A German View on Germany in the World

by Alexander Beard, on Nov 21, 2018 2:10:16 PM


I was fortunate to have been raised and educated in Germany, a country which throughout my life time has grown economically and brought prosperity to its people. My life has been lived in a peaceful Germany and a Germany that now works for peace and prosperity for all nations so let me share my view on my homeland, its successes and challenges.

The World is still on a growth path and so is Germany, this despite the fact that advanced economies develop less rapidly than emerging markets and so economies come closer together. Germany will need to invest a lot to remain an important player on a changing playing field with more and more additional important players coming in (i.e. China, India, Russia, Brazil and Nigeria).

If the media is to believed, Germany is not performing well: The Chancellor, Angela Merkel, has not achieved harmony in her political party or brought European Markets and the EU closer together. The United Kingdom is now set to leave the European Union after a referendum on membership endorsed the dissatisfaction of the majority of its population with the aims and policies of the European Union.

We are told that problems abound within Germany’s education system which has fallen back in PISA surveys. German Diesel engines are alleged to be polluting the whole World and our Industries lack energy power supplies. Not all of this is of course true.

OK, we are having some challenges; however Germany cannot be blamed for all catastrophes on our wonderful globe! Pollution from German manufactured engines is not the only source of such pollution and we need to recognize actions of others and ask are they doing better as we know problems exist in countries like Japan and America too. I believe that cheating is cheating and those who cheat deserve punishment if the “playing Field” is to be a level one.

It is also not true, that Germany is the reason for thousands if not millions of people migrating as refugees from Africa, Middle East or Middle Americas. People from poorer countries today have the ability to be better informed through greater communication systems and are gaining a better understanding of the world outside of their countries. This understanding brings the idea of a better future and a will to achieve it. For many this idea of a better life gives them the courage to seek out opportunities outside their homelands be they Honduras or Yemen. Migration starts and walls cannot be built high enough! The media needs to display accurately that there is neither milk nor honey in Europe for doing nothing! People have to work hard to benefit fully even here in Germany.

Germany’s new policy is to conserve our welfare by helping others create prosperity in their own countries. Germany is trying to find better ways than opening its doors to everyone –a process that should have been implemented by all industrialized countries decades ago. Germany now wants to attract other countries to develop this new strategy in coordination within all European countries.

Despite all the criticism the population in Germany is still achieving small growth, the economy is strong and it is still the largest economy in Europe. The GDP per capita for Germany is €52.8 which compares well with that of the €45.6 of the UK and France. The deficit per capita (€ 26 k) is high, however contrasted to many others reasonable. Due to its growing economy the deficit will soon slip under the threshold of 60% to GDP- after all those years of extra cost for German re-unification, financed via increasing debts, will fall away.

Germany’s unemployment rate is lower than 5%, compared to Greece with 19% or Spain with 15%, or France and Italy with 9.x %. One explanation for the reduction in unemployment is gender equality and so an increase in the number of females in the workplace and registered in social security systems. Gender equality has both helped to increase both the number of people in work as well as the German GDP.

Many industries are undergoing a transformation and not only the car industry but also the whole energy industry. Employment is moving away from coal and nuclear power to green energy. There will be the need for huge programs to generate new jobs that can be done by the people who will lose their jobs. There are population challenges to be faced in the transformation of our industries as the numbers of deaths in Germany have also grown from 820 k (2004) to 930 k (2017), while our birth rate has dropped too. The result of change in birth and death rates is that our workforce is shrinking slowly.

There are also enormous changes visible in finance industry. The whole banking sector is under pressure. Some banks had not been prepared for two different pressures happening at the same time: Technical developments (i.e. FinTechs) and lowest interest rates introduced from central banks. Many employees cannot foresee whether they will be needed as greater technological advances are made and introduced into the workplace. Some institutions might have learned too late to change the business model and will cause huge transformations issues.

The pension law was modernized on the 1st of January 2018 so as to encourage more small and mid-sized companies to motivate their employees to save more for pension provision. Employers must now allocate any cost savings they make if their employees are contributing to their pensions savings by salary sacrifice. Nevertheless most companies will not have an increase in cost: for most employees there will be a greater reduction in contributions to the social security systems than they will need to cede forward to the employees EB pension contracts. This “Salary Conversion” is still not in a form of obligatory automatic enrolment – however we are coming closer to it, learning from UK’s success story.

New products for old-age – savings are offered from most providers: instead of an endowment insurance of low performance (0.9% guarantee of interest per annum) the guarantees have been moved to the final day only. This allows greater flexibility for product providers to use better performing assets.

Longevity is still improving due to good healthcare and global developments in medical research. People can work and are working longer - Forced Early Retirement is “out”.

In summary:

  • Will Germany be a country with expected growth? Yes.
  • Will investors see Germany as a place of acceptable workplaces? Yes, I am sure!
  • Will Germany have a problem with unemployment? No, at least not in the near future.
  • Will Germany face a challenge with its ageing society? Yes, reforms and changes need to happen in the whole society!
  • How expensive will EB pensions come in Germany? There will be solutions with reasonable cost.

Well, the British have decided to leave the European Union. We are sad to be losing the UK as an official EC member as their continued membership may have further helped to make a better Europe however we expect that the Island will not shift away from the European continent too fast.

It is my hope that new generations of Europeans can find a better way to live in European harmony
Let’s hope that they will manage this process peacefully!

Rüdiger Blaich
Country Manager - Germany (AB International Benefits B.V.)

Topics:EuropeMarket CommentaryUK