The crisis is being smooth over the 80s with Germany strong export trade accompanied by rigid economic policies. In 1982, there is a changes in government which lead to initial increase in Unemployment, inflation & public deficits couple with decrease of GDP, Productivity, Wages and current account. The new Government then change policies & started to sell its assets in the industry hence saw the increase in current account.
PHASE 2 (1984-90)
IN THIS RANGE THE INFLATION TREND FALL TO THE LOWEST IN GERMAN HISTORY (NEGATIVE)IN 1986 THEN PUSH BACK UP IN 1988.
We observe a 100% rise in unemployment rate figure after1980despite the fact that output rises continuously and couple with very good rates. It grow gradually from around 3-4% to 8-9%, it’s the phenomenon of hysteresis. Bundesbank anti inflationary aim created a very high interest rates in the mid 80s which lead to a clock-wise inflation-output loop in 1986. So even when the annual GDP has been increase and the current account is healthy and decreasing deficit---the rate of unemployment has a negative effect compare to change of prices(inflation).This is due to the wages/interest rate increase not paid for out of higher productivity are then passed on to customer. Additionally, Bundesbank policies to keep inflation low irrespectively to the costs.
The unemployment rates continue to be high annual GDP over the whole 80s. This is intensify when East & West Germany reunion and the labours from east came to the west to find jobs.
PHASE 3 (1990-1993)
In this phase ,2 most important event happened 1) the unification of Federal Germany in 1990 & 2) Recession in 1992.over this period inflation start climbing so is the Unemployment due to the immigrants from east Germany. The overall GDP got into a slack although productivity is increased.
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When in the late 80s ,Bundesbank observed inflation rate closely & when they see that inflation is rising in 1987-89, they apparently tightened the monetary police by rising interest rate to keep inflation under control. But in 1990, the economy slow down due to the falling of the Berlin wall. The unification was accompanied by fiscal policy of full integration & a level up of raising wages, social security/welfare in the east etc. This caused a huge boom in demand and enormous costs, which led Germany into its most serious economic crisis since the War. This problem is compound by the fact that West Germany Government did not increase income (taxation) or lower expenditure pushed the current account into negative & deficit sky high. The immediate impact was at first a economic boom in late 80s but then the budget and capacity could not cope. Federal government has struggle to bring spending under control, Bundesbank try to tighten its monetary policy in 1992-3 which in turn led to a full blown recession in 1993.
Recession over Europe has hinder/delay the recovery by export trade in the economic crisis. Hence production although albeit increased but has extended to enlarged Domestic market, in turn causing inflation to rise to 5.1% in 1992. However in 1993, rising corporate profit, achieved through much rationalization & lower interest rate led to a fragile recovery.
PHASE 4 (1993-1998)
In this phase we can observed that in recovery stages, with the tightening of monetary policy the inflation descends gradually with the increase in GDP. Moreover, In preparation to the single EMU, all European currency had to pegged closely to each other and this involved the setting of interest rate in Germany.
Following the crisis, the economy gradually pick up speed with the construction price stabilized and export prices steady and the relative strength of Germany export.Bundesbank tighten its policy in response to high 94’s wages settlement and weak European demand.the recovery was led by export trade and the weakening of D-mark in 96-97.
Moreover with the stage 2 of the implementation of EMU in1994 see the establishment of European Monetary Institute, Germany has to accommodate its policy inline with the common monetary policy. To Achieve this ., 1)German has to suppress its inflation within 1.5% of the average member states during previous years. 2) Annual deficit should not exceed 3% of GDP and 3) Interest rate must not be above 2% of the comparable rate of the country with the lowest inflation.
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Hence it is very important that all members states demands nominal convergence in inflation rates and Germany had experience a deviation from the EMU criteria in 1996 with the deficit exceeding GDP.
FUTURE(conclusion)
Germany’s medium-term economy outlook is stable & certain, despite the fact that D-mark will be abolished next year. GDP growth around 2.2 in 1997, should continue in the 2-3% range in to millenium with export demand growth accomplished by enlarge domestic demand. Inflation which is only 1.3% in Jan 98 will be held below 2% and exchange rate against dollar will be more stable with the establishment of European Central Bank.
BIBLIOGRAPHY/REFERENCES
- J.Somers European Economies, A Comparative Study
1st 1991 Pitman Pub.
- OECD Economic surveys---Germany
1997-98 Chapter 1&2.
- Economist Country Report,”Germany”
Interlligence 1997-98 pg 17-24
units
- Economist Pocket Europe in Figures
1997
-
Financial Times 18th NOV 1997 (Tuesday)
-
Internet
- United nation Economic Survey of Europe in 96/97
- J.Nellis The Essence of Economy
2nd edition Prentice Hall Chapter 10.
- D.ORDELHEIDE European Financial Reporting Series “GERMANY”
D.PFAFF. ICAEW , Routledge Pub. 1995
- IMF World Economic & Financial surveys
World Economic Outlook. (OCT1997)
# United Germany
* Forecast/Provisional
Source: Sachverstaendigenrat-Wirtschaft
Economic Stability and Growth Act 1967 ---where by federal & state authorities have to coordinate economic & financial measures for maintaining the value of the marks so to guarantee stable prices, full employment & healthy current account
the central bank of Germany.---the bank was given autonomy from the government & its policies has frequently differed from those desired by government. they not only provided finance but play an active part in industrial affairs.
As demonstrated in the graph 1.
The highest inflation rate for the past 20 years.
By reduction of taxes & increase in child allowances.
First time in the past 30 years!
Refered to in table 1 of the economic statistics
not the goal of employees-- Trade union inflicted long strikes and demanding rise in wages which lead to increase in unemployment .
selling its shares in VW etc.
Economic and Monetary unification on July 1 & full Political union on Oct 3 1990.
This can be observed in the inflation graph (look at 1989-1990)
The failure of the government to contain the growth in the deficit at the outset of the unification process was a key factor provoking Bundesbank to tightened monetary policy.
by sharply increase the interest rate..
previously, german has a strong international export trade.
European Monetary Union----all the culmination of EMS(european monetary system), ERMexchange rate mechanism), ECU(european currency unit) etc…
