Ohio Wesleyan University Goran Skosples 1. The Science of Macroeconomics
Economic Systems Ohio Wesleyan University Goran Skosples 9. Germany.
Transcript of Economic Systems Ohio Wesleyan University Goran Skosples 9. Germany.
Economic Systems
Ohio Wesleyan University
Goran Skosples
9. Germany
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The German (Rhine) Model Germany: Europe’s largest economy
GDP per capita: $_________ (US = $_________)
Social market economy
• government owns _______________
principles of consensus, group action, and long-term consequences
• coordination and following gov’t guidance
• the German constitution (Basic Law) explicitly lays out the economic and social goals
market principles subject to social regulation __________________
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The German (Rhine) Model
roots of the welfare state ________________
• gov’t funded soc. security, health insurance, and worker compensation
______________
• many companies privately owned- no need to appease the _______________
• financing by local banks rather than capital markets- no desire for large leverage (debt) - modesty
• Oligopolistic markets
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The German (Rhine) Model Mitbestimmung (___________________)
• Large firms required by law to have equal representation on their boards for both management and labor- workers have a say in the firms’ operations
- work councils + election of workers to company supervisory boards
• ensures that workers’ rights and jobs will be protected when decisions are made about where and what to produce
• motives: peace between labor and management, reducing output lost to strikes, moderates wage demands to keep inflation in check
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The German (Rhine) Model
Labor market
• high skilled labor
• dual-system of vocational training- classroom instruction + work experience
- technical colleges vey important
• worker loyalty
• Agenda 2010 (in 2003)- structural reforms to ↑ growth + ↓ unemployment
- wage _________________
Banking system - three pillars• private, cooperative, public (Savings + Landesbanken)
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Prior to unification
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Prior to unification
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Reunification (1990)
high hopes:
1. existing institutions in FRG – political, legal, regulatory framework
2. the best performing socialist economy – highest efficiency and productivity
rapid transformation – Big Bang
currency unification
Treuhandanstalt - privatization
Mezzogiorno problem
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Consequences for the East output (9/89 – 9/90: -51%) +
unemployment (peaked at 21%)
supply (cost):• ___ nominal wage + ___ productivity• outdated capital – requiring ___ investments• excessive ____________
demand (price):• inflow of western goods (cheaper)• negative ____________________• dissolution of the Council for Mutual Economic
Assistance (CMEA)
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Evaluation of Unification
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One of the original members of the ECSC (1951)
European Union (1993)
The euro (1999/2002)
• single currency + unified monetary policy
• ECB in _______________
Large benefit from the euro (_______________)
• low ______ growth
• should show solidatity?
Reluctant to help Greece?
• German politics preference for consensus
EU and the Euro
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Germany today unemployment: ___________
standard of living higher in the west that the east
dislike for inflation
Europe’s locomotive
consumption held low (austerity) low debt/GDP
strong exports (2nd after China) CA surplus
services lagging manufacturing (financial, etc)
bubble in the property market?
“coordinated market economy”
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