about germany background and current scenario

1. Name of
Presentation
Company Name
JITENDER SALUJA
LAKSHI JHANDAI

2. WHAT MAKES GERMANY FAMOUS?

3. BASIC FACTS
• Location : Europe
• Official Name : Federal Republic
of Germany
• Capital : Berlin
• Financial Capital : Frankfurt
• Currency : Euro
• Area : 357,022 sq km (1/9th of India’s Area)
• Population : 82.9 millions (1/16th of India’s
Population)

4. • Official Language : German
• Life Expectancy : 81 Years
Approx (2016)
• Religion : Christianity
(predominant)
29%
27%
4%
2%
38%
Religious Affiliations, 2015
Roman Catholic
Protestant
muslim
orthodox christian
other
Source : EncyclopaediaBritannica(Altered)

5. Economic Growth is not sustainable
without nation-building and, even of
greater importance state building.
- Yemi Osinbajo

7. PART 1 : Formation
(19th Century)
• Birth : 1871
• Form of governance : Monarchy
• Emperor : Kaiser Wilhelm I

8. THE ECONOMY (19th Century)
• Ideology – Organised Capitalism
• Shift towards an Industrial Economy
• Approx 31% of population engaged
in industrial sector
• Steel, Coal, Chemical, Electrical, high
precision engineering industries
were developed.
• Zollverein Trade Agreement

9. PART- 2
CONSTRUCTION & DECONSTRUCTION
(20TH Century)

10.  1914-1918 : WORLD WAR 1
→Germany lost
 POLITICAL SCENARIO
→ 1918 : Weimar Republic founded
→ Representative Democracy
→ Friedrich Ebert as President
of the Weimar Republic
→ Ideology - Socialism

11. 1919: TREATY OF VERSAILLES
Germany declared guilty of
aggression
33 billion dollars were fixed
to be paid to allies by Germany
Germany gave up some of its
territories

12. STATE OF ECONOMY
AGRICULTURE INDUSTRY

14. The Hyperinflation Crisis 1923

16. SOLVING THE CRISIS
• Adoption of “REICHSMARK’’
as new currency.
•The Dawes Plan,
1924

17. The Young plan, 1929
• Reparations were lowered.
(29 billion $)
• The time period given 58 years, one
fixed sum to be paid.
•When Adolf Hitler came to power in 1933, all important obligations
under the treaty of Versailles stood repudiated.

18. IMPACT
• Period of Stability followed
from 1924-1929
• RATIONALISATION PERIOD
• Industrial production
increased by 7.9%.

19. • GERMAN PRODUCER GOODS
&CONSUMER GOODS PRODUCTION PER
CAPITA

20. 0
10
20
30
40
50
60
70
80
90
100
1924-25
1928-29
INDICES OF GERMAN EXPORT VOLUMES,
1924-85, 1928-29.

21. THE GREAT DEPRESSION

22. THE YEARS OF DEPRESSION
Political & economical unrest

23. REVIVAL OF THE ECONOMY
• 1933: Nazi party headed by Hitler
came into being
• Governance : Dictatorship
• Economic Ideology : Socialism
• Steps taken for reforming the
economy:
→ Limit on imports
→Work Creation Programmes

24. WORLD WAR 2 (1939-1945)
• Germany
surrendered
• Decline of socialism
• Emergence of USSR
and USA as 2 Major
Powers

25. THE COLD WAR TIMELINE (1947 – 1991)
• 1948 : Germany divided
into 2 blocs – East Germany
& West Germany
• 1948-1961 : Economic Growth in West Germany
→ Capitalist Orientation
→ Marshall Plan & The Economic Miracle
→ Rapid Reconstruction of capital Stock

26. • 1948-1961 : East Germany-
→ Stalinist Economic Model
→ Central Planning Body
→ Industry and Agriculture nationalised

27. • 1961 : Construction of Berlin Wall
• 1989 : Fall of Berlin Wall
• 1991 : Unification of Germany
→ Federal Republic of German is
established
→ Governance: Federal parliamentary
republic
→ Free elections and Helmet Kohl
served as a chancellor.

28. EUROPEAN UNION (1993)

29. PART 3 : THE CURRENT SCENARIO
(21st century)

30. THE GERMAN POLITICAL SYSTEM
• Federal parliamentary republic
• Representative democracy
• Major Political Parties:

31. • The Legislature: Parliament
• The Executive Body:
→ President : Frank Walter Steinmeier
→ Chancellor : Angella Merkel
→ The Cabinet
→ The Agencies
• Judiciary
→ Civil Law
Bundestag Bundesrat

32. The ECONOMY
Current
Macroeconomic
perspective
GDP
Sectoral growth
BOP
Financial Sector Banks
Securities Market
Shadow banks
Exchange rates
Sovereign wealth funds

33. GDP Growth

34. GDP Per Capita

35. GDP by SECTOR
Source : https://www.statista.com/statistics/295519/germany-share-of-economic-sectors-in-gross-domestic-product/
The share of financial services is 4% approx in GDP.

36. Current Account Balance (BOP, Current US $)

37. Major Export-Import Partners
EXPORT PARTNERS
UNITED STATES 8.6%
FRANCE 8%
CHINA 7.1%
NETHERLANDS 6.4%
UNITED KINGDOM 6.2%
ITALY 5.3%
AUSTRIA 4.8%

38. MAJOR IMPORT PARTNERS

39. EXPORT CONSTITUENTS
25%
24%
15%
9%
8%
6%
4%
3% 3% 3%
Percentage
Machinery
vehicles
Electrical equipments
Pharmaceuticals
Technical & Medical apparatus
Plastics
Aircrafts, Spacecrafts
Articles of iron and steel
Mineral fuels
Iron, Steel

40. BANKING SECTOR

41. 1
2
3
Banks
Securities
Market
Shadow Banks
I n s t i t u t i o n a l
s t r u c t u re of
G e r m a n f i n a n c i a l
s y s t e m

42. Features of the German Financial System
Traditional Bank based system and Regional
principle.
World famous Universal banking system.
Insurance industry has shown tremendous
growth.
Non-Privately owned banking structure.
Efficient banking sector.

43. Universal banks refer to the one which conduct both commercial
& investment banking services together without any restrictions.
Universal
banks in
Germany
- Private Banks
Holds 38% of banking
assets
(also known as commercial
banks by official statistics)
- Publicly owned banks
Holds 29.4% of banking
assets
- Cooperative banking
sector
Holds 11.8% of banking
assets

44. Top 5 Banks
Germany
Rank Name Assets (Billions)
1 Deutsche Bank $1778.2
2 Commerzbank $588.9
3 KfwBankgruppe $626.55
4 DZ Bank $427.81
5 HypoVereinsbank $322.63
Total $3.74 Trillions
Source - Bundesbank

45. 1. Private Banks
a) Big Banks
b) Regional
banks
c) Branches of
Foreign Banks

46. A) Big banks
• There were 6 institutions in 1980’s but it
reduced to 4 by 2010.
Percentage
1980-90s
1999
2010
47%
19%
47%

47. Deutsche Bank
• Biggest private
sector bank.
• Asset valuation –
1.9 trillion euros as
of 2010.
• Bank starve to ROI
of 25% prior to
onset of crisis.
Commerz Bank
• 2nd largest private
sector bank.
• Asset valuation –
754 billion euros in
2010.
• Took over Dresdner
bank in 2009.
Unicredit & Post
Bank
• Unicredit bank is 3rd
largest private
sector bank.
• Post bank is 4th
largest private bank.
Big banks in Germany

48. • Since 1970, big banks lending
to big firms declined.
• It’s share in lending declined
from 75% in bank assets in
1960’s to 25% in 2011.
• Big banks tried to overcome
this by lending to SME’s…but
failed miserably.
Role of Big banks in Germany since
1970’s

49. B) Regional banks
10% stake in banking industry.
Examples of Banks set up by industrial
companies-
• Volkswagen bank
• Mercedes Benz bank
C) Foreign banks
3.6% of banking asset in 2012.

50. 2. Savings banks
• For savings banks.. We have namely Sparkassen, Regional
landesbank & Deka bank.
• Ownership – Locals & Country government.
A) Sparkassen bank
– was withdrawing money from private banks and depositing in
Sparkassen.
– It’s most trusted bank in Germany. During Financial crisis 2008,
Sparkassen bank was very stable.
– Public

51. B) Landesbanken
– Ownership – Jointly owned by Regional association
of Sparkassen & regional state government.
– Initially used to be the clearing house.
– It’s 2nd level in savings bank.
C) Deka bank
– Ownership – Jointly owned by Landesbanken &
GSBA.
– It’s 3rd level in savings bank.

52. 3) Cooperative Banks
A. Primary Cooperative Banks
– Provides retail banking services.
– 8.4% share in banking assets.
B. Regional Institutions
– Investment banking services & lending to non banks.
– 4% share in banking assets
– Still lending services are around 30% of the banking
assets.

53. Specialized
banks
1st group includes
mortgage banks…
2nd group includes building
and loan associations…
3rd group promotes
investment.

54. Securities Market
End of Bretton Woods system & abolition of capital controls led
big banks to develop securities Market supplemented by the
following reasons -
• Greater competition from foreign institutions.
• Search for new business opportunities.
Main stock market is Frankfurt though there are 5 smaller
exchanges in other cities.

55. Frankfurt Stock Exchange
• Originated in 16th Century.
• Ownership –
– Run until 1991 By Frankfurt
Chamber of commerce.
– After 1991,
• 81% owned by banks
• 10% by regional stock exchanges
• 5.3% by traders.
• Though holdings have been
reduced now.
• Electronic Trading system – Xetra

56. Deutsche Borsche & LSE deal
• An attempt made by Deutsche
Borsche to take over LSE in 2005.
• However the deal was blocked and it
gave birth to ‘Investor Activism’.
Why did investors didn’t allow the
deal?
Investors feared of dilution of earnings.

57. Derivatives
Derivatives
• Deutsche Terminborse (DTB, German derivatives exchange)
was established in 1988 as screen based futures and
options exchange.
• In 1990, the exchange began competing with London
International financial futures exchange.
• DTB merged with Swiss Options & Financial futures
exchange to form Eurex.

58. Impetus to stock market
• Privatization of major
state owned enterprises.
• Acquisition of stake in
major companies by
foreign investors.
• Reform of pension
system, which accounts
for 10-11% of GDP.

59. DAX 30 Stock Market Index

60. German Banks & Indian banks
• India has only Deutsche bank
branches.
– There are around 17 branches of
Deutsche bank in India.
• Indian banks in Germany are :-
– State bank of India.
– ICICI Bank

61. Shadow Banks
• As per Deutsche Bundesbank-
Shadow banking in Germany is
constituted by ‘Open End Mutual funds’
whose value amounted to 1.3 trillion
Euros in September 2012.
• Germany’s shadow banking size is
10% of regulated banking sector.
• Still German banks deal with globally.

62. EUROZONE
CRISIS

63. •Failure of Euro, the currency that ties together 19
European countries (out of 28) in an intimate but flock
manner.
• Over the past 3 years ,Greece ,Portugal ,Italy ,Ireland and
Spain have all triggered down on the blink of financial
collapse threatening the breakdown of the entire
CONTINENT & rest of the WORLD.
EUROZONE DEBT CRISIS

64. Monetary Policy VSFiscal Policy
• As part of Eurozone , countries started taking
loans at much higher amount due to low interest
rates.
• Countries like Greece increased its DEFICIT
SPENDING to a sky high level.
• These huge spending got possible only because
of member country’s help like Germany.
• But this only built up Greece’s debt burden.

65. What were the RESULTS ?
• Countries like Greece were abnormally increasing its
spending.
• Governments of Greece , Portugal and Italy were able
accumulate huge debts.
• In Ireland and Spain, cheap credits created enormous
housing bubble just as in the case of The UnitedStates.
• Credit flowed DEBT accumulated and the
economies of Europe became TIGHTLY
INTERTWINED.

66. Euro – Zone debt crisis & Germany
Use of G’s
Surpluses
• Loans to GIPICS at cheaper rates
• Government Debt of GIPICS started soaring
G was
Compelled
• To raise wage levels so as to make exports expensive
• To either compensate or to waive the loans
G’s action
• Denied to the measures so recommended
• Advised GIPICS to impose austerity measures

67. Great financial Crisis & Germany
• No real estate bubble.
• Fast recovery from crisis.
• Money market stopped working.
What were the Measures taken to take Germany out of
crisis?
• Leverage provided through target 2 system.
• Special Financial market stabilization fund supplemented by
Government intervention at a large scale.

68. Should Germany’s growth model be
treated as role model for other
countries?
• No. Reason being Germany relies
on Huge Net exports and Current
account surplus. So, ultimately it
depends upon global demand. The
developing countries and net
importing countries may take steps
to prevent importing from
Germany.

69. Exchange Rate System & Germany
• Until 2002, DM used to be the
official currency of Germany.
• DM 1.95583 = €1.
• 1 Euro = 78.26 INR
• DM is still converted to Euro by
Deutsche bundersbank.
• Germany follows a floating exchange
rate system.

70. Forex reserves of Germany & India
FOREX
RESERVES
OF
GERMAN
Y
FOREX
RESERVES
OF INDIA

71. Sovereign Wealth Fund
• Kenfo Fund
• Valuation - $27 Billion
• Founded – 2017 to help Germany’s
exit from nuclear energy.
• Planning to invest 30% in unlisted
securities & invest worldwide to
earn maximum return.

73. BREXIT & GERMANY
• British PM had said that he wants a quick solution
but EU COMMISSION President free trade rejected
by the EU President.
• Germany is facing a biggest threat of 18.8 billion
dollars of good being exposed to tariffs.
• 17.5 billion of autos shipped in germany, exposed to
new tariffs

74. The effect of Corona virus
• China is a major export and import partner of
germany
• 7% of export and import of germany constitutes the
GDP
• Stagnation of economy in 4th quarter.

75. Deutsche Bundesbank & ECB
• Bundesbank was greatly respected for the control of inflation
in 2nd half of 20th Century, making German mark a respectable
currency.
• ECB follows the Bundesbank model.
• ECB is the most politically independent bank.
• ECB focuses narrowly on price stability.
• Deutsche Bundesbank manages foreign reserves, acts as
government’s fiscal agent.

76. Food for thought
• German Banking is one of the most unique
banking systems in world, however none of
the German Banks is in the list of top 10 banks
in the world!
We leave it to you. Can you guess, why?