1. Sven Eppert 21 May 2003 Warsaw School of Economics CorporateStrategy Marcin Wojtysiak-Kotlarski, Ph.D. Country Report GERMANY

2. Sven EppertCountry Report Germany 21 May 2003 - 2 - 1.Overview 2.Political environment 3.Economic environment 4.Social environment 5.Technological environment 6.Summary Agenda

3. Sven EppertCountry Report Germany 21 May 2003 - 3 - Germany in figures  Area: 356,970 km 2  Population: 82.4m (i.e. 231/km 2 )  Main Cities: Berlin (3.4m), Hamburg (1.7m), Munich (1.2m)  GDP: 1,984bn EUR (2002)  Inflation: 1.0% (April 2003)  Unemployment rate: 10.8% (April 2003) Overview

4. Sven EppertCountry Report Germany 21 May 2003 - 4 - 1.Overview 2.Political environment 3.Economic environment 4.Social environment 5.Technological environment 6.Summary Agenda

5. Sven EppertCountry Report Germany 21 May 2003 - 5 -  Federal Republic of Germany (constituted of the united Germany on 3 October 1990)  3 levels of government: -Federal: bicameral with the Bundestag (Federal Assembly) and the Bundesrat (Federal Council)  both responsible for national laws, e.g. taxation -States (Laender): own constitutions, governments and parliaments - running of own facilities, e.g. education and hospital -Local: relatively large power (e.g. levy business tax) System of government Political environment

6. Sven EppertCountry Report Germany 21 May 2003 - 6 -  Main parties: SPD, CDU/CSU, Greens, FDP and PDS  Social democratic-Greens Party coalition since October 1998 led by chancellor Gerhard Schroeder (small majority since 2002)  Great influence of the opposition in the Bundesrat Bundestag Political parties Political environment

7. Sven EppertCountry Report Germany 21 May 2003 - 7 -  Budget deficit (Maastricht treaty reference) -Tax outfall (126bn EUR till 2006) -Rising of taxes, e.g. tobacco tax by 1 EUR  Unemployment  Social system costs (Health, pension and unemployment insurance)  "Agenda 2010" introduced by Schroeder in March 2003: Broad reform package for the labour market, social system, economy, finance and education  Nevertheless likely that the current coalition remains in power till 2006 Outlook Political environment

8. Sven EppertCountry Report Germany 21 May 2003 - 8 - 1.Overview 2.Political environment 3.Economic environment 4.Social environment 5.Technological environment 6.Summary Agenda

9. Sven EppertCountry Report Germany 21 May 2003 - 9 - GDP growth Economic environment Source: Federal Statistical Office Germany. Quarterly % change on the previous year (at prices from 1995)

10. Sven EppertCountry Report Germany 21 May 2003 - 10 - Consumer price index Economic environment Source: Federal Statistical Office Germany. Change in % (Index 100 = 2000, seasonally adjusted value)

11. Sven EppertCountry Report Germany 21 May 2003 - 11 - Unemployment Economic environment  Unemployment rate (total): 10.8%, i.e. 4.5m (April 2003)  Old states: 8.6%, i.e. 2.8m (Trend:  )  New states: 19.1%, i.e. 1.7m (Trend:  )  Rising long-term unemployment (currently: 1.5m) Source: Federal Statistical Office Germany. Unemployed (in 1,000)

12. Sven EppertCountry Report Germany 21 May 2003 - 12 - Comparative economic indicators, 2001 Economic environment Sources: Economist Intelligence Unit, Country data. GermanyFranceUKUSJapan GDP (US$ bn)1,8471,311,42410,2084,148 GDP per head (US$)22,50522,05523,83236,22232,776 Consumer price inflation (av; %) 2.51.61.22.8-0.7 Exports of goods fob (US$ bn) 571289275723383 Imports of goods fob (US$ bn) -488-283-323-1,147-313 Trade surplus (US$ bn)836-48-42470

13. Sven EppertCountry Report Germany 21 May 2003 - 13 - EUR/USD Economic environment Source: Finanztreff.de.

14. Sven EppertCountry Report Germany 21 May 2003 - 14 -  Companies with sales less than 50m EUR and employees less than 500  Share of the Mitttelstand among the -Companies (2000): 99.7% -Turnover (2000): 43.2% -Employment (2000): 69.7% -Gross value added (1999): 48.8%  Great importance for the German economy "Mittelstand" Economic environment Source: IFM, Bonn.

15. Sven EppertCountry Report Germany 21 May 2003 - 15 - Trends Economic environment  2 nd largest export country in the world But  Remaining strong EUR reduces growth  Tax burden still high, e.g. non-wage labour costs of about 50%, and constrict investments  Large influence of labor unions  Tumbling world economy  0.2% decrease of GDP of in Q1/2003 enforces speculation of a recession

16. Sven EppertCountry Report Germany 21 May 2003 - 16 - 1.Overview 2.Political environment 3.Economic environment 4.Social environment 5.Technological environment 6.Summary Agenda

17. Sven EppertCountry Report Germany 21 May 2003 - 17 -  Population: 82.2m -Shrinking to 78m (2030) and 70m (2050)  Ageing population  Falling fertility  Growth: 0.26% (2002 est.)  Immigration policies (currently 8.9% foreigners) Demographic structure Social environment Source: Federal Statistical Office Germany.

18. Sven EppertCountry Report Germany 21 May 2003 - 18 - Social system costs Social environment Source: FAZ.net.

19. Sven EppertCountry Report Germany 21 May 2003 - 19 - 1.Overview 2.Political environment 3.Economic environment 4.Social environment 5.Technological environment 6.Summary Agenda

20. Sven EppertCountry Report Germany 21 May 2003 - 20 -  World's most technologically advanced telecommunications systems  Internet user: 32.1m (2002)  eCommerce growth held back by privacy issues and concerns about credit-card security -EIU e-readiness ranking (2003): 13 th (out of 60)  R&D is well developed, but has a lack of competitiveness in high-tech eCommerce and Technology Technological environment

21. Sven EppertCountry Report Germany 21 May 2003 - 21 - 1.Overview 2.Political environment 3.Economic environment 4.Social environment 5.Technological environment 6.Summary Agenda

22. Sven EppertCountry Report Germany 21 May 2003 - 22 -  "Agenda 2010" is unlikely to pass without major changes under the pressure groups  Recessionary tendencies in 2003  IMD World Competitiveness Ranking (2003): 5 th (previous year ranked 4 th )  Immediate sharp reforms and another attitude to our problems are needed Does Germany remain the sick man in Europe? Summary