Project Of ECON 104 The History And Market System Of Germany

The History and Market System of Germany
Name
Institution
The History and Market System of Germany
Germany has experienced exponential economic growth since 1990 following the reunification regime, despite the multiple episodes of recession. Murray, Skene, and Haynes (2017) explain that the gross domestic product of the former German Democratic Republic declined by about 30% with the value-added industry decreasing its net worth by 60%. Further, the scholars reveal that the three year period saw the rates of employment in Germany decreased by over 35%. Despite the negative economic position experienced by Germany in this period, the country’s move to transit from the ideologies of socialism cannot be undermined. For instance, Anzalone (2016) explains that ten years after the period of reunification, the country’s GDP per capita rose to over 65%. Dustmann et al. (2014) attribute such economic growth to the powerful involvement of the national government in fostering the generous transfer of resources from the western regions of Germany to the East; an aspect that increased the convergence per capita of the country. Anzalone (2016) reveals that in the period between 1989 and 2000, over 80% of the inhabitants of eastern Germany reaped massive benefits that included the increments in their levels of income.
Despite the tremendous growth experienced in the transition regime, Germany experienced sharp negative growth in its levels of convergence in productivity (Analone, 2016). Murray, Skene, and Haynes (2017) attribute such a position to the fact that the country gas not adequately recovered from the initial economic shock that was characterized with inadequacies in the levels of advancement of the underlying labor markets. For instance, Dustmann et al. (2014) explain that even after the period of reunification, the eastern side of Germany recorded its rate of unemployment at about 19% in 2000 while the western side of the country experienced a 27% unemployment rate in the same period. The current study seeks to undertake a critical analysis of the history and market system of Germany by reviewing the government’s role in the economy, fiscal policies, and economic indicators.
C1. Government’s Role in the Economy
The federal government of Germany plays a crucial role in fostering economic advancements. Murray, Skene, and Haynes (2017) explain that the government influences economic issues either directly or indirectly by institutionalizing policies aimed at fostering the advancement of its financial systems. The government institutions of Germany play a significant role in forming ample fiscal policies aimed at promoting economic growth and equity for both the inhabitants of the eastern and western regions of the economy. For instance, the move was taken by the federal government to institutionalize fiscal policies such as the top- down, and debt brake rules were influential in fostering the withdrawal of the fiscal stimulus that was triggered by the 1997 global economic recession. Anzalone (2016) explains that the regulatory regimes put in place by the government led to a significant reduction in the government’s deficit that was cyclically adjusted from about 4% of the overall GDP in 2010 to a record 0.3% in 2012. On the other hand, the government of Germany adopted proper measures of strengthening its pension reforms that were previously legislated with the aim of enhancing is long-term sustainability while minimizing the potential effects of the aging related expenditures in the next four decades.
The federal government of Germany fosters economic growth by availing the conditions required to enhance fiscal growth and equity. Murray, Skene, and Haynes (2017) explain that the government is highly conscious of the future challenges that may face its populace such as the projected increase in public spending aimed at fostering ample provision of key social amenities such as high-quality infrastructure and childcare facilities. As a consequence, government agencies institute policies aimed at increasing public investment in such amenities in a conscious way. For instance, Dustmann et al. (2014) reveal that the federal government issued a directive to the sub-national governments to respond to the underlying fiscal constraints by reducing their infrastructural investments while maintaining their expenditures on the existent projects. Anzalone (2016) explains that to date, both the local governments and Länder are faced with the pressure of ensuring that their fiscal regimes are in line with the debt-brake regulation adopted by the federal government in 2013 pursuant to Fiskalvertrag (European Fiscal Compact).
C2. GDP/economic growth/ unemployment/ inflation/ international trade/ currency
Germany has experienced steady economic growth in its GDP since 1997. As revealed in figure 1 below, the country’s GDP per capita was recorded at EUR 35,101, EUR 36,267, EUR 37,227, EUR 38,115 and EUR 39,501 in 2013, 2014, 2015, 2016 and 2017 respectively.
Figure 1: Germany’s GDP per capita in the five year period between 2013 and 2017 (Focus Economics, 2018)
Similarly, Germany experienced a steady increase in its real GDP in the five year period between 2013 and 2017. Focus Economics (2018) attributes such a sharp positive growth to the federal government’s move to institute measures aimed at fostering recovery in its expenditure. On the other hand, Murray, Skene, and Haynes (2017) explain that the positive advancement could be as a result of the moderately increasing levels of household expenditure and easing private consumption amid the decreasing levels of unemployment since the period of reunification. The GDP of Germany increased by EUR 2,831 billion, EUR 2,937 billion, EUR 3,041 billion, EUR 3,139 billion and EUR 3,267 billion in 2013, 2014, 2015, 2016 and 2017 respectively (Focus Economics, 2018).
With an economic freedom score of 74%, Germany is considered by ()0 as one of the strongest economies in Europe. According to Anzalone (2014), the country has maintained positive economic growth since 2007 with surpluses in its public finances. According to Murray, Skene, and Haynes (2017), Germany recorded positive economic growth of 2.2% in 2017 (the highest since 2011). Such an extraordinary fiscal position is attributed to the significantly lower costs of borrowing an increase in the levels of consumer expenditure, rising wages among the members of the populace, and the exponentially decreasing rates of unemployment. Further, Focus Economics (2018) attributes the growth experienced by the federal government of Germany to the expansionary policies and reforms put in place by the European Central Bank. For instance, the scholars reveal that the policies put in place by the European Central Bank aimed at guiding the taxation regulations adopted by the country played a critical role in attaining the public sector’s surplus record of about 39 billion euros in 2017.
On the other hand, Murray, Skene, and Haynes (2017) reveal that the government fosters economic development by adopting effective regulatory regimes and frameworks aimed at offe...