Germanys Market Economy as a Model for Europe - Research Paper Example

Germanys Market Economy as a Model for Europe Table of Contents Introduction 3 The ‘Trade Deal’ Intended between EU and the US 4 Reasons and Motivations behind TTIP 4 6 Expectations from the Treaty 7 Implications of the Treaty for Germany 8 Current International Trade Scenario in Germany 8 Possible Future Changes to be Observed in Germany Caused by the Treaty 10 Conclusion 13 References 14 Introduction The recently proposed free trade treaty as “Transatlantic Trade and Investment Partnership (TTIP)”, between European Union (EU) and the United States has already started taking shape among critics owing to its future probable effects in the national level, especially amid the member states of EU. To be specific, Germany has been idealised as a perfect example of a neoliberal state which has developed with the virtues of free trade policies comprising a major proportion of Small and Medium sized Enterprises (SMEs) and is quite likely to embrace the proposed TTIP treaty as a member state of EU (Reuters, 2013; Megay, 1970). However, the long run effects of the treaty might not seem to be as fruitful as expected owing to the divergent ideologies prevailing within the EU member states, where most of nations are argued to follow a neo-conservatism policy unlike Germany (Amable, 2011; Abrahamson, 2010). Even though the leadership performances of Germany has been praised by other EU nations, it has also been criticised on the basis of the recent financial crisis and free trade policies between the US and EU as one of the major constraints to channelize the instability within the member states (Möller & Parkes, 2012). Thus, in light of the current economic ideological differences persisting within Germany and other EU member states and also with the US, a question arises that “Will the negotiated TTIP between the EU and the US impose significant impacts on the international trade affairs of Germany within EU and outside, causing alterations in Germany’s position in the near future of global politics”. The ‘Trade Deal’ Intended between EU and the US Reasons and Motivations behind TTIP In the current milieu of global politics, effects of the recent economic downturn can be witnessed apparently in the reasons acting behind international treaties. A similar aspect can be witnessed in relation to the proposed TTIP treaty promoting free trade between EU member states and the US. In the aftermath of the global financial crisis of 2008, both the US nation and the member states of EU had been facing inevitable disruptions in terms of economic stability and growth. As was apparently noted, the GDP rates in all over EU countries were dipping rapidly creating a strong negative influence on its monetary policies. The effects of financial crisis 2008 were apparent in the EU housing market and also in its stock market which indicated a steeply declining growth rate [refer to figure 1 and 2] (European Commission, 2009). Figure 1: Real House Prices during 2000-2009 (European Commission, 2009) Figure 2: Stock Markets 2000-2009 (European Commission, 2009) Evidently, the performance of almost every sector in the EU member states began dipping, creating a recessionary situation within the nations’ trade environment. From private consumption to public consumption and unemployment, the member states of EU had to witness continuous pressures both at the economic and social levels. As a consequence, the overall growth rate in these member states of EU became highly fluctuating and asymmetric. During the period of 2009, recently after the financial crisis 2008, the growth rate all over the EU countries were recorded at a negative percentage depicting sudden and steep fall [refer to figure 3 and 4] (European Commission, 2009). Figure 3: Main Features of the Commission Forecast (European Commission, 2009) Figure 3: The Commission Forecast by Country (European Commission, 2009) The global trade position of the EU member states was further observed to be in a much paradoxical stage in comparison to other countries or economic zones such as the US and Japan in terms of GDP growth rate since 2008. Hence, it can be implied that trade performances of these nations had been suffering owing to the occurrence of the financial crisis in 2008. However, the most severe effects to preoccupy both EU and the US was the diminishing and weakening faith of national as well as international trade investors on the banks of these two nations (Porten & et. al., 2009). In concordance with the dropping consumer demand for products in the global and the national markets, the disruptions in the capital flow of these countries affected the overall trade performance by a significant extent. Even though various policy measures were adopted by the governments, trade performances in the EU and the US have been dipping. Where on one hand, the trade performances of the US depict a stable but delayed growth rate, on the other hand, the international trade prospects for EU seem to be unstable indicating asymmetric growth rates (Jamrisko, 2013; Roe, 2013). Thus, realising its intention to support the trade performances within EU and the US, these aforementioned aspects can be affirmed as the most logical reasons to promote TTIP among these two political institutions. Expectations from the Treaty As stated by the European Commission in response to the draft mandate of TTIP, “The Agreement will be very ambitious, going beyond existing WTO commitments...” which apparently implies that expectations from this treaty is quite high as compared to the other free trade treaties agreed between EU and the US (d’Imécourt & Beary, 2013). It is worth mentioning in this context that the TTIP is intended to be a three pillars agreement of tariffs, services and investments between EU and the US promoting free trade through lowered tariffs and abolition of other trade barriers between the 27 nations of EU including Germany and the US (Eizenstat, 2013; European Commission, 2013). Stating precisely, the expectations from TTIP are significantly linked with the unemployment hazards currently witnessed by both the US and EU member states. Officials from both the institutions agreed that such trade liberalisation will facilitate the employment rates along with diminishing the barriers currently observed in the trade relations between EU and the US. It is thus expected that the treaty will facilitate around 28% increase in the EU-US exports along with a gross increase of 6% in the international trade performances of the EU. On the whole, it is expected that the treaty would boost the EU exports by almost €220bn which would be beneficial to enhance the velocity EU’s recovery from the recent financial crisis (Government of Ireland, 2013). Implications of the Treaty for Germany Current International Trade Scenario in Germany Following a neo-liberal economic model, the nation had been focused on free flow of resources, privatisation with minimum intervention from the government through deregulation and open market characteristics. Contextually, the economic ideology in Germany is believed to be highly based on the notion that free economy is likely to act perfectly if is left uninterrupted. The economy also believes that competition is an essential ingredient to drive the success of any aspect within the economy. However, at particular instances, this economic ideology as adopted by Germany was criticised on the basis that laissez-faire policies concerning economic liberalism which ultimately hampers the competitiveness of the economic marketplace, maintaining it at a stable pace, i.e. neither augmenting nor diminishing competition between traders (Bonefeld, 2012). Nevertheless, Germany had been quite competitive in maintaining its position as a leading exporter in the EU region being majorly based on a manufacturing sector. The economy also rely largely on the SMEs sector wherein it has been recorded that around 20% of the aggregated German exports are obtained through more or less 1100 manufacturing units. It is worth mentioning in this context that Germany fundamentally relies upon its labour intensive and technology oriented manufacturing sector which majorly comprises SMEs. Applying a rigid anti-monopolistic policy, the country also ensures that a free-entry and free-exit competitive structure prevails within the economy to foster competition and growth amid the traders. The trade structure of Germany is further divided into multiple sub-categories, among which the major industry components include Information Communication Technology and Software Industry, Financial Services sector and the Automotive industry segment [refer to figure 5] (Germany Trade and Invest, 2013; European Commission, 2012). Figure 5: Industry Divisions of Germany (Germany Trade and Invest, 2013) Possible Future Changes to be Observed in Germany Caused by the Treaty To be precise, the proposed TTIP free trade treaty can imply a few negative and few positive influences on the current trade performances of Germany. As mentioned above, Germany focuses on the implementation of a neoliberal form of economic structure where labour intensive manufacturing industries and service sectors play a major role in determining Germany’s global position within EU and outside as a leading exporter. It is in this context that the country had been quite successful in recovering from the consequences of the global economic downturn in 2008 much rapidly than other EU states. Today, the employment rate along with the overall economic growth rate had been recorded as quite stable as compared to its neighbouring countries. However, its exports are yet observed as increasing in the international context, the export rates of the nation has been witnessed as diminishing within the Eurozone. Furthermore, the current scenario of Germany depicts that the nation’s fiscal policy has failed to effectively dissolve the benefits earned through the increased exports in its GDP per capita growth which can be apparently witnessed with reference to the labour market scenario. For instance, the labour market in Germany is highly affected due to stable wage rates and limited growth potentials in its living standards improvements. Additionally, being a part of the most competitive economies in the EU, the nation also has to contribute a large proportion of its national income to other member states at much vulnerable position seeking the assistance of independent economies as Germany (Beck, 2013). Based on these aspects, wherein the challenges currently witnessed by Germany are quite similar to that of other majority of EU nations, it can be affirmed that the treaty is likely to satisfy the interests of the economy in rewarding it with better export and employment opportunities. Moreover, it has been witnessed that the export rate between Germany and the US, especially in the automotive sector has been diminishing since the financial crisis [refer to figure 6] (Deutsche Bank AG, 2013; World Bank, 2010). Therefore, it can be argued that the treaty will not only strengthen the exports of Germany within the EU but also assist better trade relations between the nation and the US. Figure 6: Germany’s Exports to China, France, the US, and the UK (% Change from the Previous Year), 2008–10 (World Bank, 2010) Apart from these benefits, the treaty is also likely to impose significant risks and challenges to the economic blocs, i.e. the EU member states and the US. For instance, the major challenges currently observed in relation to the treaty can be identified as related with the agriculture sector. To be noted, during the 1998 Transatlantic Treaty between the EU and the US had to be cancelled owing to the EU reticence on supporting the agricultural pillar of the US with respect to the food produces with Genetically Modified Organisms (GMOs) and other livestock productions. Even the aviation subsidies imposed by the US over the EU airlines companies have also been argued as a major obstacle for the treaty (Blenkinsop & Bilby, 2013). Germany being based on manufacturing industries, along with a free market economy supported by a large proportion of SMEs, the country is likely to witness minimum direct impacts from these obstructions. Nevertheless, being a prominent state in EU, the country might be indirectly affected due to the failure of TTIP as a consequence of these limitations. Additionally, the failure of Doha has also been explained to have severely hampered the belief that free-trade agreements are likely to boost economic growth at the state-level which might ultimately result in the division of economic blocs, thus creating a negative influence on global trade relations (Blenkinsop & Bilby, 2013). Owing to the prevalence of these hindrances, Germany might have to witness fluctuations and paradoxical implications in relation to the effects of TTIP on its trade relations, both within the EU and outside. Conclusion Assessing the intentions, the expectations and the probable consequences of the proposed TTIP along with the country level characteristics of Germany, it can be affirmed that being a prominent member state of EU, the nation will have to witness significant influences from the success or failure of the free trade agreement between EU and the US. Where on one hand, the positive effects may assist Germany to compensate its unemployment and diminishing export rates; on the other hand, the persisting risks with the TTIP can hamper the trade relations of the nation both within the EU and outside. If the enhanced trade opportunities through lower tariffs in the transatlantic treaty increase the national income of Germany substantially, the jeopardy of global division can also hinder the long-term goals of the economy (German Missions in the United States, 2013; Kirschbaum, 2013). Certainly, the expected gains are much attractive than the negative implications of the deal owing to which there is no doubt why the nation has been inclined towards signing a comprehensive deal with much precise connotations which may in the long-run limit the risks discussed above. References Abrahamson, P., 2010. European Welfare States Beyond Neoliberalism: Toward the Social Investment State. Development and Society, Vol. 39, No. 1, pp. 61-95. 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