Germany

Politics:

• Analysis

  Germany politics: Silent no more

  Euroscepticism in Germany: Silent no more

  A new political party is the first to call openly for scrapping the euro

  AS FOUNDER of a new Eurosceptic party, Bernd Lucke, an economics professor, is among the most controversial figures in Germany. The website of his Alternative for Germany party went online this month. Its first gathering is in April, and it has until the summer to collect up to 2,000 signatures in each of Germany's 16 states in order to get on the ballot for the federal election in September.

  Supported by an impressive list of fellow professors, Mr Lucke has three main goals. The most urgent is an "orderly dissolution" of the euro, with a return to national currencies or to new, smaller and more homogenous currency blocks. He wants a decentralised European Union with less bureaucracy and more emphasis on the single market. He favours more direct democracy, with Swiss-style plebiscites.

  In its own mind, the Alternative is classically liberal in philosophy and otherwise pro-European. Mr Lucke argues that the euro, far from being the "peace project" that was intended, nowadays causes strife among Europeans. Cyprus is a case in point. Starting when the "no-bail-out clause" in the EU treaties was first ignored in 2010, successive euro rescues have in his view broken rules and undermined the single currency beyond repair.

  Anywhere else such a voice might count as just another in the political spectrum. Not so in Germany, where any form of Euroscepticism remains taboo. The German media, ever vigilant against creeping populism or right-wing extremism, are now applying a magnifying glass to the party's supporter lists. That is "grotesque," snaps Hans-Olaf Henkel, a former head of Germany's main industry association, who supports the Alternative.

  "We are not fishing on the left or right," insists Frauke Petry, a member of the party's board. Membership applications are being screened to ferret out potential extremists, even though this slows down the party's growth. Around 4,000 people have become members since March 7th. They are coming from across the political spectrum, says Mrs Petry.

  Even if the Alternative qualifies in time, hardly anybody expects it to reach the 5% needed to enter the Bundestag. But the election looks increasingly likely to be a tight race between the centre-right coalition of Chancellor Angela Merkel and the centre-left opposition. Since the Alternative appeals most directly to disillusioned voters on the centre-right, its mere appearance on ballots could prove to be "incredibly dangerous for Mrs Merkel," says Mr Henkel. He points to a state election in Lower Saxony in January, where Mr Lucke ran as a candidate for another mildly Eurosceptic party, the Free Voters, which got barely over 1%. In a race that hinged on a few hundred votes, this mattered.

  It would be undemocratic to obstruct a new party because of such tactical considerations, says Michael Wohlgemuth, the director of Open Europe Berlin, a Eurosceptic think tank. A large minority of Germans--one in four, according to one recent poll--are unsupportive of the euro. So far, Mrs Merkel has presented rescue efforts as "alternative-less." Sooner or later, something called an Alternative for Germany was bound to come along.

  March 23, 2013

• Background

  Germany: Political forces at a glance

  Political outlook: Political forces at a glance

  Germany is a federal democracy, with major powers delegated to the 16 states (Länder). The current coalition of the Christian Democratic Union (CDU), its sister organisation, the Christian Social Union (CSU), and the Free Democratic Party (FDP), under the chancellorship of Angela Merkel (CDU), was formed after the last general election in September 2009. The bicameral parliament comprises the Bundestag (lower house), whose members are elected on a system of modified proportional representation, and the Bundesrat (upper house), which consists of representatives of the 16 state governments. The coalition has a majority in the lower house, but not in the Bundesrat.

  Bundestag election results
  	% share of vote						No. of seats
  	1990	1994	1998	2002	2005	2009	2009
  Christian Democratic Union (CDU)/Christian Social Union (CSU)	43.8	41.4	35.1	38.5	35.2	33.8	239
  Social Democratic Party (SPD)	33.5	36.4	40.9	38.5	34.2	23.0	146
  Free Democratic Party (FDP)	11.0	6.9	6.2	7.4	9.8	14.6	93
  Left Partya	2.5	4.4	5.1	4.0	8.7	11.9	76
  Greens/Alliance 90	3.8	7.3	6.7	8.6	8.1	10.7	68
  Others	5.4	3.6	6.0	3.0	4.0	6.0	0
  Total	100.0	100.0	100.0	100.0	100.0	100.0	622
  a Before the 2005 election, the Party of Democratic Socialist (PDS) merged with a new group, the Election Alliance for Jobs and Social Justice (WASG). The joint party was named the Left Party. Before 2005 the results relate to the PDS alone.
  Sources: Federal Election Officer; Bundestag website.

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  Next elections: The general election is scheduled for September 2013.

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  July 20, 2012

• Structure

  Germany: Political structure

  Official name

  Bundesrepublik Deutschland (Federal Republic of Germany)

  Legal system

  Based on the Grundgesetz (Basic Law) of 1949

  Unification

  The states (Länder) of the former German Democratic Republic (East Germany) acceded to the Federal Republic on October 3rd 1990

  National legislature

  Bicameral parliament. Bundestag (lower house) currently with 613 members (298 directly elected from individual constituencies; 315 elected through party lists in each state, so as to obtain proportional representation). Parties must win at least 5% of the national vote, or three constituency seats, to gain representation. The Bundesrat (upper house) consists of members nominated by the 16 state governments. Regional election defeats in 2011 mean that the governing coalition has a minority in the Bundesrat and must therefore compromise with the opposition on laws that require ratification

  National elections

  September 27th 2009 (Bundestag); the next election must take place by October 2013

  Head of state

  Federal president, elected for a maximum of two five-year terms by the Federal Assembly, consisting of members of the Bundestag and representatives of the state legislatures. Joachim Gauck was elected on March 18th 2012

  State legislature

  Each state has an elected legislature. State governments and parliaments have considerable responsibilities, including education and policing

  National government

  The federal government is led by the chancellor, who is elected by the Bundestag on the nomination of the federal president. The present government, a coalition of the CDU/CSU and FDP, was formed in October 2009 and is headed by the CDU leader, Angela Merkel

  Main political parties

  Christian Democratic Union (CDU); its sister party, the Christian Social Union (CSU); Free Democratic Party (FDP); Social Democratic Party (SPD); Alliance 90/The Greens; Left Party

  Chancellor: Angela Merkel (CDU)

  Vice-chancellor & economics & technology: Philipp Rösler (FDP)

  Key ministers

  Defence: Thomas de Maizière (CDU)

  Economic co-operation & development: Dirk Niebel (FDP)

  Education & research: Annette Schavan (CDU)

  Environment, nature conservation & nuclear safety: Peter Altmaier (CDU)

  Family affairs, senior citizens, women & youth: Kristina Schröder (CDU)

  Finance: Wolfgang Schäuble (CDU)

  Food, agriculture & consumer protection: Ilse Aigner (CSU)

  Foreign affairs: Guido Westerwelle (FDP)

  Health: Daniel Bahr (FDP)

  Interior: Hans Peter Friedrich (CSU)

  Justice: Sabine Leutheusser-Schnarrenberger (FDP)

  Labour & social affairs: Ursula von der Leyen (CDU)

  Transport, building & urban affairs: Peter Ramsauer (CSU)

  President of the central bank

  Jens Weidmann

  January 01, 2013

• Outlook

  Germany: Key developments

  Outlook for 2013-17

  • The protracted euro zone crisis will present the main risk to political, economic and financial stability. As the region's dominant creditor, Germany will have to pursue domestically unpopular policies to preserve the currency union.
  • The German-led crisis response-and its focus on fiscal discipline-could fail to maintain the euro zone in its current form, as austerity measures demanded by Germany in the periphery may prove politically too difficult to implement.
  • The Economist Intelligence Unit expects continued tension in the Christian Democratic Union (CDU)/Christian Social Union (CSU)-Free Democratic Party (FDP) coalition, but that the government will last its term to September 2013.
  • The Greens, and possibly the Pirate Party, are likely to hold the balance of power in the next parliament. The CDU should win the election ahead of the Social Democratic Party (SPD), but coalition formation could be tricky.
  • Polls suggest another CDU/CSU-SPD grand coalition is the preferred outcome for a majority of voters. The Greens could side with either of the main parties.
  • We expect the European Central Bank (ECB) to cut its policy rate to 0.5% in early 2013. Pressure for unconventional ECB intervention will persist.
  • Domestic economic policy will focus on fiscal consolidation, legislative reform to strengthen the banking system and some pre-election sweeteners.
  • The economy will contract in late 2012, but improving sentiment should lead to a rebound in early 2013. After estimated growth of 0.9% in 2012, we forecast real GDP to rise by 0.8% in 2013, and thereafter by an average of 1.4% in 2014-17.

  Review

  • The CDU confirmed the chancellor, Angela Merkel, as its party leader, while the main opposition SPD officially nominated Peer Steinbrück as its candidate to run against her at the September 2013 general election.
  • In late November the Bundestag (the lower house) approved by a wide margin another bail-out package for Greece, designed to reduce its public debt burden and allow the disbursement of the next tranche of official loans.
  • In mid-December euro zone finance ministers reached agreement on creating a single supervisor for the European banking system. From 2014, the ECB will assume responsibility for regulating at least 150 of the region's largest banks.
  • The German government took a supportive but cautious position, standing firm over its demands related to the timing and coverage of the new regulator.
  • Industrial output slumped in October, but sentiment and new orders data have since improved on the back of stronger non-EU export demand. Unemployment continued to edge higher in November, while inflation eased below 2%.

  January 01, 2013

Economy:

• Background

  Germany: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	81.7	Population growth	-0.2
  GDP (US$ bn; market exchange rate)	3,608.1b	Real GDP growth	1.2
  GDP (US$ bn; purchasing power parity)	3,232.7	Real domestic demand growth	1.1
  GDP per head (US$; market exchange rate)	44,179	Inflation	1.8
  GDP per head (US$; purchasing power parity)	39,581	Current-account balance (% of GDP)	6.3
  Exchange rate (av) €:US$	0.72b	FDI inflows (% of GDP)	1.2
  a Economist Intelligence Unit estimates. b Actual.

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  Background: The modern German state was founded in 1870. After the second world war (1939-45), Germany was divided into two parts: a liberal parliamentary democracy in the west and a totalitarian communist regime in the east. Germany was reunified on October 3rd 1990 after the end of the Soviet Union's hegemony in central and eastern Europe.

  Political structure: Germany is a federation of 16 states or Länder, all of which have their own constitutions, governments and parliaments. The states are primarily responsible for policing and education. The federal parliament comprises a directly elected lower house (Bundestag) and an upper house (Bundesrat) of representatives of the state governments. Although the incumbent government has a majority in the Bundestag, it does not have one in the Bundesrat. The federal chancellor, the head of the executive, is elected by the Bundestag and can only be brought down by the election of a successor. The centre-right coalition of the Christian Democratic Union (CDU), its sister party, the Christian Social Union (CSU), and the Free Democratic Party (FDP) formed in October 2009. The next federal election is due in September 2013.

  Policy issues: The German government's agenda will be dominated by the euro crisis. German leadership will be crucial to resolving the crisis, but the government will have to overcome not only growing resistance among the electorate to putting ever more German taxpayer funds at risk, but also increasing acrimony among euro countries over the crisis strategy being adopted. The government has two broad domestic priorities. The first is to bring the fiscal deficit close to balance over four years, while continuing to provide good public services. The second is to restore the financial sector to health, over a period in which there is a significant risk of renewed losses. German banks are highly leveraged and have significant exposure to peripheral euro zone debt. The government also aims to raise the effective retirement age and increase female participation. A gradual phase-out of nuclear energy production in Germany is scheduled over the next decade.

  Taxation: The federal corporation tax rate was cut from 25% to 15% in 2008. The effective corporate tax rate, including a municipal trade tax and a solidarity tax, is about 30-33%. The top marginal personal income tax rate is 45%. Social security contributions are shared equally between employers and employees. The main value-added tax (VAT) rate is 19%.

  Foreign trade: Exports fell from US$1.50trn in 2008 to US$1.17trn in 2009, but recovered to US$1.55trn in 2011. After edging below US$1trn in 2009, imports rose to US$1.33trn in 2011. The current-account surplus was US$204.3bn (5.7% of GDP) in 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	47.1	Machinery & transport equipment	33.3
  Chemicals & related products	15.0	Mineral fuels, lubricants & related materials	13.4
  Food, drinks & tobacco	5.1	Chemicals & related products	12.7
  Mineral fuels, lubricants & related materials	2.5	Food, drinks & tobacco	6.6
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  France	9.6	Netherlands	13.8
  Netherlands	6.6	France	7.6
  UK	6.2	China	7.0
  Italy	5.9	Belgium	6.3
  Austria	5.5	Italy	5.4

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  January 01, 2013

• Structure

  Germany: Economic structure

  Data and charts: Annual trends charts

  
  

  

  January 01, 2013

• Outlook

  Germany: Country outlook

  Germany: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The governing coalition of the Christian Democratic Union (CDU), its sister party in Bavaria, the Christian Social Union (CSU), and the Free Democratic Party (FDP) has weathered defeats in regional elections--the latest in Lower Saxony in mid-January--and persistent internal difficulties. Yet, whereas the FDP's national approval ratings fluctuate around the 5% threshold required for parliamentary representation, the CDU/CSU has strengthened its already solid support base, underpinned by popular backing for the CDU chancellor, Angela Merkel, which in large part reflects her cautious strategy on the euro crisis. The Economist Intelligence Unit expects the government to remain in office until the general election on September 22nd 2013. The final outcome is uncertain, although Ms Merkel appears well placed to remain as chancellor, ensuring a considerable degree of political stability going forward.

  ELECTION WATCH: There is one regional election, in the state of Bavaria in mid-September, before the next federal election on September 22nd. Despite disappointing results in recent state contests, the CDU holds a healthy lead of 9-12 percentage points over the main opposition SPD in national polls (their respective support stands at about 40% to 29%). The main obstacle to a third term for Ms Merkel is the weakness of the FDP, which remains at risk of falling short of the 5% threshold for parliamentary representation, as do both the Pirate Party (support for which has fallen steadily since mid-2012) and the Left Party. The CDU would prefer to remain in office alongside the FDP, but other options are likely to be available to Ms Merkel. The six-party system implies many post-election coalition scenarios (assuming that all exceed the 5% threshold), although it is the Greens (on 12-14%) that could hold the balance of power after the vote.

  INTERNATIONAL RELATIONS: The government's gradualist policy stance on Europe remains firm: any acceptance of significant risk-sharing by Germany via the pooling of euro zone liabilities (sovereign and banking) can occur only once far-reaching steps towards much deeper fiscal and political union, and financial oversight, have been agreed by member states and legitimised by democratising EU institutions. In theory, this seems a reasonable position, given the scale of implied burden-sharing. However, it is arguable how realistic a stance it is in practice. Such profound reforms would require significant policy harmonisation and clear ceding of national sovereignty, both of which would be highly contentious for voters and politicians in Germany and across Europe. The difficulty in reaching an agreement among 17 disparate countries on such controversial matters, amid protracted economic weakness, implies at best only gradual progress towards a credible resolution. Even incremental steps on reform of euro zone institutions are unlikely ahead of the September federal election. Beyond the rhetoric, there is little to differentiate the main political parties on their approach to euro crisis management, implying no major changes whatever the election outcome. Much like his party, the SPD chancellor-candidate, Mr Steinbrück, is more pro-European than Ms Merkel, but at no time has he sought to present an alternative model for Europe to voters.

  POLICY TRENDS: The second objective is to restore the financial sector to health, at a time when the risk of renewed losses remains significant. Regulatory reform is under way: a key element is legislation to strengthen the framework to deal with insolvency of systemically important banks. This includes a levy on bank balance sheets to finance a EUR70bn fund to support the sector in future crises. Cross-party support exists for a financial transactions tax, but implementation will not be easy. The weakness of Germany's banking sector will remain a concern, given its high leverage, low profitability, dependence on wholesale funding and exposure to euro zone debt. An SPD/Greens government would probably push for stricter banking regulation. Modest progress will be made in liberalising the services sector, many areas of which retain protective regulation. A long-term objective is to phase out nuclear power production by 2022. Along with increased electricity production from natural gas, this necessitates a further shift to renewable energy.

  ECONOMIC GROWTH: Germany's economy remains more resilient than the rest of the euro zone, but activity weakened steadily during 2012, notably in the large industrial sector. Real GDP contracted by a quarterly 0.6% in the final three months of the year in response to still subdued private-sector confidence and a temporary slump in export demand. The economy expanded by 0.9% (working-day adjusted) in 2012 as a whole, down from growth of 3.1% in 2011. We expect a moderate rebound in activity in early 2013, with recent business surveys and new orders data pointing to an improvement in sentiment on the back of stronger non-EU export demand. But underlying trends, both in Germany and abroad, will remain fairly subdued. We forecast another year of modest expansion in 2013, of 0.7%, and average annual growth of 1.4% in 2014-17. Risks appear broadly balanced. The threat of further escalation in financial tension related to the euro zone should not be underestimated, given the weakness of economic activity and high unemployment across much of the region. But on a more positive note, wider financial market sentiment has improved and there are reasonable prospects for a moderate pick-up in US and most emerging-market growth during 2013.

  INFLATION: From 2.5% in 2011, annual inflation (EU harmonised measure) eased back gradually during the first half of 2012 and then stabilised, averaging 2.1% over the year as a whole. Based on market fundamentals, we assume a moderate softening of commodity prices in 2013, leading to a fairly subdued inflation trend, given favourable base effects. Nominal wage growth accelerated in 2012 on the back of a robust labour market, but a period of weaker economic activity and the uncertain outlook will constrain inflationary pressure. Average annual inflation is estimated at 1.8% in 2013 and 2% in 2014-17.

  EXCHANGE RATES: Although not our central forecast, there is a substantial risk that several countries will be forced to leave the euro over the medium term. Such fears partly explain the volatility of the single currency during 2012, when the euro fluctuated in a range between US$1.20:EUR1 and US$1.35:EUR1. Since September 2012 the promise of determined ECB action to safeguard the currency zone has helped to stabilise financial markets to a degree, and improved investor sentiment has underpinned a strengthening of the euro against the dollar. However, the euro will remain volatile in response to shifting risk appetite, protracted economic weakness and lower reserves accumulation by China. We expect it to average US$1.33:EUR1 in 2013 and US$1.28:EUR1 in 2014-17, but there is a significant risk of sharp movements either way.

  EXTERNAL SECTOR: The large current-account surplus narrowed from a peak of 7.5% of GDP in 2007 to 5.7% of GDP in 2011, but then widened to an estimated 6.3% of GDP in 2012 on the back of resilient export demand from outside the EU (particularly in the first half of the year). We expect the surplus to decline gradually from 2013, initially in response to more subdued export demand but also because of a partial shift to domestic demand-led output growth.

  March 01, 2013

• Forecast

  Germany: Country forecast summary

  Country forecast overview: Highlights

  • The euro zone crisis represents a serious risk to the economy and a major political challenge to the government. As the region's principal creditor, Germany will have to pursue domestically unpopular policies to preserve the currency union. There is still a broad cross-party pro-European stance, but decisions on euro crisis management are becoming increasingly problematic for the German government. Its negotiating position at EU level is constrained by the growing unpopularity of bail-outs in Germany and the aversion of much domestic public opinion to using the European Central Bank (ECB) balance sheet to backstop sovereign and bank balance sheets.
  • The government's policy stance remains clear: any acceptance of significant risk-sharing by Germany via the pooling of euro zone liabilities (sovereign and banking) can occur only once far-reaching steps towards fiscal and political union have been agreed and legitimised by democratising EU institutions. But the implied ceding of national sovereignty raises questions as to how realistic a goal this is in practice. Market sentiment has recently stabilised to a degree, but the problem of overindebtedness in a growing number of member states—and related demands for austerity—will deepen over time without a step-change in euro zone policy, raising the prospect of deepening discontent across the region. Germany's interests, and thus its policy approach, are however expected to stay aligned with the euro.
  • The coalition of the Christian Democratic Union/Christian Social Union (CDU/CSU) and the Free Democratic Party (FDP) has a mandate in the Bundestag (the lower house) to September 2013. Relations will remain strained in the run-up to the election, but an early poll would be a gamble for either party.
  • The balance of power after the election is likely to lie with the left-leaning Greens and possibly the pro-Internet freedom Pirate Party, although support for the latter has fallen back. The CDU, led by Angela Merkel, should win the election, but a prospective six-party system could complicate coalition formation. Another CDU/CSU-Social Democratic Party (SPD) coalition is possible, as is a CDU/CSU-Greens or SPD-Greens government, and an unprecedented three-party coalition.
  • Although it compares favourably with the rest of the euro zone, the German economy probably contracted in late 2012. We expect a quick rebound, but GDP growth will remain subdued in 2013. Fairly modest external demand, continued euro zone tensions and resilient commodity prices will constrain activity, with output forecast to expand by 0.8%. Growth is projected to accelerate gradually to average 1.4% per year in 2014-17, with inflation around 2%.

  

  January 01, 2013

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Country Briefing

Land area

356,970 sq km, of which 55% is agricultural land and 29% forest

Population

81.7m (2011 estimate)

Main cities

Population in '000 (2008)

Berlin (capital): 3,432

Hamburg: 1,772

Munich (München): 1,327

Cologne (Köln): 995

Frankfurt am Main: 665

Stuttgart: 600

Climate

Temperate

Weather in Frankfurt (altitude 125 metres)

Hottest month, July, 15-20°C (average daily minimum and maximum); coldest month, January, minus 1-3°C; driest month, February, 40 mm (average monthly rainfall); wettest month, June, 70 mm

Language

German

Weights and measures

Metric system

Currency

Euro (EUR = 100 cents); average exchange rate in 2011: US$1.39:EUR1

Time

1 hour ahead of GMT in winter, 2 hours ahead in summer

Fiscal year

January-December

Public holidays

January 1st, Good Friday, Easter Monday, May 1st, Ascension Day, Whit Monday, Corpus Christi, October 3rd (Reunification Day), December 25th and 26th; additional public holidays apply for various states

January 01, 2013