Long known as the producer of luxury cars and precisely engineered machinery, not to mention its fair share of David Hasselhoff's Greatest Hits albums, Germany boasts the largest economy in modern Europe.
The nation, however, has been plagued by high unemployment rates and stagnating economic growth. Germany's 2001 GDP growth was a sluggish .6 percent, the worst performance in the European Union.
The EU's longstanding policy of a single interest rate, along with the introduction of the Euro last January, has contributed to the poor economic conditions in Germany.
"The Euro was served to energize the European economy," Commerce Prof. Mark White said. "Instead, it seems to have lumbered the biggest, most sluggish, and perhaps the least reformed economy, Germany, with interest rates higher than it needs."
In the United States, the Federal Reserve Board often cuts interest rates during periods of slow economic growth, thus encouraging corporations and consumers to borrow more money and bolster the economy. This option is not available to Germany, which must comply with fixed interest rates set by the European Commission in Brussels, Belgium.
In addition to its growth slump, Germany also has been plagued by the recent collapse of one of its financial markets.
Germany's equivalent of the NASDAQ, the tech-based Neuer Markt, was shut down in September after losing 95 percent of its value since its dotcom peak in 2000. "Germany has always had a debt culture," White said. "The majority of financing in Germany comes from banks. It doesn't come from shareholders, like in the United States. The Neuer Markt was an opportunity for Germans to get in on equities and become a part of the shareholder culture."
Problems arose, however, with so many new companies on the Neuer Markt and so many shareholders. The momentum of the Markt was unsustainable. With the collapse of Silicon Valley and the tech bust, the Neuer Markt no longer looked like such a good idea to investors.
"They tried it, and [the market] just collapsed under its own weight," White said. "You've got to remember that these are Germans that lived through the Depression, the Weimar Republic and World War II. They aren't used to equity capital. Now we've got gun-shy investors. Big ones."
Despite a recent national election, Germany remains undecided on the best way to pull itself out of its economic slump. By denouncing the United States' involvement in the war against Iraq and steering Germany through summer floods, incumbent Chancellor Gerhard Schroeder gained last minute support to beat out his conservative opponent, Edmund Stoiber.
Schroeder critics recall that in 1998, Schroeder marketed himself as a business-friendly politician and pledged that his party, the Social Democrats, would reduce the number of unemployed Germans to 3.5 million.
Four years later, unemployment hovers at 4 million, or 9.7 percent of the labor force, though in many parts of East Germany the rate is nearly twice that.
But the high unemployment rate "is not Schroeder's fault. He inherited that from his predecessor, former Chancellor Helmut Kohl," German Prof. Beth Bjorklund said. Today's unemployment can be attributed to "the world economy, globalization and jobs going to Eastern European countries, since labor costs are so high in Germany."
German workers enjoy sick leave, vacation and job security more generous than almost anywhere else in the world. Fourth-year Commerce student Gabrielle Geist, a native of Tuetlingen, Germany, said these benefits are what make the German workplace so attractive.
"In comparing a job in Germany versus the United States, it's hard to pass up five or six weeks of paid vacation per year," Geist said.
Yet so many worker benefits can have negative effects on the labor market. One explanation of the current joblessness is that businesses are afraid to hire new employees because they think they won't be able to get rid of them if the business faces hard times.
Labor unions are key supporters of the Social Democratic Party and have thus far been able to keep Schroeder from reforming the rigid labor market. Yet Schroeder has rejected other means of boosting the economy, such as his party's proposal to raise taxes, which he feels would only further hurt consumers.
While he has appeased the unions up to this point, it appears that Schroeder's only way out might be "to make the labor market less rigid," White said. "That would mean cutting some of the entitlements that [the Germans] have grown up with."
While there seems to be a consensus in Germany that changes need to be made, the future is unclear. For his part, Schroeder is heralding his newly-appointed Hartz Commission, which aims to cut unemployment in half by 2005 by creating state-run job centers.
Many experts see this as an impossible goal, reminiscent of Schroeder's promise to cut the number of unemployed to 3.5 million. Whatever the outcome, Germany remains for now in an undesirable position.
With German Finance Minister Hans Eichel's announcement that his nation's deficit will be 2.9 percent of the GDP for 2002, the German government cannot rely on spending its way out of the crisis if it wants to avoid fines.
The EU's Stability and Growth Pact requires member nations to keep budget deficits under 3 percent of GDP.
Instead, Schroeder plans spending cuts of 10 billion euros in the coming year.
Because the coalition government of the Social Democrats and the minority Green Party hold only a narrow margin over their conservative Christian Democratic opposition, Schroeder might not have the leverage needed to pass major reforms.
Experts think it will be spring at the earliest when the job market heats up. Even then, it is unclear what will be needed to bring Germany out of its rut and how long it will take to restore the economy. A recent cover of the German newsmagazine Der Spiegel captured the sentiment of the nation with the headline "Die Blockierte Republik," or the "deadlocked republic."
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