jobs, liberalize redundancy laws in small firms and shift some of the burden of funding healthcare to the patient.
The growth of public debt during the 1990s raised concerns that Germany would not meet the convergence criteria for membership of Economic and Monetary Union (EMU). In the event, a series of austerity measures were adopted to reduce public spending and Germany successfully met the convergence criteria and participated in the final stage of EMU in 1999. With public debt levels at nearly 4% of gross domestic product, Germany has failed to adhere to the formal rules of the stability and growth pact and has been threatened with sanctions and fines by the European Commission. There is significant evidence from the late 1990s and early 2000s that the processes of unification, Europeanization and the intensification of competition associated with globalization have begun to erode some of the traditional key features of the German economic model and welfare state.
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