V.

Economy

When Germany became a nation in 1871, it was a latecomer in the race toward industrialization (see Industrial Revolution), which was then dominated by the United Kingdom and France. Unification under Chancellor Otto von Bismarck resulted in a boom that made Germany an industrial leader by 1910. Germany’s economic development was based on an alliance of industrial business leaders with the Prussian aristocracy, who controlled much of the land. It emphasized the production of coal and steel, machines and machine tools, chemicals, electronic equipment, ships, and later, motor vehicles. Well-organized business, labor, and farm associations in league with the government produced a distinctive “organized capitalism,” different from the less regulated forms of capitalism in Britain and the United States. Germany’s strong economy carried it into two world wars in the 20th century. Despite heavy Allied bombing against German targets that helped end World War II in 1945, Germany’s industrial base survived largely intact.

After World War II Western powers saw the need to strengthen European economies to resist the threat of Soviet expansion and the encroachment of Communism. To this end, the U.S. government in 1947 initiated the European Recovery Program, commonly called the Marshall Plan, which offered generous investment loans to all European countries devastated by the war. Under the stewardship of economics minister Ludwig Erhard, the Marshall Plan helped launch a 20-year economic expansion in West Germany that raised living standards and industrial production far above prewar levels. This recovery is often described as West Germany’s “economic miracle.”

East Germany did not participate in the Marshall Plan and instead constructed a communist economic system, in which central planning by a state commission set all wages and prices. Most private industries and farms were turned into state or cooperative enterprises. East Germany became one of the most industrialized and prosperous Communist countries.

However, after German unification in 1990, the enormous differences between the West and East German economic systems brought East Germany to the brink of collapse. Many East German workers abandoned their jobs for better opportunities in the West, and East German consumers spurned their own products for Western goods. To make matters worse, the overvalued East German currency, the ostmark, was exchanged one-to-one for the West German deutsche mark (DM), whose street value was actually seven to ten times higher. This exchange plunged struggling East German enterprises into the highly competitive West German and international markets without protection. The East German enterprises now had to pay their debts and payrolls in higher-value DM while at the same time losing market share to the superior West German products that were becoming widely available. A wide range of West German goods became available on East German shelves. The Eastern European markets for East German exports disappeared, since many of these countries could not afford to pay in DM for East German goods previously attained by bartering their own products. Many East German enterprises failed. New private and public investments, most of them from the former West Germany, have since flowed into the former East Germany as its economy was restructured and privatized.

Numerous difficulties have marked Germany’s economic development since unification. Following unification, Germany began to pour tens of billions of dollars annually into the infrastructure of former East Germany. These immense financial transfers are expected to continue into the second decade of the 21st century. In just the first seven years after unification, this involved an amount equivalent (in real, uninflated value) to 70 times the Marshall Plan aid to West Germany.

Convergence between the two economies has slowed since the mid-1990s, and Germany as a whole has experienced relatively low rates of annual growth—especially following the painful economic downturn in 2002 and 2003. The unemployment rate in the former East Germany remains double that in the west. Worker productivity in the east still lags far behind that in the west, and many skilled workers in the east continue to move westward seeking better-paying jobs. In addition, the east remains dependent on large financial transfers from the west for economic development and social welfare assistance.

Since the early 1990s, these structural economic problems have weakened the German economy—an economy long regarded as the economic powerhouse of Europe. Nevertheless, with its large and modern industrial base, Germany’s economy remains the largest in the European Union (EU). Germany uses the EU’s common currency, the euro, and more than one-half of German exports and imports are with other EU countries.

A.

Labor

In the past, West Germany had very low unemployment, and East Germany had full employment under its communist system. In the early 1990s, however, unemployment in Germany increased. This increase was due to a number of problems, including industrial restructuring in former East Germany, declines in export orders brought about by recession in other countries, and monetary policies designed to curb inflation. In early 1997 unemployment hit a postwar high of 12.2 percent, with more than 4 million Germans out of work. In the west, the level was more than 9 percent, while eastern Germany’s rate was about 17 percent. Among the reasons for the sluggishness in job creation were the high wage rate common in Germany and the strong trade unions, which seek to protect existing wages and jobs. Unemployment remains high in Germany with a national rate of 9.8 percent in 2004.

Germany has a history of strong labor unions (see Labor Union). The first German unions were founded in 1868 and grew into a mighty political and economic force until the Third Reich took over all labor organization in 1933. After 1945 the unions came back with redoubled force in the West under the German Trade Union Federation (DGB). In 1949 the DGB had 4.8 million members in 16 industrial federations and 101 unions. By 1989, on the eve of unification, there were 7.9 million DGB members. German unification briefly raised this figure by 50 percent before the number of members finally settled at about 9 million. The federations ranged from the powerful metalworkers and autoworkers to the leather workers. Other important DGB federations were the Public Service Union and the Chemical, Paper, and Ceramics Workers. Major labor unions outside the DGB included the White Collar Employees, the Civil Service Union, and the Christian Workers Union.

East Germany meanwhile had organized the state-controlled Free German Trade Union Federation (FDGB). At its peak, the FDGB claimed a membership of 9.6 million, including pensioners, students, production workers, office employees, intellectuals, and professionals. The FDGB collapsed at the time of unification, and DGB organizers from the west moved in and offered East German workers their support during the transition to a market economy, which included waves of dismissals, reduced hours, and early retirements. The DGB conducted a series of strikes for higher wages and better working conditions for East German workers, beginning with large strikes of metalworkers and public employees in 1992 and 1993. However, with the dismantling of some of the largest East German industrial conglomerates and agricultural collectives, whole regions became depressed areas of high unemployment, especially in the north and northeast.

B.

Manufacturing and Industry

Manufacturing and industry have long been central to German economic development, although recent global and European trends are forcing changes upon the German economy. Industry helped the country recover economically from World War II and from the unification of East and West Germany. Although the economy has gradually moved in the direction of services, manufacturing and industry are still important in the country and accounted for 29.7 percent of the gross domestic product (GDP) in 2005. Germany is a leading producer of such products as iron and steel, cement, chemical products, electronics, food and beverages, machinery and machine tools, and motor vehicles.

Large-scale manufacturing enterprises are concentrated in several areas. The most important industrial area encompasses the state of North Rhine-Westphalia, which includes the steel-producing Ruhr region. The Ruhr region is one of the most intensely developed industrial areas in the world, and a large majority of Germany’s iron, steel, and bituminous coal comes from this area. Its early and intense development also make this region the equivalent of a rustbelt area in the United States, where traditional manufacturing is in decline and unemployment is high. The area around the confluence of the Rhine and Main rivers forms another major industrial region, comprising the cities of Frankfurt am Main, Wiesbaden, Mainz, and Offenbach. They produce metals, electronic equipment, pharmaceuticals, chemicals, and motor vehicles. To the south, Stuttgart and Munich are also manufacturing hubs. Their products include aircraft, textiles and clothing, office machinery, optical instruments, and beer. Berlin, the Hannover-Brunswick area, and the port cities of Hamburg, Bremen, Kiel, and Wilhelmshaven are other important industrial centers.

Since unification, industry in the former East Germany has suffered from a number of problems stemming from the long years when it was protected from international competition. Some industries—such as chemicals and plastics, shipbuilding, textiles, and motor vehicles—lost their markets to superior or less expensive products made in western Germany or abroad. Inefficient manufacturing processes in the east made it necessary to cut the industrial work force in half, leading to mass unemployment. After unification, Germany broke up most large eastern corporations and transferred them from state ownership into private hands. Some enterprises were taken over by their own managers; most were bought in bits and pieces by West German or foreign investors. By the late 1990s, former East Germany was well on its way in moving from a manufacturing economy toward a predominantly service-oriented economy.

C.

Mining

Mining plays a small role in the modern German economy. Several minerals, however, are produced in sizable quantities. Hard coal deposits are mined in the Ruhr area and the Saarland. Brown coal, also known as lignite, is mined in the foothills of the Harz Mountains; near Cologne; in southeastern Brandenburg; and in central Germany. Before 1990 brown coal satisfied about three-fifths of East Germany’s energy needs, but caused massive environmental problems. Since unification, East German brown coal extraction has declined dramatically. The federal government shut down the least productive East German mines and covered open strip mines with vegetation. However, brown coal continues to supply about one-third of the electricity needs of Germany. In addition, nuclear energy and hard coal, which burns more cleanly than brown coal, are gaining in importance. The German government subsidizes both the hard coal and brown coal industries.

Iron ore production had declined in West Germany by the mid-1980s because it could be imported more inexpensively than producing it locally. Germany’s potash salts industry ranks as one of the largest exporters of potash-based fertilizers in the world. The deposits are located mostly in Thüringen in central Germany. Four-fifths of the potash is exported. Thüringen also has significant deposits of copper.

D.

Farming

Farming is of limited importance to Germany’s economy. Together with forestry and fishing, farming accounts for about 10 percent of the GDP in the former East Germany as compared to 1 percent in the country as a whole. Only 2 percent of the labor force is involved in these sectors. Germany imports about one-third of its food. The nation’s principal crops are wheat, potatoes, sugar beets, and barley. The fruit industry is also significant, producing apples and grapes, some of which are used to make Germany’s famous wines. In addition, farmers raise livestock, including hogs, cattle, sheep, and poultry.

Since 1950 the numbers of farms and farmers have dropped dramatically. Most farms are quite small—only 2 percent are larger than 100 hectares (about 250 acres). The smaller farms, located mostly in the west, are often owned and operated by families who also work other jobs.

In East Germany, a drive for agricultural collectivization in the 1950s eliminated small and medium-sized farms and expropriated large landholdings. The Communist government considered farming to be no different from industrial production. Consequently, it strove for large-scale mechanization of its large cooperatives and state farms. All farmers were forced into production cooperatives whose number gradually shrank over the years.

German unification demonstrated the economic superiority of well-managed small and medium-sized farms in the West over the collective and cooperative giant farms of East Germany. The latter proved inadequate to the tasks of marketing and meeting refined consumer demands, and they generated a great deal of air and water pollution. They also failed to inspire desire in their cooperative farmers to take back and maintain their own original farm properties once the collectives were broken up.

E.

Forestry and Fishing

Environmental management and conservation have played increasingly important roles in German forestry and fishing. Forests cover 32 percent of German territory, much of it mountainous. Only 34 percent is cultivated. The forests sustain timber production and wood products, such as furniture, construction materials, and toys. The harvesting of timber, however, has always had to be supplemented with imports.

The law requires forest owners to maintain their forestland consistently and to replant harvested and thinned-out areas. Public concern with the depletion of this resource led to the enactment of the Forest Preservation and Promotion Act of 1975 and to the progressive withdrawal of forestland from commercial exploitation. Since the early 1980s, increasing industrial pollution and automobile emissions have been blamed for a tree blight that has already affected half of the nation’s forests, causing leaves and needles to drop and slowing tree growth. This damage was discovered, on unification, to be particularly high in the forests of the former East Germany, since the Communist government had made no effort to monitor environmental damage.

Germans consider their woodlands and forests important recreation areas, especially near cities, where they are regarded as the ideal antidote for the stresses and pollution of urban life. The states with the largest forests are Bavaria, Baden-Württemberg, Hessen, and Rhineland Palatinate (Rheinland-Pfalz), but there are also densely forested areas in the northeast and in the south of former East Germany.

The fishing industry of West Germany declined beginning in the 1970s, reflecting the expansion of other countries’ territorial fishing zones and the depletion of fish stocks in the remaining open waters. By comparison, the collectivized East German fisheries suffered smaller losses and built up a large fleet for use in the North Atlantic and the Baltic. Unification, however, brought major problems to East Germany’s outdated and inefficient fishing fleets and equipment. Rostock, the chief East German fishing port, has high unemployment as do several other German fishing ports along the North Sea and Baltic coasts.

Germany’s annual catch includes marine fish such as Atlantic herring, blue mussel, Atlantic mackerel, cod, and varieties of flatfish. Domestic fish production, especially of carp and trout, has dramatically increased by raising the fish in ponds and by systematic fish management on rivers and lakes.

F.

Energy

German industrial development in the 19th century was fueled by coal. The use of coal declined in the 1970s and 1980s. However, East German brown coal (lignite) remained important into the early 21st century for electricity production and as fuel, despite being a major source of air pollution. Petroleum and hydroelectric power (see Waterpower) were only a small source of public electricity production, but were major energy sources for heating and manufacturing processes.

German dependence on petroleum imports, the oil crisis of the 1970s, and an expanding appetite for more energy shifted attention to the potential of nuclear energy. By the mid-1980s, 19 nuclear plants were supplying 36 percent of the public electricity needs in West Germany, and more plants were in the planning stage. Following the Chernobyl’ nuclear disaster in 1986, however, massive environmental protests stiffened public resistance to nuclear energy (see Chernobyl’ Accident). Further construction of nuclear power facilities was halted for fear of accidents and lawsuits and because of the difficulties of disposing of the radioactive waste. Instead, West Germany embarked on a program of energy savings, including increasing the efficiency of automobile engines and heating plants. Alternative and renewable sources of energy, such as wind, solar, and geothermal energy, have also been developed, but there is little hope that they could ever supply a major part of Germany’s huge needs.

Nuclear plants still provide 28.13 percent of the nation’s electricity. While many reactors in Germany were shut down, there were 17 plants that continued to function in 2006. The considerable uranium deposits in Saxony and Thüringen, which had been strip-mined (see Mining) and left open to the elements under the East German government, were sealed up. A government-owned company, Wismut GmbH, worked to complete the environmental cleanup. The Federal Ministry of Environmental Protection, along with other Western nations, has raised funds to assist Eastern European countries with measures to shut down or replace all Chernobyl’-type reactors.

G.

Currency and Banking

The monetary unit of Germany is the single currency of the European Union (EU), the euro. Germany is among 12 EU member states to adopt the euro. The euro was introduced in January 1999 for electronic transfers and accounting purposes only, and Germany’s national currency, the deutsche mark, or DM, was used for other purposes. On January 1, 2002, euro-denominated coins and bills went into circulation, and the deutsche mark ceased to be legal tender.

As a participant in the single currency, Germany must follow economic policies established by the European Central Bank (ECB). The ECB is located in Frankfurt, Germany, and is responsible for all EU monetary policies, which include setting interest rates and regulating the money supply. On January 1, 1999, control over German monetary policy was transferred from the central bank of Germany, the Bundesbank, to the ECB.

Germany’s financial institutions include hundreds of lending banks and savings banks, thousands of larger credit cooperatives, and dozens of mortgage institutions and banks. Securities are traded at the Frankfurt Stock Exchange. The German capital market is characterized by a large share of fixed-interest securities, in particular local government and real estate bonds.

H.

Foreign Trade

Germany is a major trading nation and one of the export leaders of the world, in close competition with Japan and the much larger United States. Germany’s main trading partners are countries in Europe, such as France, the United Kingdom, The Netherlands, and Italy, and the United States.

I.

Transportation

Germany has a highly developed transportation system including a limited-access superhighway known as the autobahn. There is no speed limit on the autobahns, but frequent construction projects and congestion keep the speed down. Since East German roads had not been upgraded and expanded much since the 1930s and the volume of motor vehicles on them rose greatly after unification, a large part of the funds transferred from the West have gone to expand the German highway system.

The country’s extensive passenger and freight rail system played a major role in German economic development. Most of the railroads were government-owned until 1993, when legislation was approved to privatize them. They are now under private ownership as Bundesbahn A.G. High-speed intercity lines serve major German cities such as Hamburg and Munich, Frankfurt and Dresden, and Hannover and Bremen.

Germany has major navigable inland waterways and canals. The canals, such as the Mittellandkanal, supplement the traffic routes of the major rivers; some canals, such as the Kiel Canal and the Rhine-Main-Danube Canal, connect major bodies of water. Duisburg, Magdeburg, Mannheim, and Berlin are large inland ports, and Hamburg, Bremen, Bremerhaven, Emden, Lübeck, Rostock, and Stralsund are major seaports. An extensive underground pipeline system conveys petroleum products.

Air transportation of passengers and goods is served by several international airports, including Frankfurt and Munich, and many regional airports. There are hundreds of airports, including 13 major ones. Germany’s principal airline, Deutsche Lufthansa A.G., was formerly operated by the government but is now privately owned.

J.

Communications

The German Basic Law, or constitution, guarantees the freedom of the press. Germany has high newspaper readership and a well-informed population. Major daily publications include the Frankfurter Allgemeine Zeitung, Süddeutsche Zeitung, Die Welt, and the Berlin Tagesspiegel. Der Spiegel and Die Zeit are weeklies with national circulation. Bild is a mass-circulation tabloid. Party-owned and government-run publications in the former East Germany were privatized after 1989.

Germany’s competitive television market is the largest in Europe. Numerous commercial broadcasters compete with public broadcasters for national and regional audiences. Each of Germany’s 16 regions regulates its own broadcasting services and provides local public television and radio services. Nearly all German homes have access to cable or satellite television, and the German government has actively promoted the development of digital television and radio services.

The German telephone system is modern, automatic, and also nearly universal. The system relies on satellites, cable, and microwave radio relay (MRR) networks. Before unification, this state of development did not apply to East Germany, where only the government and the secret police had efficient communications at their disposal. Since 1990, however, massive Western transfer payments have given eastern Germany a highly advanced communications system, although the distribution of private telephones has not yet caught up with standards in the former West Germany.

Deutsche Post AG, a formerly state-owned business that was privatized in 2000, is Germany’s largest postal carrier; in 2002 the company received a license to deliver mail in the United Kingdom, ending the long-held monopoly of Britain’s publicly owned Royal Mail. Deutsche Telekom AG, a privately held corporation since 1996, is Germany’s largest telecommunications company. Its subsidiaries oversee national and international telecommunications operations, and include T-Com (conventional telephone network), T-Mobile (mobile telephones), and T-Online (Internet services). Deutsche Telekom also holds interests in various other telephone companies, including subsidiaries in Croatia, Hungary, and Slovakia.

K.

Tourism

Germany’s beautiful scenery and varied culture attract many tourists, both foreign and domestic. Tourists tend to favor the resorts of the North and Baltic seas, the Alps, the forests of the southern uplands, and the valleys of the Rhine, Main, Mosel, Neckar, upper Elbe, and Danube rivers. Since unification, tourists have gained access to the natural parks of former East Germany, such as those of the Oder (Odra) Valley or the island of Rügen. Tourists also flock to Germany’s many medieval cities, including those along the so-called Romantic Road from Würzburg to Augsburg, and to the baroque wonders and art collections of Dresden. Large numbers of tourists attend famous music and theater festivals, such as the Wagner Opera Festival at Bayreuth and the Passion Play in Oberammergau. Ski resorts in the Alps draw many people, as do the numerous noteworthy spas and health resorts, such as Bad Kissingen and Bad Schandau.