Germany’s Role in the Recovery of the European Union

Five years after the financial crisis, the European Union has continued to struggle. Plagued with high unemployment rate, rising suicide rates, high government debts, and rising prices, the European Union has continued to suffer financially since 2008. In recent surveys conducted by the European Commission, less than one third of people trust the European Union (Public 23). The greatest concern of these people is the high unemployment rates – as high as 27.6% in Greece (Greece 1).

However, not every country in the European Union has been struggling to the extent of Greece. Germany, which is truly a diamond in the rough, faces an entirely different economic position. The export-heavy industrial superpower has continued to expand its economy despite the negative effects it has faced from its surrounding nations. Due to this positive trend, members of the European Union have looked to Germany as the new leader of the European Union. However, after the recent elections, many people are left wondering whether the German Bundestag will be able to command Europe. In September, Germany held its elections, in which the CDU party of Angela Merkel reigned supreme for the third time in a row. Over the course of the next 4 years, the CDU hopes to increase employment, lower taxes for the country, and defend exports with hopes to pay back its national debt. The rest of the world can only wonder if this will be enough to stabilize the financial market in the other countries that make up the European union and the Eurozone.

Even though Germany’s current unemployment rate is 5.2%, which is already below what Americans consider to be the natural rate of unemployment, the country still hopes to improve (Germany Unemployment 1). Currently, the average unemployment rate in the European Union is 11% and has been rising since early 2011(Unemployment 1). Due to the disparity between the unemployment rates, it is no surprise that the other countries have been looking to Germany as the new leader.

Unemployment Rates of Germany and European Union (Eurostats)

If the Germans are able to continue their progress in lowering the unemployment rate, it can only help the overall economic stability of Europe. As unemployment rate drops, there will be an increase in the average standard of life for the nation. The German people, who are known for their abnormally high saving rates, will hopefully expand their spending into neighboring countries. As we have seen in the past, increased spending is beneficial to the economy and thus the entire European Union.

The CDU party also hopes to increase the average German income by lowering the taxes on it rather than through a minimum wage, which is associated with unemployment (CDU 1). Disposable income, which is the amount of income that a person has after taxes, can also be used to show the response of consumption to a change in taxes. Historically, a decrease taxes has led to an increase in long-term consumption. While the increased German consumption of goods may take time to show effects on surrounding countries, history has shown that the increase in consumption should cause the European Union to finally recover from its low point in 2008.

In the final major piece of their platform, the CDUasserts that Germany must defend and improve its exports in order to pay off its national debt (CDU 1). Germany has always been “the world’s biggest exporter of goods, with particular strengths in machinery, chemical, and auto sectors.”(Merkel 1) In 2009, economists warned that Germany was in a vulnerable position due to a decrease in global demand for goods. However, four years later, Germany still holds a powerful global position that continues to grow in power. Angela Merkel, the Chancellor of Germany since 2005, stated, “I believe there is no alternative to being a country with strong exports.”(Merkel 2) The CDU party plans to encourage exports over the next few years in a hope to pay off its national debt. They hope to set an example for its neighboring countries. Most countries in the EU can no longer raise taxes to combat the major problem of growing national debt, as they already have high tax rates.

Over the next few years, the world will have to wait and see if Germany can take on a leadership position in the European Union and help the European economy recover. In the past few weeks, the European equity markets have been showing signs of recovery, with a record high of 8,981 index points in October 2013(Germany Stock 1). Regardless of the recent economic improvements for the EU, a country must step into the leadership position. Currently the most likely candidate for the position seems to be Germany, due to its current economic success. Germany must use its political policies at home in order to attempt to influence the great European economic problems, if the European Union hopes to survive.