Germany-The European Single Market Germany in the European Community

To advance the EC toward a truly integrated and borderless internal market--the European Single Market--the EC's European Commission (see Glossary) in 1985 submitted a white paper to the European Council (see Glossary) in which it listed a series of 225 steps needed to create such a market. It also proposed a schedule for completing these steps in time for the internal market to begin functioning by the end of 1992. The council accepted the commission's proposals, with West Germany strongly supporting the concept. West Germany later advanced the process significantly during its presidency of the council in the second half of 1988.

Once Germany was united, it remained among the European states the most determined to implement the conditions of the European Single Market. Even before the formal implementation of the single market on January 1, 1993, Germany had already incorporated 80 percent of the single-market regulations into its own legislation, a higher percentage than any European state except Denmark or France. Notably, the German government also applied those new regulations in the five new states (Länder ; sing., Land ) of the former East Germany, as well as in the old Länder of western Germany.

Not all Germans welcomed the coming of an open internal market. Many worried that the guidelines for such a market would give so much power to the bureaucrats within the European Commission that economic initiative within the member states might be stifled. Many German businesspeople dreaded the prospect of more EU offices in Brussels enforcing more regulations. Some Länder , especially Bavaria, as well as a number of German communities, became disturbed by prospects that the EU would in the future have such immense powers over economic life that the German federal system itself could be placed in jeopardy. As a result, Germans have become strong advocates of the principle of Subsidarität (subsidiarity), under which matters not specifically covered by EU laws are left to the practices and the laws of the individual national states.

Despite steady German government support for the internal market, attitudes in German business and economic circles also have remained mixed, depending on the size and interests of the affected firms. The largest German firms with strong export positions strongly favor the internal market. The midsized firms, which are unable to relocate their main production sites or develop subsidiary sites abroad, have a more cautious reaction. Smaller firms, especially those involved in handicrafts or services, are fearful of the competition that might come from other European countries with lower production costs.

Just as firms of different sizes have reacted differently to the internal market, so have firms in different industries. The producers of Germany's most competitive products--whether automotive manufacturers, toolmakers, chemical firms, or electronics firms--regard the single market as an opportunity. By constrast, Germany's relatively inefficient service firms, whether in telecommunications, banking, or insurance, see the market as a threat because it would eliminate national regulations that had given them privileged positions.

German trade unions particularly fear the internal market. They have warned that it will cause production to move to countries and regions where wages are lowest and social benefits most limited. Despite the existence of strict EU standards governing the rights and privileges of workers, the trade unions have consistently warned of "social dumping," the temptation for manufacturers to look for those sites where regulations are less stringent or are less vigorously enforced than in Germany.

German environmentalists, for their part, fear that German manufacturers might shade their environmental commitments in order to keep their costs as low as possible against competitors who face fewer environmental problems in less densely settled countries (see The Environment, ch. 3). Environmentalists have also expressed concern that manufacturers will be tempted to locate production facilities abroad, where environmental standards might be less rigorously enforced or where less severe population and land-use pressures might make pollution seem less onerous. As German trade unions fear social dumping, the environmental groups fear "environmental dumping."

With the continued development of the internal European market, many Germans began to perceive another danger--that the EU might become so internally focused that it could become too protectionist. The Board of Advisers to the German Ministry for Economics warned in 1990 that such protectionist thinking, if not promptly countered, could jeopardize European prosperity. German industry and trade associations have expressed similar concerns, warning that the protectionist risk of the internal market must be fought at every level to avoid driving Germany ever more into a limited European mold. German industry has consistently pointed out that Germany stands to lose far more than any other European state if the global trading system collapses because of the protectionist proclivities of the EU.

The increasing power of protectionist forces in the EU has raised concerns in Germany about the potential for the emergence of three separate and competitive regional trading areas, the EU, the Americas, and Asia, with some form of negotiated--or managed--trade among them. Any such arrangement negotiated by the EU would establish quotas for each side, and Germany almost certainly would not obtain as large a share of any European quota as that which German exporters could obtain on their own.

Regardless of its concerns about protectionism, the German government has continued to insist that it will fulfill its commitment to complete European integration and the single market. Political considerations, especially Germany's relationship with France, have helped to shape and support that policy as much as economic considerations have. But the Germans have noticed with concern that France is often the state that tries to make the EU more protectionist. The Germans believe that they cannot support such French efforts, even if they cannot block them. German minister of foreign affairs Klaus Kinkel has warned that Germany does not agree with all French views on international trade rules, but Chancellor Kohl remains reluctant to press France toward a more open global trading system.

Kohl, in fact, has sought to use EU cooperation to help cement a close German relationship with France. He and French president François Mitterrand promised in early 1994 that they would use the successive German and French presidencies of the European Council during the last half of 1994 and the first half of 1995 to plan and execute a joint program for the further development of the EU.

Data as of August 1995

If Germany's global role is beset with complications, its European role seems relatively clear. Germany has always concentrated its economic interests and activities, whether in trade, investment, or finance, within whatever form was being taken by West European integration.

Although German economic and political interests cover all of Europe, they have been most immediately reflected in the EU and the European Monetary System (EMS). The Germans have found that these two systems complement each other. But the German government and German business and banking establishments have long had separate attitudes toward the two institutions, and they play a different role in each.

The EC was West Germany's economic home, and the country remains one of the organization's strongest supporters. Chancellor Kohl on several occasions made special efforts to promote European cooperation, especially concentrating on the drive to create a European Single Market and on the negotiation and ratification of the Treaty on European Union (commonly known as the Maastricht Treaty--see Glossary) (see The European Single Market, this ch.). Kohl also intervened on occasion to avert potential conflicts between Germany's European interests and its ties with the United States, although he had great difficulty resolving the dispute over agricultural trade that broke out between the United States and France during negotiation of the Uruguay Round of the GATT talks. He also followed up German unification with efforts to draw the EU further toward Eastern Europe.

Germans have consistently pressed for closer integration of the states of Western Europe, officially and in public opinion. They have also been among the staunchest European advocates of open trade between Europe and the outside world. German officials and political leaders have strongly and consistently asserted that United States fears about a "Fortress Europe" are misplaced. Whereas several other European states--especially France and Italy--have tried to limit imports of various foreign products to the EU, the German government has argued for open markets, imposing fewer controls or restrictions on trade than most European states.

West Germany, and especially West German industry, carved out an important export niche within the EC. In the process, it made the EC an essential market for German goods and an important factor in German prosperity. Because one-third of West German GDP was exported and because one-half of all exports went to countries of the EC, at least one of every six West German jobs depended directly on the EC market. Many other jobs depended on imports from EC states or on the general prosperity the EC had brought to all its members.

The intimate connection with the EC was reflected in West German trade statistics (see table 19, Appendix). Not only did more than half of West German exports go to other EC countries, but many West German industries relied on the EC for a major share of their total market--whether domestic or international. Before unification in 1990, 48 percent of West Germany's production of office machinery was exported to other EC countries, as was 24 percent of its chemical goods and machinery, 23 percent of its motor vehicles, 17 percent of its electronic goods, 16 percent of its textiles, and 14 percent of its iron and steel.

But if West European trade was vital to West Germany and remains so for united Germany, West Germany was vital to the success of the EC. Even before German unification, there were more Germans--more than 60 million--than any other nationality in the EC. With unification the figure came to about 80 million. West Germany alone already had the largest share of the EC's GDP, over 25 percent; the largest amount of private consumption, more than DM1.2 trillion in 1988; and the largest investment in other EC countries, DM56.7 billion. Because the German share of EC production and consumption was expected to grow in the aftermath of unification, the EC recognized the impact of this process by allotting united Germany a larger number of seats--ninety-nine--in the European Parliament than any other state.

The Federal Republic was often termed the EC's "paymaster." Its net contribution to the EC budget was often four times as large as the next-largest contribution because West Germany never drew as heavily as such states as France or the poorer Mediterranean countries on either the agricultural or the developmental support programs. West Germany regularly provided over 25 percent of the EC budget, with no other state contributing more than 20 percent; and united Germany's projected share of the 1994 EU budget was 30 percent, or DM44.1 billion. Although Germany was receiving some EU aid in 1994 to develop the economy of the former East Germany, united Germany will in the future be expected to contribute an even larger share to the EU than West Germany did--in part because Germany itself is larger and in part because many prospective East European members will need support. This was one reason Germany strongly supported the EU membership applications of such relatively well-to-do states as Norway, Sweden, Finland, and Austria. Germany's contribution to the EU is becoming increasingly controversial, however, as more and more Germans complain about the growth of the EU budget. Several German political figures, including Bavaria's political leader, Minister President Edmund Stoiber, have said that Germany must reduce its contribution.

Because of the multifaceted economic relationships between Germany and other EU countries, different ministries in Bonn can have different and even conflicting interests and policies concerning various items on the European agenda. Many ministries have their own direct links to the EU bureaucracy in Brussels, and the German government has occasionally spoken with several voices at different levels until the problems were brought to the attention of senior officials in Bonn and priorities were established. By the same token, German ministries have at times used elements within the European bureaucracy to support their views at home. It has been left to the three ministries with the broadest responsibilities--the Ministry for Economics, the Ministry of Finance, and the Ministry of Foreign Affairs--to try to keep these separate issues in a total national-interest perspective. Those ministries have also had to block collusion between European and German bureaucracies to devise new subsidies and new ways to protect or subsidize special German or European interests.

Management of the EU's Common Agricultural Policy (CAP--see Glossary) illustrates some of the conflicts in intra-German interests. That system, by its commitment to subsidize both production and exports, has become increasingly expensive. It consumes more than half of the EU budget, or more than US$35 billion a year. Germany's Ministry of Agriculture has often tried to use the EU to drive support prices higher and to prevent or restrict foreign imports. The Ministry of Finance, by constrast, has sought to reduce the CAP in order to cut the German contribution to the EU.

The European Single Market

To advance the EC toward a truly integrated and borderless internal market--the European Single Market--the EC's European Commission (see Glossary) in 1985 submitted a white paper to the European Council (see Glossary) in which it listed a series of 225 steps needed to create such a market. It also proposed a schedule for completing these steps in time for the internal market to begin functioning by the end of 1992. The council accepted the commission's proposals, with West Germany strongly supporting the concept. West Germany later advanced the process significantly during its presidency of the council in the second half of 1988.

Once Germany was united, it remained among the European states the most determined to implement the conditions of the European Single Market. Even before the formal implementation of the single market on January 1, 1993, Germany had already incorporated 80 percent of the single-market regulations into its own legislation, a higher percentage than any European state except Denmark or France. Notably, the German government also applied those new regulations in the five new states (Länder ; sing., Land ) of the former East Germany, as well as in the old Länder of western Germany.

Not all Germans welcomed the coming of an open internal market. Many worried that the guidelines for such a market would give so much power to the bureaucrats within the European Commission that economic initiative within the member states might be stifled. Many German businesspeople dreaded the prospect of more EU offices in Brussels enforcing more regulations. Some Länder , especially Bavaria, as well as a number of German communities, became disturbed by prospects that the EU would in the future have such immense powers over economic life that the German federal system itself could be placed in jeopardy. As a result, Germans have become strong advocates of the principle of Subsidarität (subsidiarity), under which matters not specifically covered by EU laws are left to the practices and the laws of the individual national states.

Despite steady German government support for the internal market, attitudes in German business and economic circles also have remained mixed, depending on the size and interests of the affected firms. The largest German firms with strong export positions strongly favor the internal market. The midsized firms, which are unable to relocate their main production sites or develop subsidiary sites abroad, have a more cautious reaction. Smaller firms, especially those involved in handicrafts or services, are fearful of the competition that might come from other European countries with lower production costs.

Just as firms of different sizes have reacted differently to the internal market, so have firms in different industries. The producers of Germany's most competitive products--whether automotive manufacturers, toolmakers, chemical firms, or electronics firms--regard the single market as an opportunity. By constrast, Germany's relatively inefficient service firms, whether in telecommunications, banking, or insurance, see the market as a threat because it would eliminate national regulations that had given them privileged positions.

German trade unions particularly fear the internal market. They have warned that it will cause production to move to countries and regions where wages are lowest and social benefits most limited. Despite the existence of strict EU standards governing the rights and privileges of workers, the trade unions have consistently warned of "social dumping," the temptation for manufacturers to look for those sites where regulations are less stringent or are less vigorously enforced than in Germany.

German environmentalists, for their part, fear that German manufacturers might shade their environmental commitments in order to keep their costs as low as possible against competitors who face fewer environmental problems in less densely settled countries (see The Environment, ch. 3). Environmentalists have also expressed concern that manufacturers will be tempted to locate production facilities abroad, where environmental standards might be less rigorously enforced or where less severe population and land-use pressures might make pollution seem less onerous. As German trade unions fear social dumping, the environmental groups fear "environmental dumping."

With the continued development of the internal European market, many Germans began to perceive another danger--that the EU might become so internally focused that it could become too protectionist. The Board of Advisers to the German Ministry for Economics warned in 1990 that such protectionist thinking, if not promptly countered, could jeopardize European prosperity. German industry and trade associations have expressed similar concerns, warning that the protectionist risk of the internal market must be fought at every level to avoid driving Germany ever more into a limited European mold. German industry has consistently pointed out that Germany stands to lose far more than any other European state if the global trading system collapses because of the protectionist proclivities of the EU.

The increasing power of protectionist forces in the EU has raised concerns in Germany about the potential for the emergence of three separate and competitive regional trading areas, the EU, the Americas, and Asia, with some form of negotiated--or managed--trade among them. Any such arrangement negotiated by the EU would establish quotas for each side, and Germany almost certainly would not obtain as large a share of any European quota as that which German exporters could obtain on their own.

Regardless of its concerns about protectionism, the German government has continued to insist that it will fulfill its commitment to complete European integration and the single market. Political considerations, especially Germany's relationship with France, have helped to shape and support that policy as much as economic considerations have. But the Germans have noticed with concern that France is often the state that tries to make the EU more protectionist. The Germans believe that they cannot support such French efforts, even if they cannot block them. German minister of foreign affairs Klaus Kinkel has warned that Germany does not agree with all French views on international trade rules, but Chancellor Kohl remains reluctant to press France toward a more open global trading system.

Kohl, in fact, has sought to use EU cooperation to help cement a close German relationship with France. He and French president François Mitterrand promised in early 1994 that they would use the successive German and French presidencies of the European Council during the last half of 1994 and the first half of 1995 to plan and execute a joint program for the further development of the EU.

Data as of August 1995