Case Studies Focus: Western Europe (Steven Jerome)

Understanding the Modern German State: A Macroeconomic Approach

The Welfare State in Germany
Introduction-

Following Second World War, Western Europe helps institute the largest welfare state on the continent. Unemployment benefits were provided to those who could not find work, and more

and more public services and utilities were placed under the onto of the Government. At first, the new economy spearheaded by Elkhart stimulated the nation’s large workforce, pushing it

closer to full-employment than it had ever been. The benefits of course can now be explained by the simple fact that expansionist fiscal policies take less time to yield benefits than foreign

investment spending falls. In the 80s and 90’s, Germany saw this decrease in foreign investment finally start to catch-up. With GDP not increasing as expected, unemployment and inflation

on the rise, Germany is beginning to see the consequences of its poor post-WWII fiscal policies.

Let's Take A Walk:

Thanks to advice from Northside German teacher, Ms. Apel, I began my self-guided field trip at the German Counsulate General in Chicago. The Counsulate had wonderful information on

the progress of the EU, and who I needed to talk to in order to really gain some insight for the project. From there, I explored the good ole Dank Haus in Chicago, where I met some of my

former German teachers who had much insight to give. Frau Paulius described working conditions for me in Western Germany, and Frau Kolter had plenty to say of the condition of the

German economy. All seemed to be critical of the German eocnomy, but hopeful that it could ressurect itself as it had so many times in the past.

Frau Kolter pointed me to some vaulable German magazines, which contained all sorts of information regarding the econmic dowturn in Western Europe. These included Die Spiegel and

FOCUS. The information regarding current events was impressive.

Thanks to google.com for furnishing me with these wonderful photographs and charts concerning modern day Germany.

On the Path to Recovery? (information furnished from en.wikipedia.org)

How is economic recovery progressing?

With the effects of adverse external shocks diminishing, the German economy is currently recovering, ending a couple of years in stagnation on the back of its traditionally strong, competitive

and innovative export-oriented manufacturing sector. However, the economy is far from operating at full strength due to the weakness of final domestic demand. Poor labour market

performance continues to weigh on consumer sentiment and business confidence remains volatile. The labour market suffers from weak growth and distorted incentives, with both

contributing to problems in taking up work and providing employment. Although monetary conditions should remain supportive for GDP growth in the euro area, a persisting German

inflation differential relative to the euro area average would mean that real short-term interest rates risk damping the recovery of demand in Germany to an extent, which may not be

compensated by the corresponding gain in competitiveness. Cyclical weakness and the structural problems of the economy impact strongly on public budgets, while uncertainty about how

public finances will be put on a durably sustainable path is a further factor undermining confidence.

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Reforming the Welfare State

Reforming the Welfare State

Compared to international GDP, Germany's economy has experienced very little growth in the past few years. Government economic controls

such as wage restrictions ensure that Gernmay's massive labor force remains underemployed. In order to deal with this problem, the German government

has generally supported a expansionist fiscal policy, by which the government pours money into the economy in an effort to provide nessecary stimulation.

Unfortunatley, this has not been accompanied with an expantionist monetary policy, and interest rates remain way to high in Germany. In addition with the increase

in domestic govenrment spending, interest rates must fall, and controls on econmic activity must be repealed. there is simply no incentive for foreign governments to invest

in German goods. It imperative that taxes be decreased to stimulate the economy long-term basis. Cutting taxes and privatzing government services

Respoding to the Free Trade efforts of the World Trade Organization (WTO)

Is Reform Possible

The reaction in Germany to any real changes in the welfare system would be an uproar. Germans have a reason to protest this change. The benefits

of structurual impromevent are long term, but there are some major short term drawbacks. Following any persistent economic reform, the immiediate reduction

in benefits would be determimental to the large elderly population in Germany. After approximently 12 months or so, prices and wages would start to fall, and unemployment as

well. The question remains, can Germanyu survive the econmic recession brought on by real change.

German Counsulate

The Interview:

The Following interview was conducted via Goggle Chat, with a young gentleman from Berlin, who currently attends the Schiller Gymnasium. His assistance was critical in the completion of this project.

(Date Conducted: 05/29/06)
The interview was translated to the best of my abilities from German into working English.

Steven Jerome (S.J): Thank you for agreeing to this interview on such short notice.

Christian S. (C.S):  Of course.

S.J- have you lived in Berlin for all of your life?

Christian: No, I was born in Checklovakia, and then migrated to Germany when I was only 6 years old.

S.J: How hard is it for someone of your age to find a job in Berlin right now?

Christian: It can be very difficult. Many people, including some of my family friends are out of work. They are more likely to give the jobs to the older men, then to teenagers. I was only able to find work with the help of my uncle who works in a plant near home.

S.J: Many Americans believe that because Germans are able to receive free medical attention and significant labor benefits, like long vacations

that their high taxes and lower wages are justified. What do you think of that?

things, we cant afford to take it. Germans are receive medical attention for free, but not the best available. It is a horrible system. My parents pay

so much in taxes, and never really see our benefits. It is better in America.

S.J. How would you repari Germany's economy?

Christian: They dont know what it is like over here. My parents get 6 weeks of vacation, but because of the higher prices for gas and

Christian: We need to lower the taxes on the common people, and raise taxes on the rich.

S.J: Are most Germans satisfied with their tax rates?

Christian: The older people are happy because they get so many free benefits witiout payin that much. But we pay these taxes too. And our

money goes to pay for their way of life. High taxes make it hard to find work.

S.J- In America, the cost of a State funded university can exceed $25,000 a year for a student. In Germany, most universities are either

free or very inexpensive. Doesn't this mean that the German government is doing something right for young people?

Christian: America has many more public Universities than Germany does. In Germany, not everyone has access to these schools. Only those who

test very well on ending exams are able to recieve this oppurtunity.

S.J- How would you feel about a cut in federal taxes?

Christian: I would agree to a tax cut. As it is, our small incomes are heavilytaxed, and yet we never see any benefits. I dont want to pay for some old guy's

6-weeks of vacation.

S.J- How has life been for your family in the last couple of years?

Christian:Our family has done alright because my father has a good job, with good wages. If I can do well on the exams, I can attend a University in Berlin. Many

in Germany are not so fortunate.

The Future of the Welfare State:

Sucess in Germany, means economic reforms. Once again the fundemental eonomic infastructure of Germany needs to be reorganized. Acts by the Bundestag to reduce

taxes and privatize government services is nessecary for future sucess.

Researach:

Primary Sources:

1. The German Counsulate in Chicago, Wolfgang Drautz.

2. Christian Frýbovi, The Schiller Gynansium, Belin

3. Ms. Virginia Apel, Northside German Teacher

Secondary Sources

1. en.wikipedia.org/German_Economy- Accessed May 2006.

2. The CIA World Factbook, 2006, Accessed May 2006

3. The German Counsulate Online, germany.info

4. Economic Downturn in Germany, The Economist June 2005

5. Econmic Survey, 2004-Germany, www.oecdorg/document/51/0,2340,en_2649_201185.....

6. German Economy, From the German Culture Insitute, Accessed May 31st, 2006 From Ggermanculture.com

7. The Nazis and the German Economy, Accesssed June 2006, From historylearningsite.com