New business optimism in Germany
The European Central Bank is required to pursue policies which might be different from the member states. Another criticism is that the stability and growth pact removes the ability of national governments to stimulate their own economies to a certain extent. Germany has the world’s third largest economy in terms of exchange rate and the largest economy in Europe. Free enterprise and competition are the characteristics of the German economy but the state provides subsidies to selected sectors and partial ownership of industries in strategic areas.
The German economy is oriented towards exports which have been a key element of macroeconomic expansion. It has been a strong advocate of European economic integration as its policies are determined by European Union agreements. Germany has been using the common European currency, the Euro and its monetary policy is set by the European Central Bank in Frankfurt, Germany. The adoption of the euro has been considered by economists to have helped Germany since it has reduced the cost of converting one currency into another. This has benefited both German companies and tourists.
Further the elimination of exchange rates has eliminated the risks of unforeseen exchange rate revaluations or devaluations. Economists have said that the direct comparability of prices and wages has increased competition in Germany leading to lower prices for consumers and improved investment opportunities for businesses . Another benefit is that the large Euro zone has integrated the German financial markets which have led to increased efficiency in allocating capital in the country. The adoption of the euro has also led to fiscal discipline and strengthened European identity.
The euro has been a technical success in Germany which has allowed the facilitation of trade and promoted a sense of belonging to a common space. After the adoption of the euro in Germany, consumers were worried about huge price hikes on specific items despite an official inflation rate of one percent in May 2002 . Doubts were caused by the euro which they believed had caused a strong economic crisis in the retail sector. Most analysts and politicians blamed the slide into recession and high unemployment on the surge in the Deutsche mark.
This prompted the government to give a powerful argument regarding the monetary union. It was argued that the single currency would remove the risk of Deutsche mark in times of turbulence. Economists also predicted that the euro would help preserve jobs. An understanding was reached with France for a revived exchange rate mechanism that would limit fluctuations between the euro and outside currencies. Economists had argued that the German model of economic stability must have been Europeanized by an independent ECB and monetary financing of budget deficits.
In 2008, the German economy displayed a remarkable growth rate with rising business confidence . The euro was appreciated by twenty percent within the last twelve months and was trading at fifty percent higher against the dollar. The German government was in the process of reforming the German welfare and employment laws which had been considered to be rigid and inflexible for German employers. The rising equity markets in the euro zone region combined with low interest rate and strong global economic growth is currently creating new business optimism in Germany since four years of economic stagnation.
German factories are also reported to have boosted production and many businesses are beginning to invest in new capital equipment. Economists have also predicted that the German economy will be more resilient in the face of record oil prices and a rising euro . The economy is forecasted to grow at a rate of two percent this year. Corporate investment is reported to have a significant impact on economic growth and the willingness to invest remains high. The demand for German manufactured goods has made up for some of the loss from a cooling US economy.