Germany’s 21st Century Economy: European Leader But Still At Risk

Map of Germany with green pushpin main

Nestled in the heart of Europe, Germany stands tall as a powerhouse, leading both economically and politically within the European Union. Boasting a robust social market economy, Germany’s exports – including automobiles and machinery – are the envy of the world. With China, the United States, and the Netherlands as its major trading partners, Germany has all the tools necessary for a prosperous future. However, it must navigate challenges such as energy demands, national debt, competition from China, a decreasing birth rate, and immigration policy. Despite these obstacles, Germany remains a force to be reckoned with and a country worthy of admiration.

Germany At A Glance 

In the heart of Europe, Germany has an ancient history back to the days of Julius Caesar.  

After being the enemy of the United States in two world wars, post World War 2 the country was divided in half. Eastern Germany was controlled by the Soviet Union and West Germany became an important U.S. ally.  The end of the Cold War brought a reunited Germany in 1990.  Fast forward to the 21st century; it’s now the largest economy in Europe and the fifth largest in the world.

The country has the second-largest (next to Russia) population in Europe with about eighty-five million people.  Over half in some fashion consider themselves Christian, but “nones” are growing fast.  The official language is German.  The  Turks are the largest minority group.  

The United Nations Population Fund lists Germany as host to the third-highest number of international migrants worldwide, behind the United States and Saudi Arabia.

Germany is a federal parliamentary republic (the chief of state is the president, and the head of government is the chancellor) and is a member of the European Union.  

Economic Snapshot 

Germany is a mixed economy.  It is a social market economy, a “third way” that serves as a middle path between free market capitalism and socialism.  

Germany’s currency is the Euro, the economic unit of the European Union. 

Their major industries include automobiles, chemicals, electronics, food and beverages, mining, pharmaceuticals, and telecommunications.  Research and development is an important industry.

The nation is rich in natural resources, including iron ore, coal, potash, timber, lignite, uranium, copper, natural gas, salt, and nickel.  Agricultural products include fruit, milk and eggs, cattle and pigs, potatoes and cabbage (can’t forget that!), and sugar beets (my mom’s nemesis).  

The Germans are a highly educated and skilled workforce.  They primarily work in service positions (over 70%) with most of the rest in industry (around 25%).  Few people work in agriculture.  

European Common Market

Germany is a member of the European Union, an economic and political association of twenty-seven nations.  The United Kingdom recently exited it aka “Brexit.”  

The European Union forms a “common market,” which includes around four hundred and fifty million people.  The goal of the European market is to promote the “four freedoms,” the free movement of capital, goods, people, and services.  

The United States Constitution served as an early model, including its establishment of a tax duty-free zone among the states (Art. I, sec. 10).  

Germany and Foreign Trade 

The German economy is geared toward exports, which are goods countries trade with other countries.  They are top exporters worldwide along with China and the United States. The Germans had regular trade surpluses (exports over imports) since 1952.  

(One in four jobs in Germany relies on exports while exports accounted for 47% of the country’s Gross Domestic Product (GDP) in 2019, four times that of the United States.)

Their top trading partners are China, the United States, and the Netherlands (a bordering nation) along with various other European nations.  Top exports are motor vehicles, electrical and industrial machinery.  Their top imports include motor vehicles, medicines, and petroleum.  

Germany is a member of the Group of 7 (G7), a political and economic forum that also includes Canada, France, Italy, Japan, the United Kingdom and the United States.  Germany is the most  “open economy” (the fewest economic barriers) of the countries involved.  G7 has been less important in recent years after Russia left but remains an important economic influencer.

Germany is an important economic and political partner of the United States.  The U.S.-German Treaty of Friendship, Commerce, and Navigation affords U.S. investors special treatment and provides for the free movement of capital between the United States and Germany. 

Germany’s Economic Future 

In various respects, Germany is a strong economy.  Their workers are highly educated and skilled.   Germany is an open society with a strong reputation for the rule of law.  Labor relations are good.  And, it remains the most influential nation in the European Union.

Nonetheless, there are various concerns about Germany’s economic future.  Its conservative economic decisions have served them well in the past.  Now, there is concern that it has inhibited new investment.   Will Germany need to think outside the box to thrive in the future? 

The increase in trade with China is a plus, but there is a concern that Germany will not maintain a strong balance of trade with them. The national debt is also increasing.  

Germany has significantly relied on Russia in recent years for its energy needs.  Russia’s war with Ukraine and the 2022 global energy crisis have led to difficulties.

Social Challenges to the Economy

There is also a declining birth rate.  Immigration, including a recent increase in refugees, is a potential means of addressing this. 

Germany can do a better job changing its policies to encourage immigrants with professional skills.  This can help bring in new young talent.  

Germany has reasons to be concerned but should have the means to be successful.  In 1990, they managed to unify East and West Germany. They can adapt to the times now, too.

Teach and Thrive

A Bronx, NY veteran high school social studies teacher who has learned most of what she has learned through trial and error and error and error.... and wants to save others that pain.