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Germany and Financial Crisis in Europe

Essay by   •  June 11, 2012  •  Research Paper  •  2,590 Words (11 Pages)  •  1,437 Views

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The Federal Republic of Germany, better known as Germany is a Federal Parliamentary Republic, that is a very important member of the European Union, it is the most populous member of the union with more than 80 million people in the nation composed mainly by Germans, and also a small amount of immigrants on its majority Turkish that account for approximately 2.5% of the population, and some other that account for about 6%; in comparison to countries like United States that are built by immigrants, this is a very low percentage of outsiders but in Europe it is considered a large number. It is the largest economy of the union that also ranks as the sixth largest economy in the world by 2011 with a GDP of $3.08 trillion that also accounts for about one fifth of the European Union's GDP which gives the country an important participation on the economic situation of the entire Union. Germany's economic development is mainly based on trading of goods and services that accounts for one third of national GDP. It is considered as Europe's leading exporter of machinery, vehicles and chemicals. One of the largest trading partners of Germany is the United States, just after France which is inside the Union. 1

Germany is member of very important economic, political and defense organizations of the continent what makes the country being always involved in current and significant subjects regarding the economic and political development of the nations in this organizations. Because it is a polycentric country, it does not have just one economic center, largest companies in Germany are spread throughout the country. The three principal German companies that are the Stock Exchange is located in Frankfurt, Bertelsmann, the largest media company is headquartered in Gutersloh and the largest car manufacturer in Wolfsburg, Stuttgart and Munich.

In the twentieth century Germany has passed through several events that have molded the country economically speaking, by the beginning of the century in 1914 the country suddenly got into a very hard situation, World War I, that lasted until 1918 with a loss to Germany. This event generated an economic crisis for the country that could damage not only the country but a large amount of countries' prosperity. WWI made Germany's social structure to change enormously. The economy had suffered a lot beginning with the industrial production that fell more than 40% during the years that the war lasted. But the economic situation did not suffer only during the war, the worst part became after that when Germany was defeated, they were declared responsible for all of the loss and damages of their allies and they had to pay for all reparations in each of the countries. This situation provoked what is called a Hyper-inflation that made the gold marks from Germany go from 8.91 per dollar during the war to more than 47 marks per dollar in just one year and it kept rising a lot in very little time. This increment in the exchange of gold marks for Germany continued on the same track at an incremental pace. This hyper-inflation lasted for about 4 years, where the Mark fell approximately 330 marks per us dollar. Due to this the cost of living in Germany went up for about 16 times in as little as 6 months. They got stable for a while but because there was no viable solution to payments of the reparations the inflation got worse, bringing the mark to dollars exchange to 8000 marks per dollar by December in 1922 reaching its peak almost a year later and making the country introduce a new currency called the Rentermark. After this period of Depression in Germany, the country began to enter on a stable phase than took them to prosperity for about 6 years. 2

The other situation of great importance for Germany in the twentieth century that affected the economic development of the nation was the World War II that went from 1939 to 1945 and ended with the defeat of Japan and Germany. By 1945 Germany was in ruins not only physically and infrastructural speaking but also morally and economically. As it was expected from previous history, a great economic downturn came for Germany after this war was ended. Inflation as well as scarcity in food items and work force played a huge destructive part in the collapse of the German economy. During this period, important sectors of the economy like agriculture and the industry were severally damaged, mostly due to the fact that bombarding of the territory had been very serious. In order for the country to recover, it was first "denazified" that mainly consisted on the removal of the symbolism by Germany's allied forces throughout the nation. The currency was replaced as it was done before, during the recovery stage of the WWI, this time the new currency was the Deutsche Mark

Germany's allies believed this to be the opportunity to create a new society that led to an economic recovery through programs designed for the development of the industry in order to boost the economy up again.

One of the most important programs that was applied in Germany was the Marshall plan, or as it was initially called, the European Recovery Program, that started in 1948 and consisted in a monetary assistance of $13 billion for western Europe for a period of 5 years that was provided by the United States in order to try to rebuild the region, modernize the industry and make the territories more prosperous. The plan was very successful because it accomplished what it was supposed to, making European countries affected by the war, recover and improve their economic standard of living. Germany in specific was incredibly growing, the country improved the industry in a way that reduced unemployment to a rate that was so low that it attracted immigrants to the territory looking to become part of the labor force, it also increased the food production making it more suitable place to live in Europe at the moment, the implementation and success of the Marshall plan was labeled as an economic miracle. 3

Germany has been known for being an innovative country and this is what helped them get out of both crises after those wars and also become a very important economic power for Europe in both the WWI and WWII. The third important issue affecting German economy was the merge of East Germany from a socialist state to a social market system region that was West Germany. this reunification presented some problems like the conversion rates to make a unified currency that was decided to be the western deutschmarks, and also the infrastructure of the territory known as east Germany was driving away the investors due to the fact that was not as developed as it was it counterpart. After all these issues were solved the economy was developing rapidly and actually became one of the most powerful economies of Europe.

In a more modern view of Germany, the country has been able to keep

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