ABOUT GERMANY

 Sulekha Rani.R,PGT Chemistry,KV NTPC Kayamkulam

German Geography

Germany is located in the Central Europe, bordering the Baltic Sea and the North Sea, between the Netherlands and Poland, south of Denmark. Roughly the size of Montana and situated even farther north, unified Germany has an area of 356,959 square kilometers. Extending 853 kilometers from its northern border with Denmark to the Alps in the south, it is the sixth largest country in Europe. At its widest, Germany measures approximately 650 kilometers from the Belgian-German border in the west to the Polish frontier in the east

The territory of the former East Germany (divided into five new Länder in 1990) accounts for almost one-third of united Germany's territory and one-fifth of its population. After a close vote, in 1993 the Bundestag, the lower house of Germany's parliament, voted to transfer the capital from Bonn in the west to Berlin, a city-state in the east surrounded by the Land of Brandenburg. 

Topography: With its irregular, elongated shape, Germany provides an excellent example of a recurring sequence of landforms found the world over. A plain dotted with lakes, moors, marshes, and heaths retreats from the sea and reaches inland, where it becomes a landscape of hills crisscrossed by streams, rivers, and valleys. These hills lead upward, gradually forming high plateaus and woodlands and eventually climaxing in spectacular mountain ranges.

As of the mid-1990s, about 37 percent of the country's area was arable; 17 percent consisted of meadows and pastures; 30 percent was forests and woodlands; and 16 percent was devoted to other uses. Geographers often divide Germany into four distinct topographic regions: the North German Lowland; the Central German Uplands; Southern Germany; and the Alpine Foreland and the Alps.

Climate: Cool, continental climate with abundant rainfall and long overcast season. Lower temperatures with considerable snowfall in east and south. Prone to rapid weather variations from merging of Gulf Stream and extreme northeastern climate conditions. More about climate in Germany...

Administrative Division: 16 states (Länder): Baden-Wuerttemberg, Bayern, Berlin, Brandenburg, Bremen, Hamburg, Hessen, Mecklenburg-Vorpommern, Niedersachsen, Nordrhein-Westfalen, Rheinland-Pfalz, Saarland, Sachsen, Sachsen-Anhalt, Schleswig-Holstein, Thueringen. 

Population, Area, and Capitals of the Länder, December 31, 1992

			Population
Land	Capital	Area (in square kilometers)	Total (in thousands)	Density (persons per square kilometer)
Baden-Württemberg	Stuttgart	35,751	10,149	284
Bavaria	Munich	70,554	11,770	167
Berlin	Berlin	889	3,466	3,898
Brandenburg	Potsdam	29,476	2,543	86
Bremen	Bremen	404	686	1,697
Hamburg	Hamburg	755	1,689	2,236
Hesse	Wiesbaden	21,114	5,923	281
Lower Saxony	Hanover	47,348	7,578	160
Mecklenburg-Western Pomerania	Schwerin	23,421	1,865	80
North Rhine-Westphalia	Düsseldorf	34,072	17,679	519
Rhineland-Palatinate	Mainz	19,846	3,881	196
Saarland	Saarbrücken	2,570	1,084	422
Saxony	Dresden	18,408	4,641	252
Saxony-Anhalt	Magdeburg	20,443	2,797	137
Schleswig-Holstein	Kiel	15,732	2,680	170
Thuringia	Erfurt	16,176	2,546	157
TOTAL		356,959	80,975	227

German Society

Population: 81,338,000 (July 1995 estimate) with growth rate of 0.26 percent (July 1995 estimate).

Ethnic Groups: 95.1 percent German, 2.3 percent Turkish, 1.7 percent Italian, 0.4 percent Greek, and 0.4 percent Polish; remainder mainly refugees from former Yugoslavia.

Languages: Standard German, with substantial differences in regional dialects. Three very small linguistic minorities, which speak Serbian, Danish, or Frisian.

Religion: Protestants, mostly in Evangelical Church in Germany, 30 million; Roman Catholics, 28.2 million; Muslims, 2.5 million; free churches, 195,000; and Jews, 34,000.

Education and Literacy: 99 percent literacy rate in population over age fifteen (1991 estimate). Education compulsory until age eighteen. At age ten, after primary school (Grundschule), students attend one of five schools: short-course secondary school (Hauptschule); intermediate school (Realschule); high school (Gymnasium); comprehensive school (Gesamtschule); or a school for children with special educational needs (Sonder-schule). At about age fifteen, students choose among a variety of vocational, technical, and academic schools. Higher education consists of many kinds of technical colleges, advanced vocational schools, and universities.

Health and Welfare: About 90 percent of population covered by comprehensive compulsory insurance for sickness, accidents, disability, long-term care, and retirement. Most of remainder enrolled in voluntary insurance programs; the very poor are covered by state-financed welfare programs. Quality of medical care generally excellent. Comfortable pensions paid according to life-time earnings and indexed to meet cost-of-living increases. Wide variety of other social welfare benefits managed by both government and private agencies available to those in need. Life expectancy 76.6 years for total population (73.5 years for males and 79.9 years for females) (1995 estimates). Infant mortality rate 6.3 deaths per 1,000 live births (1995 estimate). Total fertility rate 1.5 children born per woman (1995 estimate).

Structure of German Society

Most of the workforce is employed in the services sector. West Germany completed the transition from an industrial economy to one dominated by the services sector in the 1970s, and by the late 1980s this sector employed two-thirds of the workforce. In contrast, when the Berlin Wall fell, East Germany still had not made this transition. Because more of the workforce was engaged in industry and agriculture than in the services sector, its socioeconomic structure resembled that of West Germany in 1965.

Rainer Geissler, a German sociologist, has examined his country's social structure in light of the economic changes that have taken place in the postwar era. Because of the growth of the services sector and the doubling of state employees since 1950, he has discarded earlier divisions of German society into an elite class, middle class, and worker class, with a small services class consisting of employees of all levels. He has replaced this division with a more nuanced model that better reflects these postwar changes. As the economy of the new Länder is incorporated into the western economy, its much simpler social structure (elite, self-employed, salaried employees, and workers) will come to resemble that of the old Länder. 

According to Geissler, at the end of the 1980s West Germany's largest group (28 percent of the population) was an educated salaried middle class, employed either in the services sector or in the manufacturing sector as educated, white-collar employees. Some members of this group earned very high salaries; others earned skilled blue-collar wages. This professional class has expanded at the expense of the old middle class, which amounted to only 7 percent of the population at the end of the 1980s. A less educated segment of the services sector, or white-collar employee sector, amounted to 9 percent of the population. Geissler divided the working class into three groups: an elite of the best-trained and best-paid workers (12 percent); skilled workers (18 percent), about 5 percent of whom are foreigners; and unskilled workers (15 percent), about 25 percent of whom are foreigners. A portion of this last group live below the poverty line. Farmers and their families make up 6 percent of the population. At the top of his model of the social structure, Geissler posits an elite of less than 1 percent.

Religion in Germany

Roman Catholicism, one of Germany's two principal religions, traces its origins there to the eighth-century missionary work of Saint Boniface. In the next centuries, Roman Catholicism made more converts and spread eastward. In the twelfth and thirteenth centuries, the Knights of the Teutonic Order spread German and Roman Catholic influence by force of arms along the southern Baltic Coast and into Russia. In 1517, however, Martin Luther challenged papal authority and what he saw as the commercialization of his faith. In the process, Luther changed the course of European and world history and established the second major faith in Germany--Protestantism.

Religious differences played a decisive role in the Thirty Years' War. An enduring legacy of the Protestant Reformation and this conflict was the division of Germany into fairly distinct regions of religious practice. Roman Catholicism remained the preeminent faith in the southern and western German states, while Protestantism became firmly established in the northeastern and central regions. Pockets of Roman Catholicism existed in Oldenburg in the north and in areas of Hesse. Protestant congregations could be found in north Baden and northeastern Bavaria. 

The unification of Germany in 1871 under Prussian leadership led to the strengthening of Protestantism. Otto von Bismarck sought to weaken Roman Catholic influence through an anti-Roman Catholic campaign, the Kulturkampf, in the early 1870s. The Jesuit order was prohibited in Germany, and its members were expelled from the country. In Prussia the "Falk laws," named for Adalbert Falk, Bismarck's minister of culture, mandated German citizenship and attendance at German universities for clergymen, state inspection of schools, and state confirmation of parish and episcopal appointments. Although relations between the Roman Catholic Church and the state were subsequently improved through negotiations with the Vatican, the Kulturkampf engendered in Roman Catholics a deep distrust of the empire and enmity toward Prussia.

Prior to World War II, about two-thirds of the German population was Protestant and the remainder Roman Catholic. Bavaria was a Roman Catholic stronghold. Roman Catholics were also well represented in the populations of Baden-Württemberg, the Saarland, and in much of the Rhineland. Elsewhere in Germany, especially in the north and northeast, Protestants were in the majority.

During the Hitler regime, except for individual acts of resistance, the established churches were unable or unwilling to mount a serious challenge to the supremacy of the state. A Nazi, Ludwig Müller, was installed as the Lutheran bishop in Berlin. Although raised a Roman Catholic, Hitler respected only the power and organization of the Roman Catholic Church, not its tenets. In July 1933, shortly after coming to power, the Nazis scored their first diplomatic success by concluding a concordat with the Vatican, regulating church-state relations. In return for keeping the right to maintain denominational schools nationwide, the Vatican assured the Nazis that Roman Catholic clergy would refrain from political activity, that the government would have a say in the choice of bishops, and that changes in diocesan boundaries would be subject to government approval. However, the Nazis soon violated the concordat's terms, and by the late 1930s almost all denominational schools had been abolished.

Toward the end of 1933, an opposition group under the leadership of Lutheran pastors Martin Niemöller and Dietrich Bonhoeffer formed the "Confessing Church." The members of this church opposed the takeover of the Lutheran Church by the Nazis. Many of its members were eventually arrested, and some were executed--among them, Bonhoeffer--by the end of World War II. 

Population Distribution and Urbanization in Germany

Following unification, the Federal Republic encompassed 356,958 square kilometers and was one of the largest countries in Europe. With about 81.3 million people in mid-1995, it ranked second behind Russia in population among the countries of Europe. Unification actually reduced the Federal Republic's population density, however, because East Germany, which had a large rural area, was more sparsely populated. With an average of 228 persons per square kilometer in late 1993, unified Germany ranked third in population density among European countries. It ranked behind the Netherlands and Belgium, which had 363 and 329 persons per square kilometer, respectively.  

Germany's population density varies greatly. The most densely populated Länder are Berlin, Hamburg, and Bremen, with densities of 3,898, 2,236, and 1,697 persons per square kilometer, respectively, at the end of 1992. The least densely populated are two new Länder, Mecklenburg-Western Pomerania and Brandenburg, both mostly rural in character. They had population densities of eighty and eighty-six persons per square kilometer, respectively, at the end of 1992. Other Länder are closer to the national average: the largest Land , Bavaria, with 167 persons per square kilometer, is mostly rural, but its capital is the large city of Munich; Rhineland-Palatinate, with 196 persons per square kilometer, is also mostly rural but has numerous heavily populated areas along the Rhine; and Saxony, with 252 persons per square kilometer, also has a number of heavily populated areas.  

The Land with the most population, one-fifth of the nation's total, is North Rhine-Westphalia. With a population density of 519 persons per square kilometer at the end of 1992, it is the most heavily settled of all Länder, with the exception of the three city Länder of Bremen, Hamburg, and Berlin. North Rhine-Westphalia's density is caused by its many cities; several dozen of these cities have populations above 100,000, including five with populations above 500,000. Many of these cities are located so close together that they form one of Europe's largest urban agglomerations, the Ruhrstadt (Ruhr City), with a population of about 5 million.

The Federal Republic has few very large cities and many medium-sized ones, a reflection of the centuries when the name Germany designated a geographical area consisting of many small and medium-sized states, each with its own capital. Berlin, by far the largest city, with a population of 3.5 million at the end of 1993, is certain to grow in population as more of the government moves there in the second half of the 1990s and as businesses relocate their headquarters to the new capital. Some estimates predict that Greater Berlin will have a population of 8 million by early in the twenty-first century.

Berlin already dwarfs the only other cities having more than 1 million inhabitants: Hamburg with 1.7 million and Munich with 1.3 million. Ten cities have populations between 500,000 and 1 million, seventeen between 250,000 and 500,000, and fifty-four between 100,000 and 250,000. In the early 1990s, about one-third of the population lived in cities with 100,000 residents or more, one-third in cities and towns with populations between 50,000 and 100,000, and one-third in villages and small towns.

Other densely populated areas are located in the southwest. They are Greater Stuttgart; the Rhine-Main area with its center of Frankfurt am Main; and the Rhine-Neckar region with its center in Mannheim. The greater Nuremberg and Hanover regions are also significant population centers. The new Länder are thinly settled except for Berlin and the regions of Dresden-Leipzig and Chemnitz-Zwickau.
Urban areas in the east are more densely populated than those in the west because the GDR saw little of the suburbanization seen in West Germany. As a result, there is a greater contrast between urban and rural areas in the new Länder than in the west. West Germany's suburbanization, however, is not nearly as extensive as that experienced by the United States after the end of World War II. Compared with cities in the United States, German cities are fairly compact, and their inhabitants can quickly reach small villages and farmlands.  

Germany's population growth has been slow since the late 1960s. Many regions have shown little or no growth, or have even declined in population. The greatest growth has been in the south, where the populations of Baden-Württemberg and Bavaria each increased by well over 1 million between 1970 and 1993. (Each had also grown by over 1 million in the 1960s.) North Rhine-Westphalia, which had grown by 1 million in the 1960s, added another 750,000 to its population between 1970 and 1993, a small increase, given a total population of nearly 18 million at the end of 1993. Bremen, Hamburg, and the Saarland experienced some population loss between 1970 and 1993. With the exception of united Berlin, all the new Länder lost population between the fall of the Berlin Wall and the end of 1993. In general, this development reflected long-term trends in East Germany, although the rate of decline has been higher since unification. 

Education in Germany

The Basic Law of 1949 grants every German citizen the right to self-fulfillment. In theory, citizens are able to choose the type of education they want and are given access to their preferred occupation or profession whether it is through a business, engineering, or nursing degree. The goal of educational policy is therefore to provide each citizen with opportunities to grow personally, professionally, and as a citizen in accordance with his or her abilities and preferences. The Länder are to provide equal educational opportunities and quality education for all through a variety of educational institutions. 

Education is free and in most types of school is coeducational. Almost all elementary and secondary schools and about 95 percent of higher education institutions are public. College, graduate, and postgraduate students pay a nominal fee ranging from DM35 to DM60 a semester, which includes extensive rights to health care and other social benefits. When churches or private organizations run kindergartens, they do so independently, and the public sector is not involved. 

According to the terms of the Düsseldorf Treaty of 1955, the first major attempt to unify or coordinate the school systems of the Länder, school attendance is mandatory for a minimum of nine years (or in some Länder ten years), beginning at age six. A student who starts vocational training as an apprentice must attend a part-time vocational school until the age of eighteen. 

Overview of Education System, Academic Year 1992-93

Type of Institution	Number of Schools	Number of Teachers	Number of Students
Primary and secondary schools
Grundschulen	17,941	208,768	3,419,584
Hauptschulen	9,209	101,939	1,483,229
Realschulen	3,634	59,176	1,056,739
Gymnasien	3,126	146,124	2,047,241
Gesamtschulen	930	48,419	493,406
Evening schools	352	3,734	48,606
Total primary and secondary schools	35,192	568,160	8,548,805
Secondary vocational schools
Berufsschulen	3,233	56,779	1,796,452
Berufsaufbauschulen	230	423	6,564
Berufsfachschulen	2,612	22,103	263,592
Fachoberschulen	740	4,983	75,461
Fachgymnasien	564	9,842	151,819
Total secondary vocational schools	7,379	94,130	2,293,888
Advanced vocational schools
Fachschulen	1,537	10,953	171,693
Schools of higher education
Universities	81	127,755	1,223,907
Comprehensive universities	7	8,732	136,731
Teacher-training colleges	8	n.a.	22,518
Theological seminaries	17	n.a.	2,828
Technical colleges	126	5,281	389,501
Art academies	45	1,136	29,718
Colleges of administration	30	n.a.	53,252
Total schools of higher education	314	142,904	1,858,455
TOTAL	44,422	816,147	12,872,841

Junior Secondary Education in Germany

Secondary education, the third level of education, is divided into two levels: junior secondary education (also called intermediate secondary education) and senior secondary education. Upon completion of the Grundschule, students between the ages of ten and sixteen attend one of the following types of secondary schools: the Hauptschule, the Realschule, the Gymnasium, theGesamtschule, or the Sonderschule (for children with special educational needs). Students who complete this level of education receive an intermediate school certificate. Adults who attend two years of classes in evening schools can also earn these intermediate school certificates, which permit further study.

Junior secondary education starts with two years (grades five and six) of orientation courses during which students explore a variety of educational career paths open to them. The courses are designed to provide more time for the student and parents to decide upon appropriate subsequent education.

The Hauptschule, often called a short-course secondary school in English, lasts five or six years and consists of grades five to nine or five to ten depending on the Land. Some Laenderrequire a compulsory tenth year or offer a two-year orientation program. About one-third of students completing primary school continue in the Hauptschule. The curriculum stresses preparation for a vocation as well as mathematics, history, geography, German, and one foreign language. After receiving their diploma, graduates either become apprentices in shops or factories while taking compulsory part-time courses or attend some form of full-time vocational school until the age of eighteen.

Another one-third of primary school graduates attend the Realschule, sometimes called the intermediate school. These schools include grades five through ten. Students seeking access to middle levels of government, industry, and business attend the Realschule. The curriculum is the same as that of the Hauptschule, but students take an additional foreign language, shorthand, wordprocessing, and bookkeeping, and they learn some computer skills. Graduation from theRealschule enables students to enter a Fachoberschule (a higher technical school) or aFachgymnasium (a specialized high school or grammar school) for the next stage of secondary education. A special program makes it possible for a few students to transfer into theGymnasium, but this is exceptional.

The Gymnasium, sometimes called high school or grammar school in English, begins upon completion of the Grundschule or the orientation grades and includes grades five through thirteen. The number of students attending the Gymnasium has increased dramatically in recent decades; by the mid-1990s, about one-third of all primary school graduates completed a course of study at the Gymnasium, which gives them the right to study at the university level. In the 1990s, the Gymnasium continued to be the primary educational route into the universities, although other routes have been created.

The Gesamtschule originated in the late 1960s to provide a broader range of educational opportunities for students than the traditional Gymnasium. The Gesamtschule has an all-inclusive curriculum for students ages ten to eighteen and a good deal of freedom to choose coursework. Some schools of this type have been established as all-day schools, unlike theGymnasium, which is a part-day school with extensive homework assignments. The popularity of the Gesamtschule has been mixed. It has been resisted in more conservative areas, especially in Bavaria, where only one such school had been established by the beginning of the 1990s. A few more were established in Bavaria in the next few years; their presence is marginal when compared with the Gymnasium, of which there were 395 in 1994. Even North Rhine-Westphalia, Germany's most populous Land and an outspoken supporter of theGesamtschule, had only 181, compared with 623 of the traditional Gymasium.

Senior Secondary Education

The variety of educational programs, tracks, and opportunities available to students increases at the senior secondary level. The largest single student group attends the senior level of theGymnasium, the Gymnasiale Oberstufe. This level includes the traditional academically orientedGymnasium, the vocational Gymnasium, the occupation-specific Fachgymnasium, and theGesamtschule. 

Graduation from these schools requires passing the Abitur, the qualifying examination for studying at the university level. Until the late 1970s, nearly everyone who passed the Abitur had access to an institution of higher education. However, in the 1980s the numerus clausus, a restrictive quota system that had been introduced for the study of medicine in the late 1960s, began to be used for other popular fields of study. Strict selection criteria limiting access to higher education had become necessary because the demand for places at universities had become much greater than the supply.

Vocational Education and Training

The German education system has been praised for its ability to provide quality general education combined with excellent specific training for a profession or a skilled occupation. In 1992 about 65 percent of the country's workforce had been trained through vocational education. In the same year, 2.3 million young people were enrolled in vocational or trade schools.

Building upon the junior secondary program, the Berufsschulen are two- and three-year vocational schools that prepare young people for a profession. In the 1992-93 academic year, there were 1.8 million enrolled in these schools. About 264,000 individuals attendedBerufsfachschulen, also called intermediate technical schools (ITS). These schools usually offer full-time vocation-specific programs. They are attended by students who want to train for a specialty or those already in the workforce who want to earn the equivalent of an intermediate school certificate from a Realschule. Full-time programs take between twelve and eighteen months, and part-time programs take between three and three-and-one-half years. Other types of schools designed to prepare students for different kinds of vocational careers are the higher technical school (HTS), the Fachoberschule, attended by about 75,000 persons in 1992-93, and the advanced vocational school (AVS), the Berufsaufbauschule, attended by about 6,500 persons in the same year. Students can choose to attend one of these three kinds of schools after graduating with an intermediate school certificate from a Realschule or an equivalent school.

The method of teaching used in vocational schools is called the dual system because it combines classroom study with a work-related apprenticeship system. The length of schooling/training depends on prior vocational experience and may entail one year of full-time instruction or up to three years of part-time training.

Students can earn the Fachhochschulreife after successfully completing vocational education and passing a qualifying entrance examination. The Fachhochschulreife entitles a student to enter a Fachhochschule, or a training college, and to continue postsecondary occupational or professional training in engineering or technical fields. Such programs last from six months to three years (full-time instruction) or six to eight years (part-time instruction). Some students with many years of practical experience or those with special skills may also attend aFachhochschule.

Vocational education and training is a joint government-industry program. The federal government and the Laender share in the financing of vocational education in public vocational schools, with the federal government bearing a slightly higher share (58 percent in 1991) than the Laender. On-the-job vocational training, whose cost is entirely borne by companies and businesses, is more costly to provide than vocational education. In the early 1990s, companies and businesses annually spent 2 percent of their payrolls on training.

Tertiary or Higher Education in Germany

In the 1992-93 academic year, higher education was available at 314 institutions of higher learning, with about 1.9 million students enrolled. Institutions of higher learning included eighty-one universities and technical universities, seven comprehensive universities (Gesamthochschulen), eight teacher-training colleges, seventeen theological seminaries, 126 profession-specific technical colleges, thirty training facilities in public administration (Verwaltungsfachhochschulen), and forty-five academies for art, music, and literature. Nearly 80 percent, or 250, of these institutions were located in the old Laender, and sixty-four were in the new Laender. Baden-Wuerttemberg and North Rhine-Westphalia had the largest share of these institutions, sixty-one and forty-nine, respectively. In 1990 about 69.7 percent of students at tertiary-level institutions went to universities and engineering schools, and another 21.7 percent attended vocational training colleges (Fachhochschulen).
German university students can complete their first degree in about five years, but on average university studies last seven years. Advanced degrees require further study. Because tuition at institutions of higher education amounts to no more than a nominal fee except at the handful of private universities, study at the university level means only meeting living expenses. An extensive federal and Land program provides interest-free loans to students coming from lower-income households. Half of the loan must be paid within five years of graduation. Students graduating in the top third of their class or within a shorter time than usual have portions of their loans forgiven. Loans are also available to students receiving technical and vocational training. In the early 1990s, about half of all students were obliged to work while attending university.

Unlike the United States, Germany does not have a group of elite universities; none enjoys a reputation for greater overall excellence than is enjoyed by the others. Instead, particular departments of some universities are commonly seen as very good in their field. For example, the University of Cologne has a noted economics faculty. Also in contrast to the United States, German universities do not offer much in the way of campus life, and collegiate athletics are nearly nonexistent. Universities generally consist of small clusters of buildings dispersed throughout the city in which they are located. Students do not live on university property, although some are housed in student dormitories operated by churches or other nonprofit organizations.

German Economy

The Germans proudly label their economy a "soziale Marktwirtschaft ," or "social market economy," to show that the system as it has developed after World War II has both a material and a social--or human--dimension. They stress the importance of the term "market" because after the Nazi experience they wanted an economy free of state intervention and domination. The only state role in the new West German economy was to protect the competitive environment from monopolistic or oligopolistic tendencies--including its own. The term "social" is stressed because West Germans wanted an economy that would not only help the wealthy but also care for the workers and others who might not prove able to cope with the strenuous competitive demands of a market economy. The term "social" was chosen rather than "socialist" to distinguish their system from those in which the state claimed the right to direct the economy or to intervene in it. 

Beyond these principles of the social market economy, but linked to it, comes a more traditional German concept, that of Ordnung, which can be directly translated to mean order but which really means an economy, society, and polity that are structured but not dictatorial. The founders of the social market economy insisted that Denken in Ordnungen --to think in terms of systems of order--was essential. They also spoke of Ordo-Liberalismus because the essence of the concept is that this must be a freely chosen order, not a command order. 

Over time, the term "social" in the social market economy began to take on a life of its own. It moved the West German economy toward an extensive social welfare system that has become one of the most expensive in the world. Moreover, the West German federal government and the states (Länder) began to compensate for irregularities in economic cycles and for shifts in world production by beginning to shelter and support some sectors and industries. In an even greater departure from the Erhard tradition, the government became an instrument for the preservation of existing industries rather than a force for renewal. In the 1970s, the state assumed an ever more important role in the economy. During the 1980s, Chancellor Helmut Kohl tried to reduce that state role, and he succeeded in part, but German unification again compelled the German government to assume a stronger role in the economy. Thus, the contradiction between the terms "social" and "market" has remained an element for debate in Germany.  

Given the internal contradiction in its philosophy, the German economy is both conservative and dynamic. It is conservative in the sense that it draws on the part of the German tradition that envisages some state role in the economy and a cautious attitude toward investment and risk-taking. It is dynamic in the sense that it is directed toward growth--even if that growth may be slow and steady rather than spectacular. It tries to combine the virtues of a market system with the virtues of a social welfare system. 

Germany's Thirty Largest Industrial Firms, 1993

Firm	Sales (in billions of deutsche marks)	Employees (in thousands)
Daimler-Benz	97.7	366.7
Siemens	81.6	391.0
Volkswagen	76.6	253.0
VEBA	66.3	128.3
RWE	55.8	118.0
Hoechst	46.0	172.5
BASF	43.1	112.0
Bayer	41.0	151.9
Thyssen	33.5	141.0
Bosch	32.5	156.6
BMW	29.0	71.0
Mannesmann	28.0	127.7
Metallgesellschaft	26.1	42.6
VIAG	23.7	80.7
Ruhrkohle	23.4	111.2
Preussag	23.3	73.3
Adam Opel	23.0	50.8
Deutsche Shell	21.4	3.2
Ford	21.2	43.8
Hoesch-Krupp	20.5	78.4
ESSO	19.4	2.4
MAN	19.0	57.8
Bertelsmann	17.2	50.5
Degussa	14.9	32.1
Deutsche BP	14.7	2.8
Ruhrgas	14.3	11.6
Henkel	14.1	40.5
IBM Deutschland	12.6	25.0
Ph. Holzmann	12.5	43.8
Agiv	10.0	42.7

Domestic Economy and International Economic Relations

The Domestic Economy of Germany

The German economy is full of contradictions. It is modern but old-fashioned. It is immensely powerful but suffers from serious structural weaknesses. It is subject to national laws and rules but is so closely tied into the European Union that it is no longer truly independent. It has a central bank that controls European monetary policy and has a deepening impact on the global economy but that also insists on making its decisions mainly on the basis of domestic considerations. Finally, although Germany must compete against highly efficient economies outside its own continent, it continues to carry the expense and burden of traditional industries that drain resources that could be better used elsewhere.

The German economy as it is known today is an outgrowth of the 1990 merger between the dominant economy of the Federal Republic of Germany (FRG, or West Germany) and that of the German Democratic Republic (GDR, or East Germany). This merger will one day produce a massive economic entity that will constitute the fulcrum of Europe as a production center, as well as a transportation and communications center. But each partner brings different elements to the mix, and the merger has proved difficult and costly. The merger will dominate Germany's economic policy and reality until well into the next century. 

The record of the West German economy during the four decades before unification shows a signal achievement. The first decade, that of the 1950s, had been that of the "economic miracle." The second decade, that of the 1960s, had seen consolidation and the first signs of trouble. The 1970s had brought the oil shocks, the generous social programs, the rising deficits, and finally a loss of control. In the 1980s, new policies at home and a more stable environment abroad had combined to put West Germany back on the path of growth.  

The East German economy had been a powerhouse in Eastern Europe, where Moscow had relied on it to produce machine tools, chemicals, and electronics. But it had grown increasingly inefficient, and its currency had become worthless outside its own borders. East Germans had felt frustrated at their lack of true material well-being, as well as their lack of freedom. They joined their economy enthusiastically with that of West Germany in 1990. The merger gave them a rude shock, however, in part because of the simultaneous collapse of East Germany's markets in the Soviet empire and in part because of the inefficiencies that the communist system had left behind.  

The united German economy is a dominant force in world markets because of the strong export orientation that has been part of the German tradition for centuries. Although the burdens of unification have cut into West Germany's traditional export  surplus, German industry continues to produce some of the best machine tools, automobiles, trucks, chemicals, and engineering products in the world. Its management culture, which mingles competition and cooperation, stresses quality and durability above all other virtues. Because many German companies are small or medium-sized, they are able to concentrate on a few production lines that compete effectively even if they are expensive. 

The German culture of cooperation also extends to the relations between the private sector and the government. The social market economy, in which all elements of the system cooperate, stresses the importance of having all parties to the social contract work together. Workers play a role in management. Managers mingle with workers. The bureaucracy attempts to create an environment in which all parties serve a common purpose. Although the rules intended to prevent the recurrence of the German cartel system of the last century are strictly enforced by the Bundeskartellamt (Federal Cartel Office), certain practices that would be forbidden under United States antitrust laws are widely tolerated in Germany. 

The dominant force in the German economy is the banking system. The central bank, the Bundesbank, is deeply committed to maintaining the value of the nation's currency, the deutsche mark, even at some potential cost to economic growth. It fears inflation above all other ills and is determined to prevent the recurrence of Germany's ruinous Great Inflation of the early 1920s. Private banks also play an important role. German industrial and service companies rely much more on bank finance than on equity capital. The banks provide the money and in turn sit on the supervisory boards of most of Germany's corporations. From that vantage point, they stress the traditional banking virtues of slow but steady and nonrisky growth. Their influence and thinking permeate the economy.  

German agriculture is not as strong as German industry. It is a relatively small part of the gross domestic product (GDP) and is heavily subsidized by the EU's Common Agricultural Policy (CAP) and by the German government itself. The accession of East Germany to a united Germany expanded the relative size of the agricultural sector and somewhat improved its efficiency, but Germany is not an agricultural producer like Spain or Italy. 

West Germany developed a system of high wages and high social benefits that has been carried over into united Germany. The extent and the generosity of its social programs now leave Germany at a competitive disadvantage with respect to the states of Eastern Europe and Asia. German labor costs are above those of most other states, not because of the wages themselves--which are high by global standards but not out of line with German labor productivity--but because of social costs, which impose burdens equal to the wages themselves. Thus, German companies and German workers must decide  either to abandon some of the social programs that are at the core of the revered social market economy or to risk losing out in the increasingly intense global competition of the 1990s and beyond. The Germans have not solved this problem, but they are beginning to address it more seriously than before.   

International Economic Relations

Ever since its creation in 1949, the Federal Republic of Germany (FRG), or West Germany, as it was also called until its unification in 1990 with the German Democratic Republic (GDR, or East Germany), has played an increasingly important role in the world economy. Consistently among the most important trading nations in the world, Germany often derives a higher share of its gross domestic product (GDP) from exports than any other major state. The Federal Republic plays an even more important role in international financial matters. Its currency, the deutsche mark, is the second most important currency in the world after the United States dollar.  

Germany does not act alone in international economic matters. Instead, it usually acts through Europe. West Germany was a founding member of the European Coal and Steel Community (ECSC) and of the follow-on European Community (EC), known since late 1993 as the European Union (EU). Germany increasingly makes its international policies in conjunction and consultation with other EU members. More than half of its trade is with other EU states, and the deutsche mark is the anchor of the European Monetary System (EMS) and of its planned follow-on, the European Monetary Union (EMU). 

Despite its central role in the world economy, Germany has never developed nor sought a high profile as a major international economic player. It receives much less attention than Japan in United States newspapers and economic journals, even though it wields as least as much influence in global financial affairs. This relative discretion reflects Germany's general reticence about projecting itself on the world stage in economic matters and the consistent German wish to integrate its economy into the EU.  Germany has benefited from a strikingly benign international economic climate for the past half-century. Despite occasional crises--such as the effects of the United States decision to end the dollar's link to gold in 1971 and of the "oil shocks" of the 1970s that resulted from exporters' sharp increases in the price of petroleum--the global economic scene has been remarkably stable in comparison with that of the 1920s and 1930s. This stability has favored the kind of international trading state that West Germany represented and that united Germany is expected to become once unification is complete. 

Under United States leadership, the Western world with free-market economies established the International Monetary Fund  (IMF) and the World Bank in 1944. In 1947 these nations created a virtually universal trade structure, the General Agreement on Tariffs and Trade (GATT). The combination of open financial and trade systems has helped promote continuous and even dramatic expansion since World War II of world trade and the liquidity of international capital. Nothing could have better suited West Germany and now united Germany. The productive capacities of both East Germany and West Germany always exceeded the absorptive capacity of their respective domestic markets. From the West German standpoint, this characteristic helped to fuel the German export drive and to generate investment capital. It also strengthened the deutsche mark and helped make the German economy internationally prominent. 

Although Germany has a global currency and a world-class trade sector, the German economy remains essentially continental in focus. Because the economy lacks the size necessary to deal with the effects of truly massive currency flows, Germany has looked for partners in international economic matters as it has in international strategic and political matters.  

The German government and the Bundesbank, Germany's central bank, are active participants in formal and informal international institutions and arrangements concerned with global finance and the coordination of national economic policies. West Germany was a founding member of the association of free-market economies known as the Group of Five (G-5), which later became the Group of Seven (G-7). But the German government has also had to acknowledge that it cannot direct the policies of the independent Bundesbank, which are more often based on Germany's domestic needs than on the wishes of the outside world. 

Bundesbank

The single most important economic institution in Germany outside the federal government is the central bank, the Deutsche Bundesbank (commonly called the Bundesbank). It has the dominant voice in German monetary policy. Through that voice, it establishes and maintains a firm policy in favor of solid currency value within Germany and increasingly within the EU and even the world at large. 

If a central bank's reputation is its most precious asset, the Bundesbank is among the world's most highly endowed institutions. Its contribution to the economic and political stability of West Germany and Western Europe in the postwar years was almost legendary and was given due respect even by those who disagreed with some or many of its policies. 

Although the Bundesbank often appears to be the principal maker of German economic policy, its exact powers are carefully set forth and circumscribed in the 1957 law establishing the bank. The law assigned to the bank the responsibility for "the preservation of the value of German currency," a mandate that was so important that it was clearly intended to override the bank's other principal task, "to support the general economic policy of the federal government." Even the latter task was carefully limited by the specific provision that the bank "shall be independent of instructions from the federal government."  

The government does have a role, if it wishes to exercise it. Government representatives can and at times do attend the meetings of the bank's governing board, the Central Bank Council, although the government cannot block the bank's actions but is authorized only to delay them for no longer than two weeks. There are also informal contacts between the government and the bank, and it is not unusual for senior officials at the Chancellory or the Ministry of Finance to know in advance what the council might be expected to decide at its next meeting. 

The bank has more authority in the realm of monetary policy than any other major European central bank. It is most closely based, at least in its structure although not in its formal mandate, on the United States Federal Reserve Bank. It exercises more functions than the Federal Reserve, however, in part because it carries out some exchange responsibilities that are assigned to the United States Department of the Treasury. The Bundesbank issues money and makes monetary policy by controlling short-term interest rates such as the discount rate for loans to other banks and the Lombard rate for short-term funding for business. 

As of mid-1995, the president of the Bundesbank was Hans Tietmeyer, who made his mark in the economics and finance ministries as a career official and then as a state secretary. Kohl appointed him Bundesbank president in 1993. The Bundesbank's Central Bank Council has seventeen members, with the majority of nine being the presidents of regional or  Land central banks. The representatives of these banks can, therefore, outnumber the eight members of the Central Bank Council who work out of the bank's executive office in Frankfurt am Main, the Direktorium (Directorate, giving the bank a strong orientation toward developments in the country as a whole, while public and foreign attention usually concentrates on the Directorate. Land central bank presidents are nominated by Land governments. They do not serve at any government's pleasure, including that of the Land that nominated them. The members of the council who are in the Directorate are appointed by the president upon the nomination of the chancellor, but even these members are not subject to government direction.  

The single most important fact about the Bundesbank, however, is its powerful and consistent anti-inflationary philosophy. That philosophy, grounded in its absolute determination to avoid the social upheaval caused by the Great Inflation of the early 1920s, is central to the bank's thinking on every occasion and has given it enormous influence. Although a number of economists, especially some in the United States, have long argued that the Bundesbank's policies are excessively restrictive and potentially deflationary, the bank is popular with most German voters and with much of German business. The voters do not wish to see their savings eroded by inflation. Businessmen are inclined to believe that a lower inflation rate will permit them to hold down their costs and remain highly competitive over the long run although others might receive some temporary advantage from devaluation. Germans believe that a country with a stable currency will be able to have lower capital and labor costs because lower inflation expectations make lower interest rates and stable wages acceptable. 

German demographic realities have added further reasons for anti-inflationary policies. As the population ages and as more Germans live on pensions or on fixed investment incomes, the importance of price stability has become a powerful consideration for a growing sector of the electorate. That sector of the electorate fully supports the Bundesbank's anti-inflationary policies. 

The Economic Miracle of Germany

The economic reforms and the new West German system received powerful support from a number of sources: investment funds under the European Recovery Program, more commonly known as the Marshall Plan; the stimulus to German industry provided by the diversion of other Western resources for Korean War production; and the German readiness to work hard for low wages until productivity had risen. But the essential component of success was the revival of confidence brought on by Erhard's reforms and by the new currency. 

The West German boom that began in 1950 was truly memorable. The growth rate of industrial production was 25.0 percent in 1950 and 18.1 percent in 1951. Growth continued at a high rate for most of the 1950s, despite occasional slowdowns. By 1960 industrial production had risen to two-and-one-half times the level of 1950 and far beyond any that the Nazis had reached during the 1930s in all of Germany. GDP rose by two-thirds during the same decade. The number of persons employed rose from 13.8 million in 1950 to 19.8 million in 1960, and the unemployment rate fell from 10.3 percent to 1.2 percent. 

Labor also benefited in due course from the boom. Although wage demands and pay increases had been modest at first, wages and salaries rose over 80 percent between 1949 and 1955, catching up with growth. West German social programs were given a considerable boost in 1957, just before a national election, when the government decided to initiate a number of social programs and to expand others. 

In 1957 West Germany gained a new central bank, the Deutsche Bundesbank, generally called simply the Bundesbank, which succeeded the Bank Deutscher Länder and was given much more authority over monetary policy. That year also saw the establishment of the Bundeskartellamt (Federal Cartel Office), designed to prevent the return of German monopolies and cartels. Six years later, in 1963, the Bundestag, the lower house of Germany's parliament, at Erhard's urging established the Council of Economic Experts to provide objective evaluations on which to base German economic policy. 

The West German economy did not grow as fast or as consistently in the 1960s as it had during the 1950s, in part because such a torrid pace could not be sustained, in part because the supply of fresh labor from East Germany was cut off by the Berlin Wall, built in 1961, and in part because the Bundesbank became disturbed about potential overheating and moved several times to slow the pace of growth. Erhard, who had succeeded Konrad Adenauer as chancellor, was voted out of office in December 1966, largely--although not entirely--because of the economic problems of the Federal Republic. He was replaced by the Grand Coalition consisting of the Christian Democratic Union (Christlich Demokratische Union--CDU), its sister party the Christian Social Union (Christlich-Soziale Union--CSU), and the Social Democratic Party of Germany (Sozialdemokratische Partei Deutschlands--SPD) under Chancellor Kurt Georg Kiesinger of the CDU.  

Under the pressure of the slowdown, the new West German Grand Coalition government abandoned Erhard's broad laissez-faire orientation. The new minister for economics, Karl Schiller, argued strongly for legislation that would give the federal government and his ministry greater authority to guide economic policy. In 1967 the Bundestag passed the Law for Promoting Stability and Growth, known as the Magna Carta of medium-term economic management. That law, which remains in effect although never again applied as energetically as in Schiller's time, provided for coordination of federal, Land , and local budget plans in order to give fiscal policy a stronger impact. The law also set a number of optimistic targets for the four basic standards by which West German economic success was henceforth to be measured: currency stability, economic growth, employment levels, and trade balance. Those standards became popularly known as the magisches Viereck, the "magic rectangle" or the "magic polygon."  

Schiller followed a different concept from Erhard's. He was one of the rare German Keynesians, and he brought to his new tasks the unshakable conviction that government had both the obligation and the capacity to shape economic trends and to smooth out and even eliminate the business cycle. Schiller's chosen formula was Globalsteuerung, or global guidance, a process by which government would not intervene in the details of the economy but would establish broad guidelines that would foster uninterrupted non-inflationary growth. 

Schiller's success in the Grand Coalition helped to give the SPD an electoral victory in 1969 and a chance to form a new coalition government with the Free Democratic Party (Freie Demokratische Partei--FDP) under Willy Brandt. The SPD-FDP coalition expanded the West German social security system, substantially increasing the size and cost of the social budget. Social program costs grew by over 10 percent a year during much of the 1970s, introducing into the budget an unalterable obligation that reduced fiscal flexibility (although Schiller and other Keynesians believed that it would have an anticyclical effect). This came back to haunt Schiller as well as every German government since then. Schiller himself had to resign in 1972 when the West German and global economies were in a downturn and when all his ideas did not seem able to revive West German prosperity. Willy Brandt himself resigned two years later.  

Helmut Schmidt, Brandt's successor, was intensely interested in economics but also faced great problems, including the dramatic upsurge in oil prices of 1973-74. West Germany's GDP in 1975 fell by 1.4 percent (in constant prices), the first time since the founding of the FRG that it had fallen so sharply. The West German trade balance also fell as global demand declined and as the terms of trade deteriorated because of the rise in petroleum prices. 

By 1976 the worst was over. West German growth resumed, and the inflation rate began to decline. Although neither reached the favorable levels that had come to be taken for granted during the 1950s and early 1960s, they were accepted as tolerable after the turbulence of the previous years. Schmidt began to be known as a Macher (achiever), and the government won reelection in 1976. Schmidt's success led him and his party to claim that they had built Modell Deutschland (the German model). 

But the economy again turned down and, despite efforts to stimulate growth by government deficits, failed to revive quickly. It was only by mid-1978 that Schmidt and the Bundesbank were able to bring the economy into balance. After that, the economy continued expanding through 1979 and much of 1980, helping Schmidt win reelection in 1980. But the upturn proved to be uneven and unrewarding, as the problems of the mid-1970s rapidly returned. By early 1981, Schmidt faced the worst possible situation: growth fell and unemployment rose, but inflation did not abate. 

By the fall of 1982, Schmidt's coalition government collapsed as the FDP withdrew to join a coalition led by Helmut Kohl, the leader of the CDU/CSU. He began to direct what was termed die Wende (the turning or the reversal). The government proceeded to implement new policies to reduce the government role in the economy and within a year won a popular vote in support of the new course. 

Within its broad policy, the new government had several main objectives: to reduce the federal deficit by cutting expenditures as well as taxes, to reduce government restrictions and regulations, and to improve the flexibility and performance of the labor market. The government also carried through a series of privatization measures, selling almost DM10 billion in shares of such diverse state-owned institutions as VEBA, VIAG, Volkswagen, Lufthansa, and Salzgitter. Through all these steps, the state role in the West German economy declined from 52 percent to 46 percent of GDP between 1982 and 1990, according to Bundesbank statistics. 

Although the policies of die Wende changed the mood of the West German economy and reinstalled a measure of confidence, progress came unevenly and haltingly. During most of the 1980s, the figures on growth and inflation improved but slowly, and the figures on unemployment barely moved at all. There was little job growth until the end of the decade. When the statistics did change, however, even modestly, it was at least in the right direction. 

Nonetheless, it also remained true that West German growth did not again reach the levels that it had attained in the early years of the Federal Republic. There had been a decline in the growth rate since the 1950s, an upturn in unemployment since the 1960s, and a gradual increase in inflation except during or after a severe downturn. Global economic statistics also showed a decline in West German output and vitality. They showed that the West German share of total world production had grown from 6.6 percent in 1965 to 7.9 percent by 1975. Twelve years later, in 1987, however, it had fallen to 7.4 percent, largely because of the more rapid growth of Japan and other Asian states. Even adding the estimated GDP of the former East Germany at its peak before unification would not have brought the all-German share above 8.2 percent by 1989 and would leave all of Germany with barely a greater share of world production than West Germany alone had reached fifteen years earlier. 

It was only in the late 1980s that West Germany's economy finally began to grow more rapidly. The growth rate for West German GDP rose to 3.7 percent in 1988 and 3.6 percent in 1989, the highest levels of the decade. The unemployment rate also fell to 7.6 percent in 1989, despite an influx of workers from abroad. Thus, the results of the late 1980s appeared to vindicate the West German supply-side revolution. Tax rate reductions had led to greater vitality and revenues. Although the cumulative public-sector deficit had gone above the DM1 trillion level, the public sector was growing more slowly than before. The year 1989 was the last year of the West German economy as a separate and separable institution. From 1990 the positive and negative distortions generated by German unification set in, and the West German economy began to reorient itself toward economic and political union with what had been East Germany. The economy turned gradually and massively from its primarily West European and global orientation toward an increasingly intense concentration on the requirements and the opportunities of unification.   

Impact of Unification on German Economy

The East German and West German economies at the time of unification looked very similar. They both concentrated on industrial production, especially machine tools, chemicals, automobiles, and precision manufactures. Both had a well-trained labor force and an important export component, although their exports went largely in opposite directions. But the East German economy was highly centralized and guided by a detailed and purportedly precise planning system, with virtually no private property and with no room for decision or initiative. On July 1, 1990, the economies of the two Germanys became one. It was the first time in history that a capitalist and a socialist economy had suddenly become one, and there were no precise guidelines on how it could be done. Instead, there were a number of problems, of which the most severe were the comparatively poor productivity of the former East German economy and its links to the collapsing socialist economies of the Soviet Union and Eastern Europe. 

Even before economic unification, the West German government had decided that one of its first tasks was to privatize the East German economy. For this reason, it had taken over in June the Treuhandanstalt (Trust Agency, commonly known as Treuhand), which had been established by the GDR to take over East German firms and to turn them over to new management through privatization. The agency assumed the assets and liabilities of about 8,000 East German enterprises in order to sell them to German and other bidders. By the time the Treuhand was disbanded at the end of 1994, it had privatized some 14,000 enterprises. 

As economic unification proceeded, issues that had been recognized but inadequately understood in advance began to surface. There was massive confusion about property rights. As wave after wave of Nazi, Soviet, and later GDR expropriations had taken place between 1933 and 1989, there was often little knowledge of the actual ownership of property. More than 2 million claims on properties in the territory of the former GDR were filed by the December 31, 1992, deadline. As more claimants emerged, with many winning cases in the courts, potential investors were often scared off. Another problem was that East German production costs had been very high. The conversion rates of East German marks to deutsche marks often kept those costs high, as did the early wage negotiations, which resulted in wages far above the productivity level. Western German firms found it easier and cheaper to serve their new eastern German markets by expanding production in western facilities. A third problem was that the inadequate infrastructure also became a problem for many potential investors. Telephone service was improved only very slowly. Many investors also complained about energy shortages, as many East German power stations were shut down for safety and other reasons. Roads and railroads had to be virtually rebuilt because they had been so badly maintained. 

In addition to these practical problems, there was also a deep policy dilemma that underlay the entire process of unification. From the beginning, there had been a pernicious link between the earlier and later phases of the East German transition to a free-market economy. Policies calculated to make the initial adjustment as painless as possible hampered long-run growth and prosperity. Real economic efficiency could only be achieved by permitting and even forcing considerable immediate dislocations, whereas temporary compromises might lead to permanent structural burdens. However, excessive disruptions could jeopardize the economic and political stability required for a smooth unification process and might also cause streams of East Germans to move west. The government was never able to solve this dilemma. When it was forced to choose, it usually selected the more expensive and slower course to encourage persons to stay in the east. 

Despite these problems, the process of unification moved ahead, albeit slowly. The Treuhand, staffed almost entirely by Germans from the west, became the virtual government of eastern Germany. In the course of privatization, the agency decided which companies would live and which would die, which communities would thrive and which would shrivel, and which eastern Länder would be prosperous and which would not. It also decided who might or might not buy eastern firms or services. 

Whether correct or not, reports persisted throughout the first years of unification that foreign enterprises were being screened more carefully and more skeptically than German firms even as they were being invited to invest. Less than 5 percent of all investment in eastern Germany was non-German, and most of that was from companies with subsidiaries in western Germany who were expanding them to the east. The Japanese did not invest, although they had earlier expressed some interest, and the offices Treuhand established in New York and Tokyo found few investors. As might have been expected, the economy of eastern Germany went into a deep and precipitous slump immediately after unification. Within a year after unification, the number of unemployed rose above 3 million. Industrial production in eastern Germany fell to less than half the previous rate, and the total regional product fell precipitously through 1991. One estimate was that in 1991 the entire production of eastern Germany amounted to less than 8 percent of that of western Germany. 

Because the process of unification was managed by persons from western Germany, new eastern firms were usually subsidiaries of western firms, and they followed the western ownership and management patterns. Bank participation became customary, especially because the large Frankfurt banks assumed the assets of the former East German State Bank, and most eastern firms thus owed money to those Frankfurt banks. The banks installed their representatives on the boards of the new firms and assumed some supervisory functions--either directly or through control by western firms with bank representation. The Treuhand had close contacts with western German banks. Many of its employees came from those banks and planned to return to their jobs at the banks. 

Because of these circumstances, private investment and economic growth came to eastern Germany at a relatively slow rate. Little new equity capital flowed in. Investment during the early years of unification was only 1 percent of the all-German GDP, when much more was needed to jump-start the economy of eastern Germany. Much of the investment was for the purchase of eastern German companies, not yet for their rehabilitation. Many western German firms bought eastern firms on a standby basis, making sure they could produce in the east when the time came and paying enough wages to satisfy the Treuhand but not starting production. Many others, including Daimler-Benz, did not even meet the commitments that they had made when they had purchased the eastern German firms from the Treuhand. Thus, western German private investment was not strong enough to boost the eastern German economy. 

As private funds lagged, and in part because those funds lagged, federal budget investments and expenditures began flowing into eastern Germany at a consistently high rate. Government funds were used essentially for two purposes: infrastructure investment projects (roads, bridges, railroads, and so on), and income maintenance (unemployment compensation, social security, and other social costs). The infrastructure projects sustained employment levels, and the income maintenance programs sustained income. But neither had an early growth payoff. 

Although the precise level of German official expenditures in eastern Germany has been difficult to estimate because funds appropriated in one year might have been spent in another, it is beyond dispute that the federal government expended well over DM350 billion in eastern Germany during the first three years after economic, or monetary, unification. After 1992 this requirement has continued at an annual level of around DM150 billion, so that the sum of private and public funds put into eastern Germany during the half-decade between monetary unification in 1990 and the end of 1995 would probably amount to at least DM750 billion and perhaps as much as DM850 billion. Between one-fifth and one-fourth of those funds were private, and the remainder were government funds. This constituted an infusion of outside money of about DM50,000 for every resident of eastern Germany, a far greater level of assistance than contemplated for any other area that had been behind the Iron Curtain and a token of German determination to bring eastern Germany to western levels as quickly as possible. 

As eastern Germany went into a deep recession during the first phase of unification, the western German economy went into a small boom. Western German GDP grew at a rate of 4.6 percent for 1990, reflecting the new demand from eastern Germany. The highest growth rate came during the second half of 1990, but growth continued at only a slightly slower pace into early 1991. Prices, however, remained relatively stable because the cost of living grew at only 2.8 percent despite some high wage settlements in some industries. Employment rose during the year, from 28.0 million to 28.7 million, and the unemployment rate sank to 7.2 percent. Notably, the number of registered unemployed in western Germany only declined by about 300,000, showing that at least half of the new jobs in western Germany had been taken by persons who had moved to or were commuting from eastern Germany.  The dramatic improvement in the western German figures resulted from the opening in eastern Germany of a large new market of 16 million persons and the simultaneous availability of many new workers from eastern Germany. Many easterners did not want the shoddy goods produced at home, preferring western consumer products and food. Moreover, many easterners were coming to the west to work. By the end of 1990, as many as 250,000 were commuting to work in the west, and that number was estimated to have grown to 350,000 or even 400,000 by the middle of 1991. 

This meant that western Germany not only had a vast new market but also a growth of over 1 percent in its workforce, as sharp an increase as since the days of the economic miracle. It also increased its capital base because eastern German deposits were placed in western German banks that had come east and because those deposits moved back to the central German financial market at Frankfurt. The Bundesbank became worried about three elements of the sudden boom: the sudden financial shifts between east and west, which led to a jump in money supply; government deficits resulting from large expenditures in eastern Germany; and the potentially inflationary effects of a rapid growth rate in the west. The bank warned that interest rates would have to remain high to keep price increases under control. The bank raised short-term interest rates sharply through 1991 and 1992, with the average rate of short-term interest climbing from 7.1 percent in 1989 to 8.5 percent in 1990, to 9.2 percent in 1991, and to 9.5 percent in 1992. The Bundesbank permitted rates to begin falling only in 1993--to 7.3 percent--when it believed that the inflationary pressures had been contained by the recessionary effects of the credit squeeze. 

As the Bundesbank's policies began to take hold, growth slowed in western Germany, from 4.2 percent in the first quarter of 1991 to 0.8 percent in the last quarter of 1992. For all of 1992, the western German growth rate was 1.5 percent, a decline from the 3.7 percent rate of 1991 and even more from the 4.6 percent rate of 1990. The eastern German growth rate was 6.1 percent during 1992, well below the 7 percent to 10 percent growth rate originally anticipated for the region. The number of employed in western Germany fell for the first time in ten years, by 89,000 persons. 

Despite the slowdown, during 1992 the German economy reached a milestone of sorts. With the addition of eastern German production, Germany's GDP rose for the first time above DM3 trillion. Of that total, the new Länder contributed a gross regional product of DM231 billion, or 7.7 percent. However, the total of German unemployed also reached a record number, 4 million. Two-thirds of that number were unemployed in western Germany; the other one-third were unemployed in eastern Germany. Eastern Germany contributed more to unemployment than to production. The 1992 depression continued into 1993, so that the economy actually registered a negative growth rate of -1.2 percent. By 1994, however, after the Bundesbank had been lowering short-term interest rates for over a year, German growth resumed at an annual rate of about 2.4 percent, but unemployment declined only very slowly despite the uptrend in GDP growth. It was expected that stronger growth would begin reducing the numbers of unemployed by 1995 and that Germany would return to its postwar path toward prosperity. But the absorption of eastern Germany, and the methods by which it had been accomplished, had exacted a high price throughout all of Germany.    

Germany in the World Economy

Along with the United States and Japan, Germany has one of the world's biggest economies and most dominant central banks. Of the three, Germany has the smallest and most vulnerable economy. Germany's GDP of DM3 trillion is less than one-third of United States GDP and less than one-half of Japan's. Despite Germany's relatively small size, it has consistently exerted a powerful influence on the world economy. Since the end of World War II, the Federal Republic has played a key role in beginning, managing, or ending each crisis and each phase experienced by the global monetary system. 

The first phase was the Bretton Woods era, named after the New Hampshire resort where the Allied monetary conference of July 1944 created the IMF and shaped the global postwar order. The dollar was pegged to gold at a fixed rate of US$35 per troy ounce, constituting the official backing of the global monetary system; other currencies were linked to the system through their own fixed, dollar-pegged exchange rates. Countries could devalue or revalue with respect to the dollar, and the dollar price of gold could at least theoretically remain constant even as rates of exchange between separate currencies fluctuated. 

By the late 1960s, there was a surplus of dollars in the international financial system. Largely for domestic reasons, the United States had put far more emphasis on expanding dollar liquidity than on maintaining dollar value. Growing fear of United States inflation had made those dollars less desirable, and many central banks held more dollars than they wanted. The United States proposed that other countries revalue their currencies as provided under the Bretton Woods Agreement. But those other countries, and West Germany in particular, were not prepared to revalue. Money poured into purchases of the deutsche mark, sometimes for the purchase of German goods, but more often to hedge against the dollar or to make a profit when--as was widely expected--the deutsche mark would have to be revalued. West German foreign-exchange reserves rose from US$2.7 billion in December 1969 to US$12.6 billion by December 1971, and to US$28.1 billion by September 1973. The steady flow of foreign money into deutsche marks not only undercut the Bretton Woods system but also threatened to import inflation into Germany by expanding the German money supply. 

West Germany tried to help support the dollar during the late 1960s and early 1970s. Bundesbank president Karl Blessing sent a letter to the chairman of the United States Federal Reserve Board pledging not to purchase United States gold but to maintain West German reserves in dollars. West German chancellor Ludwig Erhard (1963-66) agreed to make large purchases of United States dollar instruments and to make "offset" payments to lessen demands in the United States Congress for a reduction in United States forces stationed in West Germany. The United States and several other nations pressed West Germany to revalue in order to compensate for the dollar glut. Although the Bundesbank would have favored revaluation to reduce the risk of inflation, the West German government was afraid that a revaluation would cut into West Germany's global competitiveness and curtail exports. 

Finally, after intensifying waves of speculation, the Bretton Woods system collapsed in August 1971. The United States stopped the sale of gold at US$35 per troy ounce and thus removed the fixed link between the dollar and gold. With that step, the system lost its anchor. 

The deutsche mark remained under strain throughout the post-Bretton Woods period. It was alternately used in interventions to support the dollar or as a hedge against it. Other currencies again flooded into purchases of deutsche marks. To ease pressure within Europe, West Germany and other European states agreed to peg their currencies to a special system of relatively narrow exchange-rate bands formally entitled the "European narrow-margins agreement" but informally known as the "snake." But the snake also failed to hold. The domestic policies and even the economic philosophies of its leading member states--West Germany, France, Britain, and Italy--diverged too widely. The deutsche mark was the strongest currency, and others could not hold their value against it. 

The United States and West Germany played key roles in trying to arrange a new global monetary system. But they had opposite objectives: the United States was determined not to have the dollar reassume responsibility for maintaining an international arrangement, fearing the great cost to its exports and economic stability. The United States government believed that countries with a trade surplus, such as West Germany, should accept part of the responsibility for solving exchange-rate crises and should be prepared to revalue, and it insisted on advance agreement for sanctions against any country that refused to do so. Despite its readiness to make minor exchange-rate adjustments for the sake of new currency alignments, West Germany refused to commit itself to any arrangement that would oblige it to revalue in the future. 

In March 1973, the United States and other governments and central banks gave up trying to preserve the Bretton Woods system by setting new fixed exchange rates. With that decision, the next phase of the postwar international system, "floating," began. With floating, the relationship between the United States dollar and the deutsche mark became subject to market forces rather than official negotiations. West Germany was not certain whether floating would serve its needs but was not prepared to pursue any alternative. 

Floating did not insulate domestic economies from international events and global economic forces. Although the floating era may have ended the period of fixed links to the dollar and to gold, it did not give countries complete monetary freedom. It only meant that adjustments would be made by the markets, not by government decree or agreement. Those adjustments would, at least theoretically, occur in reaction to trade and payments imbalances, correcting them over time. However, the situation did not work out as expected or planned. The increasingly important role played by capital flows, speculative or not, undercut the theoretically self-regulating mechanism of trade flows as the basis of currency values. 

The economic consequences of floating for Germany were not uniformly beneficial. The Bundesbank welcomed floating because it gave the bank more flexibility. The bank, in fact, could virtually control the deutsche mark's exchange rate if it was prepared to manipulate interest rates to that end. But West German industry, and especially West German exporters, did not welcome the unpredictability that flexible exchange rates introduced into commercial arrangements and production plans. 

West German exporters also faced a particular problem that persisted in the 1990s. The Bundesbank's favorite instrument for fighting inflation, a high real domestic interest rate, is also the instrument that attracts capital to the deutsche mark and keeps the currency valuable. Many businesspeople feared then, as they have since, that the Bundesbank's anti-inflationary policy would always keep the deutsche mark stronger than most other currencies and would thus jeopardize exports. 

German exchange-rate policy has been constantly caught on the horns of that dilemma. When a decision absolutely needed to be made during the floating era, however, German governments and the Bundesbank have almost always chosen an anti-inflationary course of action. They have preferred a strong currency, which might adversely affect trade, to a weak one, which would jeopardize the stability of the German monetary system. With that choice, they set policy for others as well as for themselves. As long as the deutsche mark is strong and German interest rates remain high, even the United States can diverge from German policy only at the risk of seeing its own currency fall in value. Because of Germany's monetary dilemma, and because the German government as well as the nation's bankers and industrialists have recognized German limitations and vulnerabilities, all have been anxious to establish the highest possible level of international predictability. The Germans have become regular participants in international economic consultations, and they have emphasized the value of such consultations at every opportunity. 

Global economic coordination after the end of the Bretton Woods system has resulted in the development of a number of coordinating institutions. One, first known informally as the Group of Five (G-5), consisted of the United States, West Germany, Japan, Britain, and France. After Canada and Italy joined, the association became known as the Group of Seven (G-7). The G-7 includes the finance ministers and central bankers of the principal economic powers, who meet periodically and consult regularly between meetings. 

In addition to the meeting of G-7 finance ministers, there is an annual G-7 economic summit at which the heads of state or government of the same seven countries meet to coordinate economic and political policies or at least to attempt to understand each other better. The summits have been held annually since 1975 on a rotating basis among the summit states, usually in the capital. At the Naples summit of the G-7 in 1994, Russia joined the political discussions, essentially turning the gathering into the Group of Eight (G-8). 

Three summits, those of 1978, 1985, and 1992, took place in Germany. Each was significant for different reasons. In 1978 Chancellor Helmut Schmidt (1974-82) committed West Germany to a more reflationary policy, to his later regret. Seven years later, Chancellor Helmut Kohl (1982- ) and other summit principals made commitments toward supply-side policies that most participants agreed were then necessary and that both Kohl and United States president Ronald Reagan wanted to use to reduce the role of government in their national economies. Seven years later, at Munich in 1992, the G-7 agreed to provide aid to Russia. However, the summit did not reach agreement on the Uruguay Round of the GATT negotiations, and Chancellor Kohl did not carry out what the United States had regarded as his promise to persuade the French to reduce their insistence on large EC agricultural export subsidies. 

German bankers and financial officials have usually spoken skeptically about possible results from the summits, making abundantly clear that the meetings do not affect their views, although they may subsequently adjust specific policies. Bundesbank president Hans Tietmeyer has stated that West Germany sees them as occasions for "cooperation," not "coordination." German global policy has thus been guided by broad efforts to coordinate specific policies, but with a firm wish to preserve German interests and its friendships with the EU members it considers its principal economic partners.    

Deutsche Mark - National German Currency

At the core of Germany's success and influence lies its currency. The deutsche mark gave concrete expression to West Germany's international financial and economic success and also contributed to it. Since unification, it has become even more important as a symbol as well as an instrument of Germany's new central role in Europe. The success of the deutsche mark has been anchored in the success of West German exports, in the Bundesbank's solicitous management of the currency's value, and in the confidence generated by the country's prosperity. 

The deutsche mark has been a model of stability since it became fully convertible in 1958. No other major currency, including the Japanese yen or the Swiss franc, has been stronger. The United States dollar, the cornerstone of the global system, has lost about two-thirds of its value against the deutsche mark since 1958. 

The deutsche mark has become the second-largest currency component of global monetary reserves, second only to the United States dollar. Less than 10 percent of the world's monetary reserves were held in deutsche marks throughout most of the 1970s, but the amount rose to 15 percent by the end of 1987. By the end of 1989, around 20 percent of all global monetary reserves were in deutsche marks. The deutsche mark's position in global monetary reserves largely reflects the extensive deutsche mark holdings in European foreign-exchange reserve accounts as well as the desire among all industrial state treasuries and central banks to hold a stable currency in their reserves. According to the United States Federal Reserve Board, the United States government holds more than US$13 billion of its reserves in deutsche marks, an amount greater than its holdings in Japanese yen. 

The deutsche mark is not used as widely for transactions as it is to supply central-bank reserves. Global commodity prices are still largely denominated in United States dollars. Whatever the deutsche mark's strengths may be, it does not offer the kind of liquidity that the dollar does. Invoicing in deutsche marks is concentrated on Germany's own commerce, but almost 15 percent of world trade is conducted on a deutsche mark basis. The deutsche mark figures much less significantly than the dollar in the creation of international credits or in debt servicing. But a growing quantity of international bond issues--including some being floated in the United States--are denominated in deutsche marks. Major United States banks offer deutsche mark accounts for Americans who want to hedge some of their assets against a fall in the dollar. The World Bank has floated Eurodeutsche mark bonds, as have various United States corporations. In Europe the deutsche mark has virtually become a parallel currency, with prices in Western Europe and Eastern Europe increasingly quoted in deutsche marks as well as in local currencies. 

Bundesbank officials worry constantly that the growing circulation of the deutsche mark makes it difficult to control the supply of the central bank's own currency. Deutsche marks held abroad, circulating abroad, and perhaps even used for currency intervention abroad are still part of the total German money supply. Sudden, large flows could have undesirable impacts on German interest rates or German prices, materially complicating the execution of German monetary policy. The bank fears that any decline in the deutsche mark's value or in the German current-account surplus could set off a selling wave that would force it to intervene massively and perhaps unsuccessfully. Bundesbank president Tietmeyer has warned that the high deutsche mark holdings abroad place a particular burden on the Bundesbank because any loss of faith in the German currency could provoke large-scale selling. The deutsche mark has thus become a burden for Germany as well as a blessing. The Bundesbank stated in May 1991 that one reason it had to maintain high interest rates was to avoid the kind of decline and subsequent market effects that Tietmeyer had cited. The German currency risks finding itself on a treadmill where the stronger it gets, the stronger it must remain until the German monetary authorities no longer dare to reduce interest rates significantly for fear that they might spark a deutsche mark sell-off. 

The IMF recognized the reality of German monetary power in 1990, when it promoted Germany and Japan to share the second rank just below the United States and ahead of Britain and France. German government and banking officials were not certain that they welcomed such prominence, but they were prepared to accept it as a reflection of international appreciation of German monetary policies. 

The West German role in the development of the global financial and monetary system has been replete with ironies. No state consistently had a greater interest in developing a stable system and in cooperating in such a system. Nonetheless, West German policy helped undermine and even destroy some of the arrangements that West Germany wanted to maintain. During the Bretton Woods era, pressures on the dollar almost always expressed themselves in massive purchases of deutsche marks. The strength of the deutsche mark weakened the system because any currency--including the United States dollar--could come under attack if it were not defended and preserved as solicitously as the deutsche mark was by Germany. The only currencies and systems that survived this pressure were those whose governments determined from the beginning that they would follow a strict monetary discipline similar to that applied by the Bundesbank to the deutsche mark.  

Culture of German Management

German management, as it has evolved over the centuries and has established itself since World War II, has a distinct style and culture. Like so many things German, it goes back to the medieval guild and merchant tradition, but it also has a sense of the future and of the long term. 

The German style of competition is rigorous but not ruinous. Although companies might compete for the same general market, as Daimler-Benz and BMW do, they generally seek market share rather than market domination. Many compete for a specific niche. German companies despise price competition. Instead, they engage in what German managers describe as Leistungswettbewerb, competition on the basis of excellence in their products and services. They compete on a price basis only when it is necessary, as in the sale of bulk materials like chemicals or steel. 

The German manager concentrates intensely on two objectives: product quality and product service. He wants his company to be the best, and he wants it to have the best products. The manager and his entire team are strongly product oriented, confident that a good product will sell itself. But the manager also places a high premium on customer satisfaction, and Germans are ready to style a product to suit a customer's wishes. The watchwords for most German managers and companies are quality, responsiveness, dedication, and follow-up. 

Product orientation usually also means production orientation. Most German managers, even at senior levels, know their production lines. They follow production methods closely and know their shop floors intimately. They cannot understand managers in the United States who want only to see financial statements and "the bottom line" rather than inspect a plant's production processes. A German manager believes deeply that a good-quality production line and a good-quality product will do more for the bottom line than anything else. Relations between German managers and workers are often close, because they believe that they are working together to create a good product. 

If there is a third objective beyond quality and service, it is cooperation--or at least coordination--with government. German industry works closely with government. German management is sensitive to government standards, government policies, and government regulations. Virtually all German products are subject to norms--the German Industrial Norms (Deutsche Industrie Normen--DIN)--established through consultation between industry and government but with strong inputs from the management associations, chambers of commerce, and trade unions. As a result of these practices, the concept of private initiative operating within a public framework lies firmly imbedded in the consciousness of German managers.  

The German management style is not litigious. Neither the government, the trade unions, nor the business community encourages litigation if there is no clear sign of genuine and deliberate injury. Firms do not maintain large legal staffs. Disagreements are often talked out, sometimes over a conference table, sometimes over a beer, and sometimes in a gathering called by a chamber of commerce or an industrial association. Differences are usually settled quietly, often privately. Frequent litigation is regarded as reflecting more on the accuser than on the accused. Because of these attitudes, Germany has comparatively few lawyers. With one-third the population and one-third the GDP of the United States, Germany has about one-twentieth the number of lawyers. 

German managers are drawn largely from the ranks of engineers and technicians, from those who manufacture, design, or service, although more non-engineers have risen to the top in recent years. They are better paid than other Europeans (except the Swiss), but on average receive about two-thirds of the income that their American counterparts expect.  Because managers usually remain in one firm throughout their careers, rising slowly through the ranks, they do not need a visible bottom-line result quickly. Managers do not need to be concerned about how their careers might be affected by a company's or a division's progress, or lack of progress, for each year and certainly not for each quarter. 

German taxation also induces management toward long-term planning. German tax legislation and accounting practices permit German firms to allocate considerable sums to reserves. German capital gains tax rules exempt capital gains income if the assets are held for more than six months or, in the case of real estate, for more than two years. 

Because management has not been regarded in Germany as a separate science, it was rare until the 1980s to find courses in management techniques such as those taught at schools of management in the United States. Germans believed that management as a separate discipline bred selfishness, disloyalty, bureaucratic maneuvering, short-term thinking, and a dangerous tendency to neglect quality production. Instead, courses at German universities concentrated more on business administration, or Betriebswirtschaft , producing a Betriebswirt degree. Despite this, two West German schools for business administration, the Hochschule für Unternehmensführung and the European Business School, were established during the 1980s, but they teach in ways that reinforce rather than overturn traditional German ways of management.  

Out of this compendium of business practices arises what might be termed a German management style, with the following characteristics: collegial, consensual, product- and quality-oriented, export-conscious, and loyal to one company and committed to its long-term prospects. One could legitimately conclude from this that the German system could stifle change because it is not as innovative, aggressive, or results-oriented as the United States management style. That, however, would not be correct, for change can and does take place. It occurs gradually, not always obviously, under the mottoes of stability and permanence, with the least dislocation possible, and often under competitive pressures from abroad. German managers themselves occasionally speculate that change might come too slowly, but they are not certain whether or how to alter the system and its incentive structures. 

German Government and Politics

As of mid 1995, Germany was a country coming to terms with the recent unification of its western and eastern portions following four decades of Cold War division. Achieved in October 1990, German unification consisted, in effect, of the incorporation of the German Democratic Republic (GDR, or East Germany) into the Federal Republic of Germany (FRG, or West Germany). Thus, the unified country, rather than reflecting a mix of both states' systems, largely represented a continuation of the West German political and economic system. West German chancellor Helmut Kohl preferred this "fast track" to unification, outlined in Article 23 of the West German Basic Law, or constitution, because he feared that international circumstances might change and the chance for unification might be missed. The alternative path to unification, detailed in Article 146, would have required the replacement of the Basic Law with a constitution developed specifically for a unified Germany.

During the summer of 1990, the governments of the two German states drafted a 1,000-page treaty outlining the terms of political union. The document explained how the political structures and policies of West Germany would be extended to the east, how other institutions--such as the education system--would be coordinated, and which issues would be resolved later--for instance, abortion policy. The parliaments of both German states ratified the treaty, and the territory of East Germany joined the Federal Republic under Article 23 on October 3, 1990.

The West German system of government, outlined in the Basic Law, reflects in particular a desire to transcend the interwar period of democratic instability and dictatorship. A federal system of government, considered vital to a stable, constitutional democracy, was put in place as a direct response to lessons learned from the Nazis' misuse of centralized structures. After four years of Allied occupation, the FRG was established in 1949. The country attained sovereignty in 1955 when the Allies transferred responsibility for national security to the newly formed armed forces, the Bundeswehr.

Creating a climate of political stability was a primary goal of the authors of West Germany's Basic Law. Among other things, the Basic Law established the supremacy of political parties in the system of government. In the resulting "party state," all major government policies emanated from the organizational structure of the political parties. In the decades since 1949, West Germany's parties have tended toward the middle of the political spectrum, largely because both the historical experience with fascism and the existence of communist East Germany greatly diminished the appeal of either extreme. This reigning political consensus, challenged briefly in the late 1960s by the student protest movement and in the early 1980s by economic recession, has led many observers to judge the "Bonn model" a success. However, it remains an open question whether the legal, economic, and political structures of the past will serve the unified Germany as well in the future.

The Chancellor of Germany

The federal government consists of the chancellor and his or her cabinet ministers. As explained above, the Basic Law invests the chancellor with central executive authority. For that reason, some observers refer to the German political system as a "chancellor democracy." The chancellor's authority emanates from the provisions of the Basic Law and from his or her status as leader of the party or coalition of parties holding a majority of seats in the Bundestag. Every four years, after national elections and the seating of the newly elected Bundestag members, the federal president nominates a chancellor candidate to that parliamentary body; the chancellor is elected by majority vote in the Bundestag.

The Basic Law limits parliament's control over the chancellor and the cabinet. Unlike most parliamentary legislatures, the Bundestag cannot remove the chancellor simply with a vote of no-confidence. In the Weimar Republic, this procedure was abused by parties of both political extremes in order to oppose chancellors and undermine the democratic process. As a consequence, the Basic Law allows only for a "constructive vote of no-confidence." That is, the Bundestag can remove a chancellor only when it simultaneously agrees on a successor. This legislative mechanism ensures both an orderly transfer of power and an initial parliamentary majority in support of the new chancellor. The constructive no-confidence vote makes it harder to remove a chancellor because opponents of the chancellor not only must disagree with his or her governing but also must agree on a replacement.

As of 1995, the Bundestag had tried to pass a constructive no-confidence vote twice, but had succeeded only once. In 1972 the opposition parties tried to replace Chancellor Willy Brandt of the SPD with the CDU party leader because of profound disagreements over the government's policies toward Eastern Europe. The motion fell one vote shy of the necessary majority. In late 1982, the CDU convinced the FDP to leave its coalition with the SPD over differences on economic policy and to form a new government with the CDU and the CSU. The constructive no-confidence vote resulted in the replacement of Chancellor Helmut Schmidt with Helmut Kohl, the CDU party leader. Observers agree that the constructive no-confidence vote has increased political stability in Germany.

The chancellor also may make use of a second type of no-confidence vote to garner legislative support in the Bundestag. The chancellor can append a simple no-confidence provision to any government legislative proposal. If the Bundestag rejects the proposal, the chancellor may request that the president dissolve parliament and call new elections. Although not commonly used, this procedure enables the chancellor to gauge support in the Bundestag for the government and to increase pressure on the Bundestag to vote in favor of legislation that the government considers as critical. Furthermore, governments have employed this simple no-confidence motion as a means of bringing about early Bundestag elections. For example, after Kohl became chancellor through the constructive no-confidence vote in August 1982, his government purposely set out to lose a simple no-confidence provision in order to bring about new elections and give voters a chance to validate the new government through a democratic election.

Article 65 of the Basic Law sets forth three principles that define how the executive branch functions. First, the "chancellor principle" makes the chancellor responsible for all government policies. Any formal policy guidelines issued by the chancellor are legally binding directives that cabinet ministers must implement. Cabinet ministers are expected to introduce specific policies at the ministerial level that reflect the chancellor's broader guidelines. Second, the "principle of ministerial autonomy" entrusts each minister with the freedom to supervise departmental operations and prepare legislative proposals without cabinet interference so long as the minister's policies are consistent with the chancellor's larger guidelines. Third, the "cabinet principle" calls for disagreements between federal ministers over jurisdictional or budgetary matters to be settled by the cabinet.

The chancellor determines the composition of the cabinet. The federal president formally appoints and dismisses cabinet ministers, at the recommendation of the chancellor; no Bundestag approval is needed. According to the Basic Law, the chancellor may set the number of cabinet ministers and dictate their specific duties. Chancellor Ludwig Erhard had the largest cabinet, with twenty-two ministers, in the mid-1960s. Kohl presided over seventeen ministers at the start of his fourth term in 1994.

The power of the smaller coalition partners, the FDP and the CSU, was evident from the distribution of cabinet posts in Kohl's government in 1995. The FDP held three ministries--the Ministry of Foreign Affairs, Ministry of Justice, and Ministry for Economics. CSU members led four ministries--the Ministry of Finance, Ministry for Health, Ministry for Post and Telecommunications, and Ministry for Economic Cooperation.

The staff of a cabinet minister is managed by at least two state secretaries, both of whom are career civil servants responsible for the ministry's administration, and a parliamentary state secretary, who is generally a member of the Bundestag and represents the ministry there and in other political forums. Typically, state secretaries remain in the ministry beyond the tenure of any one government, in contrast to the parliamentary state secretary, who is a political appointee and is viewed as a junior member of the government whose term ends with the minister's. Under these top officials, the ministries are organized functionally in accordance with each one's specific responsibilities. Career civil servants constitute virtually the entire staff of the ministries.

Governments of the Federal Republic of Germany, 1949-

Date Formed	Reason for Change	Coalition Partners	Chancellor
September 1949	Election	CDU/CSU, FDP, DP	Konrad Adenauer (CDU)
October 1953	-do-	CDU/CSU, FDP, DP, All German Bloc/Federation of Expellees and Displaced Persons	Konrad Adenauer (CDU)
October 1957	-do-	CDU/CSU, DP	Konrad Adenauer (CDU)
November 1961	-do-	CDU/CSU, FDP	Konrad Adenauer (CDU)
October 1963	Chancellor retirement	-do-	Ludwig Erhard (CDU)
October 1965	Election	-do-	Ludwig Erhard (CDU)
December 1966	Coalition change	CDU/CSU, SPD	Kurt Georg Kiesinger (CDU)
October 1969	Election	SPD, FDP	Willy Brandt (SPD)
December 1972	-do-	-do-	Willy Brandt (SPD)
May 1974	Chancellor retirement	-do-	Helmut Schmidt (SPD)
December 1976	Election	-do-	Helmut Schmidt (SPD)
November 1980	-do-	SPD, FDP	Helmut Schmidt (SPD)
October 1982	Constructive no-confidence vote	CDU/CSU, FDP	Helmut Kohl (CDU)
March 1983	Election	-do-	Helmut Kohl (CDU)
January 1987	-do-	-do-	Helmut Kohl (CDU)
December 1990	-do-	-do-	Helmut Kohl (CDU)
November 1994	-do-	-do	Helmut Kohl (CDU)
September 1998	Election	-do	Gerhard Schroeder (SPD)

The President in German Government and Politics

The Basic Law creates a dual executive but grants most executive authority to the federal chancellor, as head of government, rather than to the president, who acts as head of state. The presidency is primarily a ceremonial post, and its occupant represents the Federal Republic in international relations. In that sphere, the president's duties include signing treaties, representing Germany abroad, and receiving foreign dignitaries. In the domestic sphere, the president has largely ceremonial functions. Although this official signs legislation into law, grants pardons, and appoints federal judges, federal civil servants, and military officers, each of these actions requires the countersignature of the chancellor or the relevant cabinet minister. 

The president formally proposes to the Bundestag a chancellor candidate and formally appoints the chancellor's cabinet members, but the president follows the choice of the Bundestag in the first case and of the chancellor in the second. If the government loses a simple no-confidence vote, the president dissolves the Bundestag, but here, too, the Basic Law limits the president's ability to act independently. In the event of a national crisis, the emergency law reforms of 1968 designate the president as a mediator who can declare a state of emergency.

There is disagreement about whether the president, in fact, has greater powers than the above description would suggest. Some argue that nothing in the Basic Law suggests that a president must follow government directives. For instance, the president could refuse to sign legislation, thus vetoing it, or refuse to approve certain cabinet appointments. As of mid-1995, no president had ever taken such action, and thus the constitutionality of these points had never been tested.

The president is selected by secret ballot at a Federal Convention that includes all Bundestag members and an equal number of delegates chosen by the Land legislatures. This assemblage, which totals more than 1,000 people, is convened every five years. It may select a president for a second, but not a third, five-year term. The authors of the Basic Law preferred this indirect form of presidential election because they believed it would produce a head of state who was widely acceptable and insulated from popular pressure. Candidates for the presidency must be at least forty years old.

The Basic Law did not create an office of vice president. If the president is outside the country or if the position is vacant, the president of the Bundesrat fills in as the temporary head of state. If the president dies in office, a successor is elected within thirty days.

Usually one of the senior leaders of the largest party in the Bundestag, the president nonetheless is expected to be nonpartisan after assuming office. For example, President Richard von Weizsaecker, whose second term expired in June 1994, was the former Christian Democratic mayor of Berlin. Upon becoming president in 1984, he resigned from his party positions. Weizsaecker played a prominent role in urging Germans to come to terms with their actions during the Third Reich and in calling for greater tolerance toward foreigners in Germany as right-wing violence escalated in the early 1990s. Although the formal powers of the president are limited, the president's role can be quite significant depending on his or her own activities. Between 1949 and 1994, the Christian Democratic Union (Christlich Demokratische Union--CDU) held the office for twenty-five years, the Free Democratic Party (Freie Demokratische Partei--FDP) for fifteen, and the Social Democratic Party of Germany (Sozialdemokratische Partei Deutschlands--SPD) for five.

Elected by the Federal Convention in May 1994, Roman Herzog succeeded Weizsäcker as President on July 1, 1994. Previously president of the Federal Constitutional Court in Karls-ruhe, Germany's highest court, he was nominated for the presidency by the CDU and its sister party, the Christian Social Union (Christlich-Soziale Union--CSU).

Presidents of the Federal Republic of Germany, 1949-

President	Years in Office	Former Party Affiliation
Theodor Heuss	1949-59	FDP
Heinrich Lübke	1959-69	CDU
Gustav Heinemann	1969-74	SPD
Walter Scheel	1974-79	FDP
Karl Carstens	1979-84	CDU
Richard von Weizsäcker	1984-94	CDU
Roman Herzog	1994-	CDU

The Legislature in German Politics

The heart of any parliamentary system of government is the legislature. Germany has a bicameral parliament. The two chambers are the Bundestag (Federal Diet or lower house) and the Bundesrat (Federal Council or upper house). Both chambers can initiate legislation, and most bills must be approved by both chambers, as well as the executive branch, before becoming law. Legislation on issues within the exclusive jurisdiction of the federal government, such as international treaties, does not require Bundesrat approval.

The federal government introduces most legislation; when it does so, the Bundesrat reviews the bill and then passes it on to the Bundestag. If a bill originates in the Bundesrat, it is submitted to the Bundestag through the executive branch. If the Bundestag introduces a bill, it is sent first to the Bundesrat and, if approved there, forwarded to the executive. The Joint Conference Committee resolves any differences over legislation between the two legislative chambers. Once the compromise bill that emerges from the conference committee has been approved by a majority in both chambers and by the cabinet, it is signed into law by the federal president and countersigned by the relevant cabinet minister.

Bundestag

The Bundestag is the principal legislative chamber, roughly analogous to the United States House of Representatives. The Bundestag has grown gradually since its creation, most dramatically with unification and the addition of 144 new representatives from eastern Germany, for a total of 656 deputies in 1990. A further expansion in 1994 increased the number to 672. Elections are held every four years (or earlier if a government falls from power). Bundestag members are the only federal officials directly elected by the public. All candidates must be at least twenty-one years old; there are no term limits.

The most important organizational structures within the Bundestag are parliamentary groups (Fraktionen ; sing., Fraktion), which are formed by each political party represented in the chamber. The size of a party's Fraktion determines the extent of its representation on legislative committees, the number of committee chairs it can hold, and its representation in executive bodies of the Bundestag. The head of the largest Fraktion is named president of the Bundestag. The Fraktionen, not the members, receive the bulk of government funding for legislative and administrative activities.

The leadership of each Fraktion consists of a parliamentary party leader, several deputy leaders, and an executive committee. The leadership's major responsibilities are to represent theFraktion, enforce party discipline, and orchestrate the party's parliamentary activities. The members of each Fraktion are distributed among working groups focused on specific policy-related topics such as social policy, economics, and foreign policy. The Fraktion meets once a week to consider legislation before the Bundestag and formulate the party's position on it.

The Bundestag's executive bodies include the Council of Elders and the Presidium. The council consists of the Bundestag leadership, together with the most senior representatives of eachFraktion, with the number of these representatives tied to the strength of the party in the chamber. The council is the coordination hub, determining the daily legislative agenda and assigning committee chairpersons based on party representation. The council also serves as an important forum for interparty negotiations on specific legislation and procedural issues. The Presidium is responsible for the routine administration of the Bundestag, including its clerical and research activities. It consists of the chamber's president and vice presidents (one from eachFraktion).

Most of the legislative work in the Bundestag is the product of standing committees. Although this is common practice in the United States Congress, it is uncommon in other parliamentary systems, such as the British House of Commons and the French National Assembly. The number of committees approximates the number of federal ministries, and the titles of each are roughly similar (e.g., defense, agriculture, and labor). Between 1987 and 1990, the term of the eleventh Bundestag, there were twenty-one standing committees. The distribution of committee chairs and the membership of each committee reflect the relative strength of the various parties in the chamber. In the eleventh Bundestag, the CDU/CSU chaired eleven committees, the SPD eight, the FDP one, and the environmentalist party, the Greens (Die Gruenen), one. Unlike in the United States Congress, where all committees are chaired by members of the majority party, the German system allows members of the opposition party to chair a significant number of standing committees. These committees have either a small staff or no staff at all.

Although most legislation is initiated by the executive branch, the Bundestag considers the legislative function its most important responsibility. The Bundestag concentrates much of its energy on assessing and amending the government's legislative program. The committees play a prominent role in this process. Plenary sessions provide a forum for members to engage in public debate on legislative issues before them, but they tend to be well attended only when significant legislation is being considered. The Bundestag allots each Fraktion a certain amount of time, based on its size, to express its views.

Other responsibilities of the Bundestag include selecting the federal chancellor and exercising oversight of the executive branch on issues of both substantive policy and routine administration. This check on executive power can be employed through binding legislation, public debates on government policy, investigations, and direct questioning of the chancellor or cabinet officials. For example, the Bundestag can conduct a question hour (Fragestunde), in which a government representative responds to a previously submitted written question from a member. Members can ask related questions during the question hour. The questions can concern anything from a major policy issue to a specific constituent's problem. Use of the question hour has increased markedly over the past forty years, with more than 20,000 questions being posed during the 1987-90 Bundestag term. Understandably, the opposition parties are active in exercising the parliamentary right to scrutinize government actions.

One striking difference when comparing the Bundestag with the United States Congress is the lack of time spent on serving constituents in Germany. In part, that difference results from the fact that only 50 percent of Bundestag deputies are directly elected to represent a specific geographic district; the other half are elected as party representatives. The political parties are thus of great importance in Germany's electoral system, and many voters tend not to see the candidates as autonomous political personalities but rather as creatures of the party. Interestingly, constituent service seems not to be perceived, either by the electorate or by the representatives, as a critical function of the legislator. A practical constraint on the expansion of constituent service is the limited personal staff of Bundestag deputies.

Composition of the Bundestag by Party, 1949-

Year	CDU/CSU	FDP	SPD	Greens	Alliance 90	PDS	Other	Total Seats
1949	139	52	131	--	--	--	80	402
1953	243	48	151	--	--	--	45	487
1957	270	41	169	--	--	--	17	497
1961	242	67	190	--	--	--	0	499
1965	245	49	202	--	--	--	0	496
1969	242	30	224	--	--	--	0	496
1972	225	41	230	--	--	--	0	496
1976	243	39	214	--	--	--	0	496
1980	226	53	218	--	--	--	0	497
1983	244	34	193	27	--	--	0	498
1987	223	46	186	42	--	--	0	497
1990	319	79	239	0	8	17	0	662
1994	294	47	252	49	6	30	0	672

Bundesrat of Germany

The second legislative chamber, the Bundesrat, is the federal body in which the sixteen Landgovernments are directly represented. It exemplifies Germany's federalist system of government. Members of the Bundesrat are not popularly elected but are appointed by their respective Landgovernments. Members tend to be Land government ministers. The Bundesrat has sixty-nine members. The Laender with more than 7 million inhabitants have six seats (Baden-Wuerttemberg, Bavaria, Lower Saxony, and North Rhine-Westphalia). The Laender with populations of between 2 million and 7 million have four seats (Berlin, Brandenburg, Hesse, Mecklenburg-Western Pomerania, Rhineland-Palatinate, Saxony, Saxony-Anhalt, Schleswig-Holstein, and Thuringia). The least populous Laender, with fewer than 2 million inhabitants, receive three seats each (Bremen, Hamburg, and the Saarland). This system of representation, although designed to reflect Land populations accurately, in fact affords greater representation per inhabitant to the smaller Laender. The presidency of the Bundesrat rotates annually among the Laender. By law, each Land delegation is required to vote as a bloc in accordance with the instructions of theLand government.

Because the Bundesrat is so much smaller than the Bundestag, it does not require the extensive organizational structure of the lower house. The Bundesrat typically schedules plenary sessions once a month for the purpose of voting on legislation prepared in committee. In comparison, the Bundestag conducts about fifty plenary sessions a year. Bundesrat representatives rarely attend committee sessions; instead, they delegate that responsibility to civil servants from their ministries, as allowed for in the Basic Law. The members tend to spend most of their time in theirLand capitals, rather than in the federal capital.

The legislative authority of the Bundesrat is subordinate to that of the Bundestag, but the upper house nonetheless plays a vital legislative role. The federal government must present all legislative initiatives first to the Bundesrat; only thereafter can a proposal be passed to the Bundestag. Further, the Bundesrat must approve all legislation affecting policy areas for which the Basic Law grants the Laender concurrent powers and for which the Laender must administer federal regulations. The Bundesrat has increased its legislative responsibilities over time by successfully arguing for a broad, rather than a narrow, interpretation of what constitutes the range of legislation affecting Land interests. In 1949 only 10 percent of all federal laws, namely, those directly affecting the Laender, required Bundesrat approval. In 1993 close to 60 percent of federal legislation required the upper house's assent. The Basic Law also provides the Bundesrat with an absolute veto of such legislation.

The political power of the absolute veto is particularly evident when the opposition party or parties in the Bundestag have a majority in the Bundesrat. When this is the case, the opposition can threaten the government's legislative program. Such a division of authority can complicate the process of governing when the major parties disagree, and, unlike the Bundestag, the Bundesrat cannot be dissolved under any circumstances.

This bicameral system also has advantages. Some observers emphasize that different majorities in the two chambers ensure that all legislation, when approved, has the support of a broad political spectrum--a particularly valuable attribute in the aftermath of unification, when consensus on critical policy decisions is vital. The formal representation of the Laender in the federal government through the upper chamber provides an obvious forum for the coordination of policy between the Laender and the federal government. The need for such coordination, particularly given the specific, crucial needs of the eastern Laender, has become only more important.

Electoral System of Germany

The Basic Law guarantees the right to vote by secret ballot in direct and free elections to every German citizen eighteen years of age or older. To be eligible to vote, an individual must have resided in a constituency district for at least three months prior to an election. Officials who are popularly elected include Bundestag deputies at the federal level, Landtag representatives or senate members at the Land level, and council members at the district and local levels. Executive officials typically are not chosen in popular, direct elections; however, in a minority of municipalities the mayor is elected by popular vote. Elections usually are held every four years at all levels. Elections at the federal, Land, and local levels are not held simultaneously, as in the United States, but rather are staggered. As a result, electoral campaigns are almost always under way, and each election is viewed as a test of the federal government's popularity and the strength of the opposition. All elections are held on Sunday.

Voter turnout, traditionally high--around 90 percent for national elections--has been decreasing since the early 1980s. Voters are most likely to participate in general elections, but even at that level turnout in western Germany fell from 89.1 percent in 1983 to 84.3 percent in 1987, and to 78.5 percent in 1990. The 1990 general election was the first following unification; turnout was the lowest since the first West German election in 1949. The most consistent participants in the electoral process are civil servants, and a clear correlation exists between willingness to vote and increasing social and professional status and income. Analysts had been predicting a further drop in turnout, the result of increasing voter alienation, for the national election in October 1994; in fact, turnout increased slightly to 79.1 percent.

In designing the electoral system, the framers of the Basic Law had two objectives. First, they sought to reestablish the system of proportional representation used during the Weimar Republic. A proportional representation system distributes legislative seats based on a party's percentage of the popular vote. For example, if a party wins 15 percent of the popular vote, it receives 15 percent of the seats in the Bundestag. The second objective was to construct a system of single-member districts, like those in the United States. The framers believed that this combination would create an electoral system that would not fragment as the Weimar Republic had and would ensure greater accountability of representatives to their electoral districts. A hybrid electoral system of personalized proportional representation resulted.

Under the German electoral system, each voter casts two ballots in a Bundestag election. The elector's first vote is cast for a candidate running to represent a particular district. The candidate who receives a plurality of votes becomes the district representative. Germany is divided into 328 electoral districts with roughly 180,000 voters in each district. Half of the Bundestag members are directly elected from these districts. The second ballot is cast for a particular political party. These second votes determine each party's share of the popular vote.

The first ballot is designed to decrease the anonymity of a strict proportional representation system--thus the description "personalized"--but it is the second ballot that determines how many Bundestag seats each party will receive. To ensure that each party's percentage of the combined district (first ballot) and party (second ballot) seats equals its share of the second vote, each party is allocated additional seats. These additional party seats are filled according to lists of candidates drawn up by the state party organization prior to the election. Research indicates that constituency representatives in the Bundestag are more responsive to their electorate's needs and are slightly more likely to follow their constituents' preferences when voting than deputies chosen from the party lists.

If a party wins more constituency seats than it is entitled to according to its share of the vote in the second ballot, the party retains those seats, and the size of the Bundestag is increased. This was the case in both the 1990 and 1994 federal elections. After the 1990 election, the total number of seats in the Bundestag rose from 656 to 662. In 1994 sixteen extra seats were added, leading to a 672-member Bundestag; twelve of those seats went to Kohl's CDU and accounted for Kohl's ten-seat margin of victory.

One crucial exception to Germany's system of personalized proportional representation is the so-called 5 percent clause. The electoral law stipulates that a party must receive a minimum of 5 percent of the national vote, or three constituency seats, in order to get any representation in the Bundestag. An exception was made for the first all-Germany election in December 1990, with the Federal Constitutional Court setting separate 5 percent minimums for the old and newLaender . Thus, a party needed only to win 5 percent of the vote in either western or eastern Germany in order to receive seats in the Bundestag.

The 5 percent clause was crafted to prevent the proliferation of small extremist parties like those that destabilized the Weimar Republic. This electoral hurdle has limited the success of minor parties and consolidated the party system. Often voters are reluctant to vote for a smaller party if they are unsure if it will clear the 5 percent threshold. Smaller parties, such as the FDP, encourage voters to split their ticket, casting their first ballot for a named candidate of one of the larger parties and their second ballot for the FDP.

Small parties rarely win the three constituency seats that automatically qualify a party for parliamentary representation according to its overall share of the national vote. This rarity occurred in the 1994 national election. The Party of Democratic Socialism (Partei des Demokratischen Sozialismus--PDS), the renamed communist party of the former East Germany, won 4.4 percent of the national vote, an insufficient total to clear the 5 percent hurdle. The PDS surprised seemingly everyone, however, by winning four districts outright (all in eastern Berlin), entitling it to thirty seats in the Bundestag.

Germany holds no by-elections; if Bundestag deputies resign or die in office, they are automatically succeeded by the next candidate on the party's list in the appropriate Land. There are also no primary elections through which voters can choose party representatives. Rather, a small group of official party members nominates constituency candidates, and candidates appearing on the Land party lists are chosen at Land party conventions held six to eight weeks before the election. Party officials at the federal level play no part in the nominating procedure. Roughly two-thirds of the candidates run as both constituent and list candidates, thus increasing their chances of winning a legislative seat. If a candidate wins in a constituency, his or her name is automatically removed from the Land list. There is considerable jockeying among party factions and various interest groups as candidates are selected and placed on the Land lists. Placement near the top of the list is usually given to incumbents, party members of particular political prominence, or members who have the support of a key faction or interest group. Thus, aspiring politicians are quite dependent on their party, and successful candidates tend to evince loyalty to the party's policy platform. Candidates must be at least twenty-one years old.

German Political Parties

Observers often describe political parties as critical stabilizing institutions in democratic systems of government. Because of the central role played by German political parties, many observers refer to Germany as a "party state." The government of this type of state rests on the principle that competition among parties provides for both popular representation and political accountability for government action.

On the role of parties, Article 21 of the Basic Law stipulates that "the political parties shall participate in the forming of the political will of the people. They may be freely established. Their internal organization must conform to democratic principles. They must publicly account for the sources of their funds." The 1967 Law on Parties further solidified the role of parties in the political process and addressed party organization, membership rights, and specific procedures, such as the nomination of candidates for office.

The educational function noted in Article 21 ("forming of the political will") suggests that parties should help define public opinion rather than simply carry out the wishes of the electorate. Major parties are closely affiliated with large foundations, which are technically independent of individual party organizations. These foundations receive over 90 percent of their funding from public sources to carry out their educational role. They offer public education programs for youth and adults, research social and political issues, and facilitate international exchanges.

Party funding comes from membership dues, corporate and interest group gifts, and, since 1959, public funds. Figures on party financing from 1992 show that dues accounted for over 50 percent of SPD revenues and 42 percent of CDU revenues. Federal resources accounted for 24 percent of SPD revenues and 30 percent of CDU revenues; donations accounted for 8 percent and 17 percent, respectively. The parties must report all income, expenditures, and assets. The government substantially finances election campaigns. Any party that gains at least 0.5 percent of the national vote is eligible to receive a set sum. This sum has increased over time and, beginning in January 1984, amounted to DM5 from the federal treasury for every vote cast for a particular party in a Bundestag election. Parties at the Land level receive similar public subsidies. The political parties receive free campaign advertising on public television and radio stations for European, national, and Land elections. Airtime is allotted to parties proportionally based on past election performance. Parties may not purchase additional time.

Several events, including a party-financing scandal in the early 1980s and an electoral campaign in Schleswig-Holstein marked by dirty tricks in the late 1980s, have contributed to increased public distrust of the parties. A 1990 poll showed that West Germans, in ranking the level of confidence they had in a dozen social and political institutions, placed political parties very low on the list.

Although only 3 to 4 percent of voters were members of a political party, all the major parties experienced a decrease in party membership in the early 1990s, possibly a result of the increased distrust of political parties. SPD membership fell by 3.5 percent in 1992 to 888,000. At the end of the 1970s, the party had had more than 1 million members. CDU membership fell by 5 percent in 1992 to 714,000, while that of the FDP fell by about one-fifth to 110,000.

Article 21 of the Basic Law places certain restrictions on the ideological orientation of political parties: "Parties which, by reason of their aims or the behavior of their adherents, seek to impair or abolish the free democratic basic order or to endanger the existence of the Federal Republic of Germany, shall be unconstitutional. The Federal Constitutional Court shall decide on the question of unconstitutionality." This provision allowed for the banning of the neo-Nazi Socialist Reich Party in 1952 and the Communist Party of Germany (Kommunistische Partei Deutschlands--KPD) in 1956.

The decision to regulate the organization and activities of political parties reflects lessons learned from Germany's experience during the post-World War I Weimar Republic, when a weak multiparty system severely impaired the functioning of parliamentary democracy and was effectively manipulated by antidemocratic parties. After World War II, many parties dotted the West German political landscape, but electoral laws allowed only parties with at least 5 percent of the vote to have representation in national and Land parliaments. Over time, the smaller parties faded from the scene. From 1962 to 1982, the Bundestag contained representatives from only four parties: the CDU, the CSU, the SPD, and the FDP. The Greens gained enough of the national vote to win seats in 1983, and unification brought additional parties into the Bundestag in late 1990. At the federal level, the CSU coalesces with the CDU, the largest conservative party. The SPD is the major party of the left. The liberal FDP is, typically, the critical swing party, which can form a coalition with either the CDU/CSU or the SPD to create the majority needed to pass legislation in the Bundestag.

Extraparty Political Forces in Germany

German society is highly organized into associations that represent the occupational, socioeconomic, religious, and recreational interests of individuals--a tradition that dates back to the corporate guild system of the Middle Ages. Most Germans belong to at least one voluntary association, and many belong to several. The vast majority of these organizations (such as sports clubs) have little political significance, but an important core of groups combines a strong organizational base with a particular interest in policy issues. The size of these interest groups varies. Smaller groups represent subsectors of the population, such as farmers. The large associations include trade unions, professional associations, and religious groups. More than 1,000 of these interest groups are registered formally as lobbyists with the federal government, and hundreds more are active at the Land level.

The primary interest associations in Germany are organized differently from interest groups in the United States. The United States offers a pluralist model of interest groups, in which loosely structured factions compete within the policy process to represent the same social interests. The government offers a neutral forum in which these groups vie for influence on policy. In contrast, many of the major interest associations in Germany reflect a neocorporatist model of interest articulation that channels interests into a number of unified, noncompetitive associations.

Four large, national "peak" associations (Spitzenverbaende; sing., Spitzenverband) represent groups of similar interest associations as a whole. The labor unions, business, the churches, and the agricultural lobbying organizations each has its own Spitzenverband. Membership in one of these peak associations is often mandatory for individuals in a given social or occupational sector. Most peak associations are also organized hierarchically, with the national office determining the objectives and directing the strategy of the association as a whole.

The influence of the interest associations is institutionalized in several ways. Political parties provide one major channel of influence. Although the associations eschew formal party ties and claim to remain above partisan politics--for instance, they do not officially endorse a party at election time--ties between these associations and the parties are close. To take one example, the labor unions maintain a highly developed relationship with the Social Democrats, and a large percentage of SPD party activists are union members. Another forum for interest group activity is the Bundestag. The interest associations not only monitor legislation, lobby members, and testify at hearings, but they also maintain formal affiliations with deputies. Since 1972, when the Bundestag first started keeping records, roughly 50 percent of the members reported either being employed by an interest group or holding an executive position in a group. About 25 percent of the members are affiliated with economic groups, such as labor unions or the business lobby, and about 17 percent are affiliated with religious or cultural associations. Members of key committees such as agriculture, labor, and education are particularly likely to have ties to the relevant groups. The government ministries themselves provide yet another means by which interest groups influence the policy process. The neocorporatist system encourages formal ties between the two. For instance, ministries are required by law to consult with the peak associations about draft legislation that would affect them. To fulfill this obligation, the federal ministries have established standing advisory committees, which include representatives of the relevant interest groups.

Newspapers in Germany

West Germany has always had highly developed mass media. The independence of the press and its freedom from censorship are guaranteed in Article 5 of the Basic Law. Conversely, the communist regime in East Germany tightly controlled the media. Despite government censorship, East Germans were voracious newspaper and magazine readers. More than three dozen newspapers enjoyed a combined circulation of almost 10 million in the GDR.

The complexion of the print media in eastern Germany changed markedly with unification. By mid-1991 only 100,000 copies of East Germany's most widely circulated newspaper, Neues Deutschland, the newspaper of the communist party, were being printed daily, down from roughly 1 million in the recent past. Western consortia bought many of the other established urban newspapers and brought in new management. According to a public opinion survey during the 1990 national election, 68 percent of western Germans and 88 percent of eastern Germans read a newspaper on a regular basis. Not surprisingly, Germany boasts among the highest per capita newspaper circulations within Europe.

The press is privately owned, and most Germans rely on local or regional newspapers for their information. Five daily newspapers enjoy good reputations nationally because of their sophisticated domestic and international coverage: Frankfurter Allgemeine Zeitung (FAZ),Sueddeutsche Zeitung, Frankfurter Rundschau, Handelsblatt, and Die Welt. The FAZ is probably Germany's most prestigious daily newspaper and is the one newspaper read by virtually all members of the political and business establishment. Although independent of any political party, its views are similar to those of the right-of-center CDU. Handelsblatt is the leading business daily. Die Zeit, a weekly newspaper, provides an erudite review of news and culture from a perspective sympathetic to Social Democratic views. Weekly editions of Die Zeitare often more than 100 pages, with in-depth articles filling an entire page. Former chancellor Schmidt is one of its publishers; the paper's circulation is 493,000. Because these newspapers appeal to an elite readership, their circulation figures are much lower than that of the tabloid press. Bild Zeitung, with a daily circulation of close to 5 million, is Germany's most widely circulated daily. It puts a sensationalist spin on topical issues and tends to support right-of-center policies.

Both Bild Zeitung and Die Welt are published by the Axel Springer Group, based in Hamburg. Axel Springer, now deceased, built an enormous media empire, which also includes the two largest Sunday newspapers, Bild am Sonntag and Welt am Sonntag, two Berlin daily newspapers, and many popular magazines. Springer publications are generally considered to have a strong conservative bent.

The liberal counterpart to Axel Springer and his successors has been Rudolf Augstein, founder and publisher of the weekly Der Spiegel, a highly respected and influential newsmagazine combining news coverage with investigative journalism. The magazine's decidedly liberal critique of politics and politicians has often steeped it in controversy. In 1994 its circulation stood at over 1 million copies. Der Spiegel is distributed in 165 countries, and close to 15 percent of its sales are outside Germany.

In 1993 competition for market share held by Der Spiegel emerged with the publication of Focus , a newsmagazine fashioned after Time and Newsweek , with shorter articles and a more colorful layout than that offered by Der Spiegel. Focus appeared on newsstands in January 1993, was less expensive than Der Spiegel, and, after a few months, was faring better than expected. By mid-April Focus was maintaining a circulation of 600,000 and had exceeded its annual target for pages of advertising sold. Since its founding in 1946, Der Spiegel has successfully faced down competition from more than fifty publications. However, the circulation of Focus is growing while that of Der Spiegel is falling.

Although newspapers owned by political parties were common during the Weimar period, the partisan press is much less significant in the Germany of the 1990s. Vorwaerts is the official newspaper of the SPD, and Bayernkurier serves the CSU. Rheinischer Merkur has informal links to the CDU, and Neues Deutschland offers views of the PDS.

Radio and Television in Germany

Radio and television are administered in a decentralized fashion as prescribed in the Basic Law. The intent behind the pattern of regional decentralization is to prevent the exploitation of the media by a strong national government, as had happened under the Nazi dictatorship. Germany has two public broadcasting corporations. The first, ARD, was established in 1954 and encompasses eleven regional public television and radio stations. ARD employs roughly 23,000 people and has an annual budget of about US$6 billion. The second, ZDF was founded in 1961 and is structured as a single corporation, not as a consortium. A third channel broadcasts cultural and educational programs for all Land corporations.

The Land broadcasting corporations have similar organizational structures. Each governs itself under the direction of a broadcasting council consisting--in most Laender--of representatives of the major social, economic, cultural, and political groups, including political parties, churches, unions, and business organizations. The broadcasting corporations are financed largely through monthly fees (DM23.80 per household as of late 1994) charged to television and radio owners. Public television is allowed to devote no more than thirty minutes per day to commercial advertisements. No advertisements are aired after 8:00 P.M. on weekdays or on Sundays. Advertising provides roughly one-third of television revenues and one-fourth of radio revenues. What distinguishes public television from commercial television is the ability to offer greater coverage of public service activities and cultural events.

Most eastern Germans were familiar with western German television even before unification because broadcasts from the west could be received in most of East Germany. According to a 1990 survey, 49 percent of western Germans and 70 percent of eastern Germans watched a nightly news program at least five times each week. Surveys also indicate that television is the most important source of political information: 51 percent of Germans rank television first, ahead of newspapers and magazines (22 percent), conversation (16 percent), and radio (6 percent).

Private broadcasting was virtually nonexistent in West Germany until 1981, when the Federal Constitutional Court recognized the right of the Laender to grant broadcasting licenses to private companies. Enabling legislation took the form of a new broadcasting treaty enacted by theLaender in 1987 that allowed the creation of private broadcasting companies to compete with public stations. In general, private broadcasters do not have an internal supervisory council, but the Laender in which they broadcast can exercise supervisory rights.

Commercial broadcasters finance their operations solely with advertising revenues. Beyond the substantial capital costs associated with starting up a new television channel, private broadcasters have to rely on satellite and cable transmission because the airwaves do not offer unlimited capacity. Thus, viewers have to pay an additional fee to get access to private channels. In 1983 the federal post office undertook a large-scale program of wiring the country for cable television. In March 1993, of the 27 million households in western Germany that had televisions, 70 percent had access to cable service; of the 6.4 million households in eastern Germany, 12 percent had access to cable. However, at that point only about 60 percent of those eligible households had chosen to subscribe to cable.

In 1985 SAT-1 became Germany's first private satellite television station. A group of publishing firms, including Springer, owns SAT-1; the channel offers a program of popular entertainment and news. Other stations subsequently sprang up, including 3-SAT, a joint production of German, Swiss, and Austrian national television; RTL, or Radio-Television-Luxembourg; and various European satellite stations. In early 1993, two all-news channels made their debut: Time Warner and CNN own one, n-tv; and German publishing giant Bertelsmann and theSueddeutsche Zeitung are major financial backers of Vox, the second news channel. Vox failed quickly, however, closing its doors in April 1994. On the whole, private channels nonetheless are prospering. The percentage of Germans watching public channels has dropped to less than one-half since the start of private broadcasting in 1987.