The Impact of Policy Retrenchment in Europe
Edited by Daniel Vaughan-Whitehead
Chapter 6: Public sector adjustments in Germany: From cooperative to competitive federalism
Although the German economy experienced its most severe slump since the Second World War in 2008–09, employment did not fall and unemployment did not increase. The effects of the recession were absorbed by firms mainly internally, despite massive declines in orders in manufacturing industry. This German ‘job miracle’ was made possible by two stimulus packages together totalling some €70 billion and temporary reductions in working hours through short-time working, the use of working-time accounts, reductions in overtime and increases in part-time work (Bosch 2011). The German economy recovered quickly because of the strong increase in exports, mainly to East Asia and the BRIC (Brazil, Russian Federation, India, China) countries, which were less affected by the financial crisis. Output reached and then overtook its pre-crisis level in 2011 and exports grew to a new record level of over €1 billion. This smooth landing in the crisis and the fast recovery reduced pressures on the public sector. The stimulus packages were mainly used to fund public investments, which temporarily relieved the budgets of the highly indebted municipalities, which are the main public investors in Germany. Tax revenues increased to a new record level, substantially reducing the government budget deficit in 2011.
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