Size and characteristics of markets.

Germany

Germany’s affluent and technologically powerful economy has turned in a weak performance throughout much of the 1990’s and early 2000’s.  The modernisation and integration of the eastern German economy continues to be a long and costly affair, with annual transfers from west to east amounting to roughly £70 billion pounds.  Germanys ageing population, combined with high unemployment, has pushed social security outlays to a level exceeding contributions from workers.  Structural rigidities in the labour market that includes strict regulations on laying off workers and the setting of wages on a national basis have made unemployment a major problem. Growth in 2002 and 2003 fell short of 1% that could allow Germany to meet the long-term challenges of European economic integration and globalisation, particularly if labour market rigidities are further addressed.  In the short run, however, the fall in government revenues and the rise in expenditures have raised the deficit about the EU’s 3% debt limit.

UK

The UK is a leading trading power and financial centre and is one of the quartet of trillion dollar economies of Western Europe.  Over the past two decades the government has reduced public spending and contained the growth of welfare and social programmes.  The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, which is one of the highest shares of any industrial nation.  Services, particularly banking, insurance and business services, account for the largest proportion of GDP while industry continues industry continues to decline in importance.  GDP growth slipped in 2001 to 2003 as the global downturn, the high value of the pound and the bursting of the new economy bubble hurt manufacturing and exports.  Still the economy is one of the strongest in Europe; inflation, interest rates, and unemployment remain low.  The relatively good economic performance has complicated the Blair government’s efforts to make a case for Britain to join the European Economic and Monetary Union.  Meanwhile, the government has been speeding up the improvement of education, transport and health services at a cost in high taxes.  The war in March to April 2003 between a US led coalition and Iraq, together with the subsequent problems of restoring the economy and the polity, involve a heavy commitment of British Military forces.