The influence of the global crisis on german economy

It is important to notice, that the decrease was particularly seen for goods leaving the country: the decreases in sea freight (-21.6%) and air freight (-16.3%) in the first quarter of 2009 in the same period of the previous year were markedly higher than the overall level. This trend is reflected in the results of foreign trade statistics: in the first quarter of 2009 the volume of exports fell by 21.8% in the same quarter of the previous year. In April of 2009 the year-on-year downward trend increased again (-24.8%).

Rail freight transport recorded considerable decrease (-21.2%) in the first quarter of 2009 as well. Similar to sea and air transport, the observed decreases started in November of 2008. However, the year-on-year decrease in the volume transported by railway enterprises was largest in January of 2009 (-27.9%). Since then the decline has slowed down. In this area the volume of goods leaving the country was much more affected by the crisis than the quantity of goods entering Germany. Altogether, 371.3 million tones of goods were transported in rail freight transport in 2008 (Walter, 2009).

The volume of goods transported to German inland by waterway vessels in 2008 (245.7 million tones) was smaller than the volumes in rail freight transport and sea transport. In this year, only the results of January und February has become available: in the first two months of 2009, the volume of goods transported by vessels to German inland by waterways decreased by 23%, which was slightly less than the decrease observed in rail freight transport (-24.3%) in the same period.

The largest decrease among all modes of transport from January to February of 2009 was observed in road freight transport (-26.9%). The most striking results has been recorded in January of 2009 (-28.2%). Road freight transport includes the transport for hire or reward and the transport on own account of all German lorries, while transport by foreign vehicles is not included. In January and February of 2009, the transport on own account (-30.7%) was affected much more by the economic and financial crisis than transport for hire or reward (-24.6%). In quantity terms, road freight transport is the most important mode of transport: In 2008, 3.1 billion tonnes of goods in total were transported by German lorries (Walter, 2009).

Moreover, the negative effects of the current economic situation are observed in air traveling as well. From January to April of 2009, the number of passengers flying from German airports decreased by 8.3% in comparison to the same period of the previous year. However, the downward trend in this area has already started at the beginning of the second half of 2008. While the upward trend of the previous year slowed down just slightly in the first half of 2008 (+4.9%), whereas, the crisis had a remarkable impact in the second half of the year. In July of 2008 the level of the previous year was almost reached (-0.2%). In August the numbers of air passengers started to decrease more strongly and the largest decreases were recorded at the beginning of 2009 (-11.4% in February and -7.2% in March). It should also be taken into account that February of 2008 was longer by one day due to the leap year.

In 2008 95.1 million embarking passengers and 95.3 million disembarking passengers were counted at German airports, while intra-German transport accounted for 24.7 million passengers. As passengers with only one air travel within Germany are counted only once, the total number of air passengers amounted to 165.6 million (Walter, 2009). The freight sector in Germany is - as well as all transport modes - heavily affected by the decline of industrial production and by the massive drop in external trade flows.

The year 2009 was characterized by the financial and global economic crisis, which, for Germany, led to the most severe economic downturn since the foundation of the Federal Republic. After one year of economic downturn, Germany’s economy overcame the decline in the summer of 2009. The crisis manifested clearly in terms of a decline in freight volume for companies in the transport and logistics sectors. To mitigate the effects of the crisis, the Federal Government closed consultation with the international community, taking comprehensive crisis management measures. Important elements of these measures are the economic stimulus packages with a total volume of almost 100 billion EUR: the Economic Stimulus Package I of November in 2008 (package of measures entitled “Safeguarding Jobs by Promoting Growth”) and the Economic Stimulus Package II of January in 2009 (“Pact for employment and stability”). It was particularly important for the Federal Government that these economic support measures took into consideration long-term challenges and boosted the overall growth strengths.

In accordance to this background, the economic stimulus packages facilitated a faster implementation particularly of urgent investment in transport infrastructure – for this, an additional 4 billion EUR have been made available to develop the federal transport infrastructure in 2009 and 2010. These funds served as the implementation of the following measures in particular: strengthening the ongoing and new transport infrastructure projects, spreading mitigation measures, promoting passenger station programme for the acceleration of the refurbishment of train stations, constructing of urgently needed HGV parking spaces in parking sites along the federal motorways, upgrading the seaward approaches and the hinterland connections of the ports.

With its scrap page scheme (volume: € 5 billion) the Federal Government provided incentives for the scrap page for old and newly purchased cars, boosting sales in the automobile sector and making an important contribution to the reduction of air pollution.

In 2009 and 2010, 500 million EUR have been made available for the applied research in the field of mobility, specifically for innovations in the field of transport and vehicle technology. This should promote the entire emerging sector of electric mobility (further development in particular of fuel cells and storage technologies as well as hybrid propulsion systems) (United Nations Economic Commission for Europe, 2010).

State support. During the crisis Mrs. A. Merkel’s government had to deal with new and painful economic facts, including the record of public debt of about 100 billion EUR, or about 136 billion USD. Mrs. A. Merkel’s initial tough stand against the bailout for Greece was immensely popular at home, and her belated support for a series of ever-bigger rescue packages was not. Despite a rapidly reviving economy, the unemployment was almost lower in summer of 2010 than before the crisis, her coalition had lost control of the upper house of parliament and her power was increasingly tenuous.

The “Economic Foundation Germany” is the official name of the loan and guarantee programme for distressed companies. It was implemented by the German government as economic stimulus package in March of 2009. Its volume amounts to several billion EUR. It is the state’s aim to help companies, which were strongly influenced by the financial crisis. The state bank “KFW- Kreditanstalt für Wiederaufbau” offered loans up to 40 billion EUR in total, where 23 billion EUR were given to big companies and 15 billion EUR were given to smaller companies. In fact, a company usually could ask for financial support maximum of 300 million EUR. During the application process, the companies had to fulfill given requirements which were checked by auditors. The final decision of acceptance to receive a loan was made by the committee. The economic stimulus package from the state mentioned above had a positive effect, which was quickly seen in the stock of exchange markets. The relief after the state’s help become obvious due to strong worldwide capital gains at the stock exchanges.

Another possibility to help an enterprise out of its unfortunate situation was to nationalize it. In behalf of Germany, the government could nationalize a company over a certain period of time, until it had discovered and became stable enough to operate on its own. The example was the “Hypo Real Estate”, which was discussed above.

The research has proved that the recovering process with such financial help is complicated and not every company can be assisted or saved. Due to the money limitations, the state must set priorities with regard to the benefits of the German society. Nevertheless, the stock exchange market, whose “well-being” depends on the circumstances of the worldwide economies, is already capitalizing due to the state’s efforts to provide financial support. German shareholders do not only deal with but also cope with the current market’s situation and can record reviving gains from their capital.

Germany’s revival differed from the rest of Europe, where economies ranged from sluggish to staggering. The global slowdown and recovery underscored the differences between Germany and its neighbours, and witnessed how Germany was taking a newly assertive role in foreign affairs. But the government’s role of reluctant saviour when the Euro zone’s sovereign debt crisis was increasing encouraged anger abroad for being too stingy and outrage at home for agreeing with everything in order to provide help for countries like Greece and Spain.

While Germans showed disappointment due to the debt - both their own and that of intensive-care cases like Greece and Spain - its export model was criticized by its neighbours, who preferred to see Germany buying more of their goods. Instead, the German government introduced an austerity budget, cutting nearly 100 billion USD in spending by 2014.

In the second quarter of 2010, Germany's economy expanded by 2.2%, which was one of the best results since the reunification in 1990 - equivalent to an annual rate of 9%. The strong growth of figures promoted the conviction that German workers and companies in recent years made the short-term sacrifices that were necessary for a long-term success and which were not made by the Germany’s European partners. And it reinforced the widespread conviction among policy makers that they handled the financial crisis and the painful recession far better than the USA.

The battle over how to navigate the financial crisis helps to display Germany’s emerging post-cold-war identity as a country less tolerant to foreign demands and lecturing, with a tenser relationship with European partners. Though, Germany has many issues to solve, it has also become less obsessed with its historical crimes and more enthusiastic about its economic model, its culture and its improved place in the world.

It is clear that Germany's export machine is recovering. The country’s unemployment rate fell to 7.6%, almost to the pre-crisis level in 2010. Companies, including the electronics and engineering giant Siemens, the truck maker MAN or the carmaker Daimler, began ramping up working hours. BMW had announced that it is seeking 1,000 employees in Germany to work in R&D as well as in purchasing and sales. As a country adding workers, Germany’s image stands in far different perspective than five years ago when unemployment was above 13%, more than 5 million people were jobless and the country was a symbol of labor-market inflexibility.

Germany’s unexpectedly strong economy is generally considered to be good news for the rest of Europe, which depends on German demand for its goods. However, this drop in joblessness should help increase consumer’s confidence and encourage Germans to take vacations in Spain and Greece. But Germany’s success is also a significant point of contention in relationships with leaders of France and other countries who believe that some of it comes at their expense. Germany’s export exceeds import, in part benefiting from easier access to credit than in the heavily indebted countries.
3.5. How to prevent another crisis
This worldwide crisis has aroused the question if globalization is a positive process? On the one hand, due to globalization the breakdown of one country spreads like a Domino effect among others, but on the other hand, protectionism minimizes competition. According to Mrs. A. Merkel, the greatest danger that threatens us is protectionism, however, we are still taking not enough means to ensure genuinely free trade.

The crisis has revealed a number of weaknesses in the regulatory and supervisory framework, both in Germany and internationally. While the German approach in these areas takes place within the framework of European regulations and international practices, there is substantial national discretion to impose regulations and the way supervision is applied is largely a national matter. The European and international regulatory contexts may change substantially as a consequence of the financial crisis, but, nevertheless, there is an important scope for Germany to strengthen its own arrangements. First of all, the banking supervision could be organized more efficiently. Secondly, the independence of the supervisor needs to be strengthened. Moreover, the supervisor should be sufficiently independent from political interference, as well as widening the scope for supervision beyond compliance with quantitative requirements. Finally, systemic risks were not taken into account to a sufficient extent as the banking supervision - as in other countries - focused on micro-prudential analysis. This concern, the risks from a maturity mismatch in the refinancing of the long-term loans, was the key issue in the fall of Hypo Real Estate.

• 
  Levity, avidity and credulity caused the economic crisis in Germany.
  
• 
  German multinational companies and banks should not underestimate the importance of rating agencies that secure investments. Careless decisions concerning personal or company’s enrichment resulted in bankruptcy of people, enterprises and even economies, as far as it is possible. The avidity of German investment bankers caused their job losses.
  
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  Banks, companies and private persons in Germany should adapt to a low-risk policy by investing and expanding the business and by enriching due to acquisitions of other companies or activities on the stock exchange. Private equity and large portions of savings can help company through the economic crisis.
  
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  On the one hand global crisis has surely had a negative influence on the economies worldwide, but on the other hand, it challenges economies and companies to reconsider their strategies and activities, to create and implement new ideas. It is important to free from dependencies. Germany should focus on internal consumption, in order to have another support, when it comes to revenues received from the sale of goods. Only then the additional danger, risk and problem of high oil prices, that have an impact on several sectors of doing business, can be dealt with. It is rather dangerous to focus entirely on global export.
  
• 
  New strategies should be considered by multinational companies, especially in car manufacturing sector; they should be innovative and reconsider their product portfolio.
  
• 
  Germany was hit by the global economic downturn in 2008 - 2009, resulting in unusually high levels of debt and losing its position as the world's greatest exporter to China. Its economy started to recover in 2010, as exports soared and unemployment recovered to nearly pre-crisis levels.
  
• 
  Successful economic rebound was caused by the German government’s financially supporting programmes applied for certain enterprises as well as by the new increasing investment of the shareholders resulting in a recovery of the stock exchange market.
  
• 
  The fear of globalization is comprehensible; however, the protectionism is not a solution. There are more effective methods to prevent or at least to smooth the next financial breakdown. One of the most important actions is to restructure supervision of financing.
  

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