In the later part of the 19th century the German Empire was the leading power on the continent of Europe, both militarily and economically. Britain alone could challenge Imperial Germany, due to the strength of the Royal Navy and the resources that this island kingdom could bring to bear. The British Empire ruled the seas, but the Germans had the strongest single army in Europe.
As the 20th century dawned it was clear that the economies of Germany and the United States would overtake their rivals in one sector after another. Britain also known as the United Kingdom, already had been overtaken by the United States in the 1870’s economically. Now at the beginning of the 20th century the Germans were doing so as well. Worse yet, the German government had authorized the rapid buildup of a navy, that would soon challenge British supremacy of the seas.
Diplomatically Imperial Germany of the late 19th century under the aegis of Chancellor Otto von Bismarck, often was the arbitrator among the major powers of Europe. Since he considered the German Empire to be a satisfied power, the country could afford to be an honest broker in seeking to maintain the peace and balance of power in Europe.
Bismarck took this task upon himself. His goal was to prevent a war in Europe, an event that could possibly undo the greatest achievement of his tenure. This was the unification and establishment of the German Empire.
As the German Empire grew stronger, an ever greater share of the business of Europe was being conducted in the German capital of Berlin. However, London would remain the financial capital of the world until after World War I. It was only then, in the post war fiscal crisis that New York and the United States, would eclipse the British beginning in the 1920’s . As the 20th century progressed ,an ever greater share of banking and investment originated from the United States.
There was another disastrous war in Europe and in the aftermath, the affairs of Europe would now be determined by the two new superpowers of the Soviet Union and the United States. Exhausted by war if Europe was to have any say in the future, it would be through a collective voice. The founding of the European Economic Community (EEC) arrived in the years after World War II. This allowed an economic recovery of the continent and a gradual return to normalcy.
The ending of the Cold War and the collapse of the Soviet Union in the waning years of the 20th century, provided a new opportunity for the EEC to expand eastward. Europe would soon be reunited economically, as Germany had been a little more than a decade before.
It was the unification of Germany that provided the impetus for a united currency. France would acquiesce to the merger of East and West Germany, only if the Germans would agree to a common currency. Thus a decade later, the Euro would be born. The hope of the French and other countries in the EEC, was that by incorporating Germany inside the auspices of European institutions, it would help contain the increasing German vitality and economic strength.
The 21st century has only brought a portion of this expectation to bear. Although the Germans continue to work through the various organizations of the EEC it is becoming increasingly evident, that the dominance of the German economy cannot be denied. The prudent fiscal management of the German economy and the spectacular growth of German exports, has made the new Germany the leading economic power in Europe once again.
Despite the loss of 33% of the land area of the country since the days of the Empire, nevertheless Germany has remained a powerhouse in manufacturing in many leading world export sectors. Few nations could lose as much agricultural hinterland and natural resources as Germany did and still maintain their economic prowess. With just 137,847 square miles (357,021 square kilometers) remaining, the nation of some 81 million was forced to use industry, as a way to provide the population with a way to grow and prosper.
The geographic loss of Alsace Lorraine for iron ore and Upper Silesia for mineral wealth, did force Germany to work more cooperatively with neighboring countries, in the acquisition of resources necessary for industrial production. The loss of Eastern Brandenburg, most of Pomerania, Posen, both Upper and Lower Silesia, as well as East and West Prussia, has forced Germany to import far greater amounts of foodstuffs, to feed the growing industrial centers of the country.
The postwar settlements of the late 1940’s made manufacturing and the exportation of the surplus, an economic necessity for a divided Germany. This reality did not change, when the remaining parts of eastern Germany were allowed to reunify with western portion of the country in 1990. The founding of the EEC was beneficial to the country, because Germany would now have guaranteed markets that would remain open to the excess production of the economy.
The economic achievements of Germany are impressive, if one considers 1945 as year zero when the entire country lay in ruins and was under foreign occupation. In addition, there were millions of citizens in the East that were being displaced from their homes in a huge population expulsion. These nationals needed to be absorbed further to the west in an economy that had been largely destroyed.
Furthermore, there would be a demand for reparations. In the western zones of the country these would be largely abandoned in the 1950’s . In the remaining eastern part of the country, the Soviet Union just simply dismantled and removed infrastructure as spoils of war. Within a short time the western portions of the country would be transformed from former enemy to ally, as a counter weight to the growing power and influence of the Soviet Union.
The economic renaissance of West Germany known as the Federal Republic, became known as the Wirtschaftswunder (economic miracle) of the 1950’s and 1960’s. It enabled Germany to quickly become the leading economic power in the EEC, which was established in 1957. German exports grew exponentially over the following years. By the 1980’s, there were times when the country was jockeying with the United States as the world’s largest exporter for a number of years.
The assimilation of East Germany in the 1990’s after the initial euphoria, was expensive with over $1 trillion USD (United States Dollar) spent within the first decade. Still, the larger economy would now make Germany the clear economic leader in Europe. The potential is even greater, as the five new states that comprised East Germany, begin to catch up with their western counterparts.
Germany now possesses the fourth largest economy in the world. At $3.852 trillion USD at the beginning of 2015, it compares quite favorably to France with just $2.892 trillion USD. The German economy is a third larger.
The German economy remains heavily export-oriented and exports account for more than a third of national output. The export of high added value goods has been the major driver for growth in the late 20th and early 21st centuries. The country clearly became the largest exporter in the world beginning in 1992, by passing the United States. Germany would only lose that title to China in 2009.
Yet, if one compares the population and size of these three nations, German productivity stands out. The United States has a accumulation of 320 million people and China comes in at 1.4 billion. The United States has a geographic area of 3,537,500 square miles (9,161,966 km2) and China at 3,705,407 square miles (9,596,961 km2). The population of the United States for example, is 4 times larger than that of Germany.The huge surpluses generated by the German economy year upon year has made the country enormously wealthy. Foreign exchange reserves stand at 168,299.08 million Euros or 184,624 billion USD. The United States in comparison has $131,129 million USD in reserve.
German gold reserves in contrast, have remained stable at 3,383.41 tonnes. The second largest cache in the world according to official statistics, although China is suspected of having far larger reserves than presently claimed.
German inflation remains moderate at an annual rate of 0.02% and unemployment is at 4.70% which is a 34 year low. Month after month year after year, the trade surplus continues to widen. The country has run a regular surplus since 1952. It began with the export of cars and capital machinery in the early years and has expanded into other fields that include chemical products, hardware, electronic equipment, metals and pharmaceuticals.
Today, the surplus averages well over 20 billion Euros ($22 billion USD) on a monthly basis. In January of this year the total was 15.9 billion Euros. In February it had surged to 19.2 billion Euros. By March it had widened further to $23 billion Euros to decrease just slightly to $22.1 billion Euros in April. In May, it had dropped a bit further to $19.6 billion Euros, but was still up from 17.5 billion Euros from the year before.
These tremendous surpluses have given the Germans a current account surplus of 7.60 % to GDP (Gross Domestic Product). It is actually a violation of European community rules, for a nation to exceed 6%. Yet the Germans continue to surpass this rate on a regular basis. It has become a political issue in addition to an economic one. It has allowed the nation’s trading partners to level criticism against the German government.
There are many political leaders abroad, who resent the huge German trade surpluses. In their opinion, Germany could do far more to stimulate the economies of other nations, by increasing imports and reducing exports.
According to EEC rules, member nations are not to exceed a national budget deficit that exceeds 3% of GDP. The Germans have gone even further enshrining lower levels of debt into their constitution itself and had been moving steadily towards a primary budget balance. In 2015 the country was finally able to announce the first balanced budget since 1969. It had actually achieved the status at the end of 2014, as a result of lower interest rates for debt servicing and strong tax revenues.
Germany has resisted the call of European partners, international institutions and nations like the United States, that have advised the Germans to spend more on growth promoting public investment. Angela Merkel, the Chancellor of Germany has been in office for 10 years, after winning three consecutive elections. She has made a national budget balance a primary goal of her administration.
The accumulation of national debt as a consequence of achieving a yearly budget balance, will now slow even further. At 69.5% of GDP, it will soon reverse as the country begins to pay down this amount. It was at 80%, as recent as 2010. The United States in comparison, has allowed debt to grow to 105% of GDP. Many would now expect the Germans to reduce taxes to stimulate more growth or invest greater amounts of money in infrastructure. However, many politicians in the ruling conservative coalition have instead promoted the idea of paying down the national debt, as the next economic goal.
This financial and economic strength, has given the Germans a large voice in the affairs of Europe. It is no accident that the ECB (European Central Bank) is located in the German financial capital of Frankfurt. It is the Germans who often see that member nations of the EEC follow the financial rules and regulations that were agreed to by earlier agreements.
Germany alone, as the leading member of the EEC has the resources necessary to help other nations in the Euro-zone, some of which are in dire fiscal circumstances. Although the ECB can act independently of Germany, the country carries a great deal of weight within that institution. It is the Germans who provide the funding necessary, for many of the institutions in the EEC and especially the Eurozone.
It will be the Germans who will decide the eventual fate of Greece, since that country is now essentially bankrupt and will remain so, for the foreseeable future. This will be the case for any nation in the common currency zone who falls upon hard financial times. The Germans were instrumental in the debt negotiations with Cyprus, Ireland, Portugal and Spain. They will remain very much involved with the present difficulties in Italy as well.
It is to the advantage of Germany to keep member nations of the EEC and particularly those in the Eurozone, in good economic and financial standing. It is to these countries where the majority of German exports are sent to. This is why Germany has evolved to become the banker of Europe. It is to safeguard the markets for German exports. It also explains how the German economy has become the linchpin of European stability, growth and prosperity.