An assessment of Germany's current economic policy mix

Germany has established itself as a successful country with a growing and stable economy. In terms of its economic policies, since 2014 its score has fallen by .2 placing it into rank 5 within the international top ranks. Of its many efforts to stabilize the country, the most notable is increased regulation, meaning pension-system expansions and a minimum wage (). Along with economic policies favoring regulation, Germany has remained strong in terms of employment growth and export performance, allowing for low unemployment rates and rising wages. While Germany has improved and stabilized, the rising influx of refugees has put a damper on the country's ability to create new policies for the labor-market.

Regardless, there are many positives in Germany's economic policies that has boosted tax revenue. The boost also comes in terms of reduction of debt-to-GDP ratio even with rising debt. Germany has done an amazing job of successfully addressing many serious financial hurdles and weaknesses brought on by the post-unification period. They did so by introducing a robust economic structure characterized by a good mixture of industrial and service sectors and a wave of reforms that improved several key areas. These key areas are the pension system, unemployment benefits, and corporate taxation among others ().

In terms of monetary policy, Germany's budgetary situation remains positive thanks to its decrease of debt-to-GDP ratio from 74.6% (2014) to 70.7% (2015) (). It also lends to Germany having the highest possible credit rating creating higher levels of debt that the country manages with a surplus thanks to the monetary policies in place favoring public regulation instead of private self-regulation. This is because in the past, Germany had to provide expensive and costly bailouts to private banks, leading to short-term economic instability.

Germany's decision to align with the Euro and the European Union has also proved favorable, creating further stability even with the addition of Brexit and other problems in the EU (Bachtler and Turok, 2013). Thanks to such impressive gains, German assumed a main part in the fight against Europe's sovereign debt crisis. To this end Germany has become an advocate of what can be seen as a European banking union that would include policy changes for bank restricting during a time of crisis. The country also wishes to defend its domestic banking system especially concerning special deposit insurance programs of banks like Sparkassen which are state-owned (Kammlott, 2013).

The fiscal policies of Germany lost steam in recent years. The main cause could be political as well as macroeconomic. For example, sovereign debt crises and structural hurdles in other European nations made Germany an ideal business location. This meant there was no need for the government to change the existing tax system. Additionally, buoyant tax revenues meant raising tax revenues was unnecessary. Germany has seen a 20% rise in tax revenue from 2010 to 2014 (UNESCO, 2014). Such a rise enabled the government to effectively balance the budget and have surpluses in Germany's social security system. Complacency took place of uncertainty as there was no need to change a system that has seen success.

Some changes have been made in terms of Germany's structural policy. For example, Germany has succeeded in lessening structural unemployment since mid-2000's (Reiff, 2015). This means 43 million people were employed in 2015 in Germany. Although Germany has decided against privatization and more towards regulation and state-owned banks, youth unemployment is the second lowest in the world (SGI, 2016). Germany also has a well-rounded number of active and functioning labor market programs that include budgeting for vocational training programs and support programs for self-employed citizens. Germany also expanded atypical employment contract, which may or may not have negative consequences for its social security system.

German GDP in the last quarter has shown a 0.2% growth in private consumption compared to its 0.3% growth in its last quarter (Trading Economics, 2016). Some drops have happened in relation to gross fixed capital formation decreasing 1.5% from its previous 1.7% expansion. What dropped the most in terms of investment is equipment and machinery, falling by 2.4% and then construction. Other areas saw an increase in investment that may have led to an increase of 1.2% in exports. The GDP rose thanks to an increase in exports and a slight decrease of 0.1% in imports, raising the GDP 0.6%.

On a yearly basis, GDP grew 3.2% signaling the strongest expansion since 2011. Some other notable annual expansions are government consumption along with gross fixed capital formation. What has slowed down further GDP growth is reduction in inventories (Trading Economics, 2016). However, that does not take away from Germany's overall success. As of 2016, Germany has had its strongest GDP growth in two years. The country outperformed market expectations and will continue to outperform in the next few years.

Here is a graphical representation of Germany's GDP growth thanks to the figures collected from Worldbank.Org. The graph represents GDP growth from 2011 to 2015. As the graph demonstrates, 2014 saw a major growth in Germany's GDP and led to a 3.868 trillion followed by a decline in 2015 to 3.356 trillion. 2014 was one of the best years for Germany as it saw a GDP per capita growth of 3.043% compared to 2015's 1.15%. However, that does not mean Germany is underperforming as the country has a surplus and fair stability even amidst the refugee crisis and Brexit. What this information shows are Germany's ability to provide its citizens with key drivers towards economic stability and growth thanks to sound investments, structural policy, and changes towards regulation and not privatization.

While structural policy at times means privatization and deregulation, it can also mean other things. Germany has had a lax fiscal policy because the system works and has worked for years. The monetary policy leans towards state-owned banks and regulation. The policies Germany seems to implement the most and where the country sees the most change is in structural policy (Bulmer, 2015).

As previously mentioned, economic restructuring meant reducing unemployment rates, increasing unemployment benefits, raising the minimum wage, and promoting regulation of several economic processes within the country. As some authors note, "For example, we in Germany have sharpened our focus on the necessity of pursuing economic and fiscal policies that are consistent with the principles of markets and competition" (AUDRETSCH, 2016, p. 104). This means Germany aimed to make changes and design policies meant for institutional changes. Audretsch continues by explaining Strukturpolitik. "Structurpolitik is a mandate for policies designed to shape and influence the structure of the economy. The goal is to facilitate a structure of the economy that is the most conducive to economic prosperity" (AUDRETSCH, 2016, p. 104). This means Germany aimed to restructure its economy to promote economic prosperity, and it has.

In conclusion, Germany has undergone many obstacles in achieving economic prosperity. However, with a stable and growing economy exemplified by its growing GDP, it has shown it has the structure and policies in effect that will promote such prosperity. In the years to come, Germany will grow even more. Although Brexit and the refugee crisis has brought on some setbacks, it continues to remain and strong and prosperous nation.

(Worldbank, 2016).

References

AUDRETSCH, D. (2016). SEVEN SECRETS OF GERMANY: ECONOMIC RESILIENCE IN AN ERA OF GLOBAL TURBULANCE. NEW YORK: OXFORD UNIVERSITY PRESS.

Bachtler, J. and Turok, I. (2013). The coherence of EU regional policy. London: J. Kingsley Publishers.

Bulmer, S. (2015). The Domestic Structure of European Community Policy-Making in West Germany (Routledge Revivals). Abingdon, Oxon: Routledge, Taylor & Francis Group.

Kammlott, C. (2013). Das Kapitalbeteiligungsgeschaoft der Sparkassen-Finanzgruppe. Wiesbaden: Deutscher Universitaotsverlag.

Reiff, M. (2015). On Unemployment: A Micro-Theory of Economic Justice. International Monetary Fund. European Dept.

SGI, (2016). SGI 2016 - Germany - Economic Policies. [online] Sgi-network.org. Available at: http://www.sgi-network.org/2016/Germany/Economic_Policies [Accessed 25 Oct. 2016].

Trading Economics, (2016). Germany GDP - 1970-2016 - Data - Chart - Calendar - Forecast - News. [online] Tradingeconomics.com. Available at: http://www.tradingeconomics.com/germany/gdp [Accessed 25 Oct. 2016].

UNESCO, (2014). EFA Global Monitoring Report -- 2013 -- 2014 -- Teaching and Learning Achieving quality for all. UNESCO.

WorldBank, (2016). GDP per capita growth (annual %) - Data. [online] Data.worldbank.org. Available at: http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?end=2015&locations=DE&start=2011 [Accessed 25 Oct. 2016].