The German Economy

The German Economy

The German Economy

The German Economy


Germany is clearly the dominant economic force in Europe. It occupies the pivotal position of being at the centre of both the EC and of attempts to rebuild the economies of East Central Europe. The German Economytraces the various aspects of German policy and growth, concentrating in particular on the last two decades. These include:

  • the German economy in perspective
  • the regional dimension
  • fiscal policy
  • monetary policy
  • social policy
  • the labour market
  • banking and finance
  • industry, trade and economic policy.

In The German EconomyEric Owen Smith has produced the only comprehensive account of the contemporary German economy currently available in English.


When I wrote The West German Economy (1983), I was concerned mainly with the period 1950-80. However, the book was completed during part of the recession which began in 1979. I therefore had to conclude by reporting that, by post-war German standards, interest rates, inflation, the general budget deficit, the current account deficit and unemployment were all high. Because of the more propitious trend in crude-oil prices, I was able to give a more encouraging view of these indicators in my chapter on economic policy in West Germany Today (1989), although unemployment still remained obstinately high during the period reviewed. The present book was written following unification when the former West German economy initially enjoyed a boom but there was an economic collapse in the East. However, the Bundesbank raised interest rates to record heights, thereby repeating its reaction to the first two crude-oil price shocks (see Chapter 4). This had a deflationary effect both within Germany and in other economies. As well as these two contrasting effects of unification on aggregate demand, there were also many supply-side policy issues with which West Germany was only just coming to grips. The enormous economic strains of transforming the derelict East German economy badly exacerbated West Germany’s economic problems. German unification therefore became one of two dominant European economic issues in the 1990s, the other being European economic, monetary and social integration. Many of the lessons learned from unification influenced German thinking on further European integration. On the other hand, preparations for the European Single Market (EC 1993) were already underway when the Berlin wall fell. Meanwhile, in the world economy at large, the debate on the economics of protection had intensified. Evidence of these difficulties is afforded by the tortuous GATT negotiations. In Germany, further challenges emerged from the protection of agriculture, steel and coal.

The moral is that economic activity is cyclical in nature and one must concentrate as far as possible on long-term trends and features. For example, three German terms indicated crucial trends and problems during the 1980s, all of which are analysed in this book. First, Standort Deutschland, or . . .

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