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In line with the federal system, structuring and coordinating economic and financial policy is the joint task of central government, the federal states and municipalities. They cooperate in various committees. Furthermore, the Federal Government seeks the advice of independent economists. Every January the Federal Government presents to the Bundestag and the Bundesrat the Annual Economic Report, which among other things describes the government’s economic and financial goals for the year as well as the fundamentals of its planned economic and financial policy. One prerequisite for economic life in Germany being able to function is free competition, which is protected by the law against restrictions on competition. It prohibits anti-competitive practice on the part of both companies and the state. Likewise, company mergers, state subsidies and market barriers are assessed to establish whether they impair competition.
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Every four years, the parties stand in the general elections to the Bundestag. Traditionally, the turn-out is high in Germany, and following a high in the 1970s, when the turn-out was over 90 percent, since reunification it has been around 80 percent. 76.6 per cent of eligible voters took part in the election to the 20th German Bundestag in 2021.
The euro is the currency of the European Monetary Union and after the US dollar the second most important member of the international currency system. Together with the national central banks, the European Central Bank (ECB), headquartered in Frankfurt/Main, is responsible for monetary policy with regard to the euro. The euro is the official currency in 20 of the 27 EU member states. The euro was physically introduced in “Euroland”, including Germany, on January 1, 2002, having served as a currency of deposit since the beginning of 1999.
In 1957, Germany was one of the six founding members of today’s EU, along with France, Italy, Belgium, the Netherlands and Luxembourg. The EU is currently made up of 27 states; the euro is the official currency in 20 of them. For Germany, European integration forms the basis for peace, security and prosperity. One of the key factors is the single European market. Germany also supports the integration of additional members in the EU..
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The Federal Government and cabinet is made up of the Federal Chancellor and the Federal Ministers. While the Chancellor holds the power to issue directives, the ministers have departmental powers, meaning that they independently run their respective ministries in the framework of those directives. Moreover, the cabinet abides by the collegial principle, in disputes the Federal Government decides by majority. The affairs of state are managed by the Chancellor.
As early as the 19th century Germany attracted a large number of immigrants and since the 1950s has emerged as the European country with the largest immigrant population. In 1950, there were about 500,000 foreigners in Germany, accounting for a mere one percent or so of the population. This has changed emphatically: Today, some 11.6 million foreigners live in Germany, or 13 percent of the population.
In 2021, company spending on research and development rose to 75.8 billion Euros. The automotive industry accounts for a large share of these investements.
The Basic Law of the Federal Republic of Germany does not call for any particular economic order. Yet it is firmly anchored in the principle of the welfare state and therefore excludes a purely free market economy. Since the founding of the Federal Republic of Germany in 1949 the country’s economic policy has been hinged on the notion of the social market economy. The social market economy was developed and implemented by Ludwig Erhard, the first Minister of Economics and later German Chancellor. The fundamental idea is based on the principle of freedom of a market economy, supplemented by socio-political methods for keeping a due balance in society. On the one hand, the system is designed to enable market forces in principle to develop freely. On the other, the state guarantees a welfare network that protects its citizens from risks.
The German federal state is a complex entity. It consists of a central Federal Government and 16 federal states. The Basic Law lays out which issues fall within the ambit of the Federal Government and which devolve to the federal states. As such the federal system in Germany is similar to that of other federal countries. Public life in Germany is predominantly based on central laws. In accordance with the principle of subsidiarity citizens, on the other hand, deal almost exclusively with state and local authorities acting on behalf of the federal states. The reason for this is the aim of the Basic Law to combine the advantages of a unified state with those of a federal state. In everyday life the citizens of other federal states have far more frequent dealings with representatives of central government.
The Basic Law stipulates that it be possible to compare living conditions throughout Germany. Essentially these are determined by economic and social policy. With regard to financial policy the German constitution accords the federal states considerable leeway in the financing of their duties. All high-revenue taxes are decreed by law, though this needs the approval of the Bundesrat, which represents the states at federal level. Part of these taxes goes to central government alone or to the federal states and another part, including the particularly lucrative taxes, is divided up between central government and the federal states. To this extent the German federal state resembles a centralized state. Nonetheless it is the federal states that control the major part of pan-state administration. This means that federalist elements dominate the state administrative systems. First, its own administrative system enforces the laws that apply in that particular state. In addition they also execute most central laws. Given the large number of duties passed down from central government to the federal states several of them have, in the past, had to take on enormous debts. In 2009 an amendment was made to the constitution forbidding them to raise further loans as of 2020 and limiting the amount of new debts central government can take on from 2016 – with a proviso for economic crisis situations – to a maximum of 0.35 percent of the gross domestic product (the debt ceiling).
There are three pan-state functions the individual federal states exercise on their own: schooling and tertiary education, internal security, including policing, as well as the organization of local self-government. Thanks to the wide-ranging rights pertaining to guaranteed participation they enjoy in the Bundesrat, the federal states receive a form of compensation for the fact that central government is the primary body determining legislation.