G-20 SUMMIT - GERMANY

 Current state of economy of Germany

The economy of Germany is a highly developed social market economy It has the largest national
economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP (PPP). In
2017, the country accounted for 28% of the euro area economy according to the IMF. Germany is a
founding member of the European Union and the Eurozone.
Germany recorded the highest trade surplus in the world worth $310 billion, making it the biggest
capital exporter globally. Germany is one of the largest exporters globally with $1448.17 billion
worth of goods and services exported in 2017. The service sector contributes around 70% of the total
GDP, industry 29.1%, and agriculture 0.9%. Exports account for 41% of national output. The top 10
exports of Germany are vehicles, machinery, chemical goods, electronic products, electrical
equipment, pharmaceuticals, transport equipment, basic metals, food products, and rubber and
plastics. The economy of Germany is the largest manufacturing economy in Europe and it is less
likely to be affected by the financial downturn and conduct applied research with practical industrial
value and sees itself as a bridge between the latest university insights and industry-specific product
and process improvements, and by generating a great deal of knowledge in its own laboratories as
well. In July 2017, the International Monetary Fund gave the country's economy "yet another bill of
good health" and some advice on steps it might take to maintain this level in the long run.
Germany’s economic freedom score is 73.5, making its economy the 27th freest in the 2020 Index. Its
overall score is unchanged from the 2019 Index, with an uptick in the government integrity score
offset by a drop in judicial effectiveness. Germany is ranked 14th among 45 countries in the Europe
region, and its overall score is well above the regional and world averages. Excessive government
spending and costly labour regulations are the chief culprits slowing the expansion of economic
freedom and the economy itself in Germany. Prospects for market-oriented reforms in either category
are slim under the current administration. The government has doubled down on an expensive
package of measures to address climate change that The Economist estimates will cost €54 billion by
2023. Imports and exports make up 90% of the Germanys GDP. According to the IMF, in 2019 the
country recorded the weakest growth rate since the Eurozone crisis, with the GDP growing by only
0.6%, from 1.5% the previous year

 THE ECONOMIC INDICATORS OF GERMANY

  FISCAL POLICY OF GERMANY

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor
and influence a nation's economy. It is the sister strategy to monetary policy through which a central
bank influences a nation's money supply. These two policies are used in various combinations to
direct a country's economic goals

In an international comparison, Germany’s fiscal situation is very good – thanks to robust GDP
growth and zero interest rates. Other important industrial countries, such as the US or Japan, are still
struggling with high fiscal deficits and rising public-sector debt. Germany, however, is the only G7
country that has generated fiscal surpluses since 2014, helping to considerably reduce its debt ratio. In
the short to medium term, dynamic revenue growth should help ensure that Germany’s fiscal situation
remains comfortable, even though expenses look set to rise strongly as well. The budget complies
with both national and European debt-limiting rules, and there is a considerable safety margin. The
2017 update of the Stability Programme foresees positive fiscal balances at the general government
level for the years from 2017 to 2021, which means that – provided growth remains strong and
interest rates low – the debt ratio might drop below the Maastricht limit of 60% of GDP by end-2020.

However, the long-term fiscal risks do not appear to play a major role in the current election
campaign. Rather, politicians have included calls for tax cuts and expense increases in their parties’
election programmes given the current favourable fiscal situation.

Recommendations
1. Increased income Tax-The income tax rate has been consistent for the last few
years. It starts at 14%, rising to 42%. In Germany, the income tax brackets
dictate which tax rate you pay. The income tax rates should be increased so as to
contribute towards the economy for development.  

2 .More spending on health care

 Germany healthcare spending for 2017 was $5,033, a 6.32% increase from 2016.

 Germany healthcare spending for 2016 was $4,734, a 2.53% increase from 2015.
 Germany healthcare spending for 2015 was $4,617, a 12.72% decline from 2014.
 Germany healthcare spending for 2014 was $5,291, a 3.85% increase from 2013.

3.Infrastructure Development-The government can currently borrow for ten years at a rate of
-0.5% – strengthen the case for investing in public projects with positive returns. Such projects
include roads, bridges, and railroads, as well as soft infrastructure such as 5G mobile networks.

 4. Control of fuel emission-Germany’s renewed commitment to reducing carbon dioxide emissions
by 2030, to achieve the goals of the 2015 Paris climate agreement, as a battering ram against
the Schwarze Null. On September 20, the German government announced some €54 billion ($59.4
billion) worth of spending measures to cut emissions

5.Limit the use of fossil fuel-Governments can strengthen the budget by eliminating fossil-fuel
subsidies and raising taxes on emissions, or by auctioning limited emission permits. Or they can
redistribute the resulting revenues to achieve other goals. The important point for the climate-change
policy is to increase the price of carbon. Doing so is orthogonal to an intelligent choice between fiscal
expansion and fiscal austerity.

 LABOUR MARKET REFORMS AND IMMIGRATION POLICY

In times of high unemployment, the necessity of labour market reforms is discussed all over Europe.
Many countries have either started or already finished far-reaching reforms. Also in Germany the
need for reforms had become apparent over the past decades, when unemployment was rising
constantly and public budgets tightened. Then came in Hartz reforms – named after the chairman
heading the commission that worked out the reform package – constitute a comprehensive
modification of active and passive labour market policies

The reforms, collectively known as the Hartz reforms, were put in place in three steps between
January 2003 and January 2005. They eased regulation on temporary work agencies, relaxed firing
restrictions, restructured the federal employment agency, and reshaped unemployment insurance to
significantly reduce benefits for the long-term unemployed and tighten job search obligations. The
unemployment rate declined steadily from a peak of almost 11 percent in 2005 to five percent at the
end of 2014.

The reform aimed to improve the performance of placement services and policy programmes mainly
by introducing market mechanisms to the realm of placement services and by streamlining public
employment services. Furthermore, cost-effectiveness in the specific context of each regional labour
market is targeted to be the key criteria when choosing programme contents and participants.

The Hartz reform finally abolished restrictions on synchronisation, re-assignment, fixed-term

contracts and the maximum duration of temporary employment. A new rule was introduced requiring
that a temporary work agency must either guarantee equal pay and equal treatment of temporary
workers and regular workers or join a collective bargaining agreement between trade unions and
employers. Temporary work is now also allowed in the construction industry, provided that a
collective bargaining agreement applies.

The results, which are still preliminary at the time being, indicate that the re-organisation of public
employment services was mainly successful, with the exception of the outsourcing of services. Re-
designing training programmes seems to have improved their effectiveness, while job creation
schemes continue to be detrimental.

The Skilled Immigration Act, is a new law which expands the possibilities for qualified professionals
to come to work in Germany. Now, it´s easier for skilled workers with vocational, non-academic
training from non-EU countries to migrate to Germany in order to work. The current conditions for
qualified professionals with university degrees will remain in place, with some relaxations of the
rules. Professionals with a vocational training qualification are also able to come to Germany to look
for a job. They will be granted a residence permit for up to six months. The precondition for this is
that the foreign qualification is recognised by the relevant body in Germany, and that the person can
support themselves for the duration of their stay and has the necessary German language skills for the
desired occupation.

RECOMMENDATIONS:

  New reforms must be bought in to reduce gender gaps in labour force participation and pay
by improving women´s job quality.
 Future Labour Migration Policies will need to be more transparent, contain clear admission
criteria that are synchronised with the labour market needs, and allow clear pathways for
permanent citizenship.
 Even during times of recession, labour market policies can be formulated to create jobs,
increase investment and foster innovation.
 Support international human mobility resumption to promote economic and social recovery
through adapted immigration and border management and labour mobility schemes.

 Monetary policy of Germany:-

Monetary Policy :- Monetary policy is the macroeconomic policy laid down by the central bank. It
involves management of money supply and interest rate and is the demand side economic policy used
by the government of a country to achieve macroeconomic objectives like inflation, consumption,
growth and liquidity

The objective of the monetary policy decisions taken by the Governing Council of the ECB (European
Central Bank ) is to ensure price stability – the main aim of the Euro system’s monetary policy. The
ECB Governing Council, on which the president of the Bundesbank has a seat and a voice as an
independent representative of Germany, traditionally takes these decisions at its first meeting of the
month. Decisions relate not only to the key interest rates at which the Euro system lends its
counterparties, generally banks, central bank money in return for collateral.
Other important monetary policy instruments are the bidding procedures used to provide funds, the
maturities of these refinancing operations, the volume of liquidity provided and the amount of
central bank money that the Euro system’s counterparties must hold as minimum reserves. The
president of the Deutsche Bundesbank uses the economic analyses and forecasts when preparing
monetary policy decisions. Particular weight is attached to the analysis of money and credit
developments (monetary analysis). Unlike the analysis of economic developments and prices, which
focuses more on the short term, these variables also provide important indications as to whether the
objective of price stability will be met in the medium term. Moreover, they provide some indication
of whether imbalances are building up on the financial markets and therefore forge a link with the
analysis of financial stability. The primary objective of the ECB's monetary policy is to
maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium
term.

Recommendations :-

In the United States, the Federal Reserve System purchases Treasury securities in order to inject
liquidity into the economy. The Euro system, on the other hand, uses a different method.
The banks in effect borrow cash and must pay it back; the short durations allow interest rates to be
adjusted continually. When the repo notes come due the participating banks bid again. An increase in
the quantity of notes offered at auction allows an increase in liquidity in the economy. A decrease has
the contrary effect. The contracts are carried on the asset side of the European Central Bank's balance
sheet and the resulting deposits in member banks are carried as a liability. In layman terms, the
liability of the central bank is money, and an increase in deposits in member banks, carried as a
liability by the central bank, means that more money has been put into the economy. [a]
To qualify for participation in the auctions, banks must be able to offer proof of appropriate collateral
in the form of loans to other entities. These can be the public debt of member states, but a fairly wide
range of private banking securities are also accepted. The fairly stringent membership requirements
for the European Union, especially with regard to sovereign debt as a percentage of each member
state's gross domestic product, are designed to ensure that assets offered to the bank as collateral are,
at least in theory, all equally good, and all equally protected from the risk of inflation.

 Trade policy of Germany including exchange rate management

Trade policy refers to the regulations and agreements that control imports and exports to foreign
countries. General trade policy objectives have focused on reduced protection, achieving a more
outward- oriented trade regime, increased market access for exports, and greater global integration,
aimed at increasing economic efficiency, competitiveness, and export led growth. An exchange rate is
the price at which one currency is converted into or exchanged for another currency. Exchange
rate connects the price system of two countries since this (special) price shows the relationship
between all domestic prices and all foreign prices.

As an EU member state, Germany does not have an independent trade policy. The EU is a

party to a number of bilateral and multilateral preferential agreements, including: The European
Economic Area Agreement The economy of Germany is a highly developed social market economy It
has the largest national economy in Europe, the 4thlargest by nominal GDP in the world. Germany is
a founding member of the European Union (EU). Germany is one of the largest exporters globally
with $1448.17 billion worth of goods and services exported. . Exports account for 41% of national
output. The top 10 export of Germany are vehicles, machinery, chemical goods, electronic products,
electrical equipment, pharmaceuticals, transport equipment, basic metals, food products, and rubber
and plastics. Some economists point to the euro currency as a key reason for Germany's perennial
export surpluses. By sharing the euro with a larger population of mostly less competitive economies,
German exporters have a built-in benefit: a currency that's permanently weaker than it should be. That
provides an artificial advantage to German exporters.

Recommendation

1. Responsibility for trade policy rests with the EU, not with the Member States so I would
recommend that the responsibility of trade policy should be given in the hand of the States and the EU
should guide or can set barriers for the states because I believe that the states can decide their policy
according to their products and convenience. The EU has exclusive power in the area of trade in
goods. When it comes to services and intellectual property, power should be shared between the
Commission and the Member States.

2. I recommend that free trade policy should be restricted because if foreign goods are imported
freely, the domestic industries of the developing countries would not be able to develop rapidly due to
the superior strength of foreign industries and Under free trade, the foreign traders particularly the
dominant ones may try to become empire-builders in future. In the past free trade gave rise to
colonialism and imperialism.

3. The policy of for the Germany is very rigid the largest drawback of the euro is a single monetary
policy that often does not fit local economic conditions. I recommend that there should be some
flexible exchange rate and Independent Monetary Policy. So it can be Shock Absorber, Promotes
Economic Development, Solutions to Balance of Payment Problems, Promotes International Trade,
Increase in International Liquidity, etc.