The document compares and contrasts the public finances of Poland and Germany over the past 20-30 years. It analyzes trends in GDP, government budget deficits/surpluses, government debt as a percentage of GDP, and inflation. Some key findings are: - Poland's government debt increased greatly in the late 1990s with the creation of a private pension system. However, GDP growth has been strong, averaging over 1% annually. - Germany's debt rose in the 1990s due to reunification costs but has since stabilized, with low unemployment and sound fiscal position. GDP growth has averaged 0.29% annually. - Poland ran large budget deficits from 2008-2010 while Germany had surpluses, though deficits

1. a) Compare and contrast the Public finances of two European economics with
reference to changes in the General Government budget deficits and General
government debt over the recent past (20-30 years).
Introduction
When discussing Public finances different economics variables will be compared with each
other. This will determine if any correlations between them exist to perhaps explain certain
trends and changes in the variables. The four variables focused on in this essay will be
Gross Domestic Product, Government budget surplus/deficit, Government debt to GDP
ratio and Inflation. A Government budget deficit is where a government spends more
money than it takes in. The opposite where a government takes in more money than it
spends is called a budget surplus. Government debt to GDP ratio is the amount of national
debt a country has as a percentage of its GDP. Government debt is basically, the money
owed by a Government to its creditors.The greater the debt to GDP ratio, the less likely the
country will pay its debt back, thus the more likely the country is to default on its debt.
Inflation is a general increase in prices and fall in the purchasing value of money. is an
increase in the average level of prices. They opposite to inflation is deflation a decrease in
the average level of prices. The equalibrium between inflation and deflation is price
stability.(Trading economics, 2014) I will compare and contrast Poland and Germany under
these variables over the past 20 years where possible.
Background
Poland’s Government debt in its historical context reaches back to the Communist period.
The fall of Communism resulted in a large deactivation of labour which placed a heavy
burden on the country’s public finances. Furthermore, with the creation of a compulsory
private pension system at the end of the nineties government debt increased greatly.
Poland’s overall economic performance has been impressive over the last decade,
bringing living standards towards the EU average. However, the economy slowed abruptly
in 2012-13 (Rae, 2014). Germany’s Public debt has rose substantially at the beginning of
the nineties, mainly due to the fiscal consequences of reunification with East Germany.
However, part of the expenditure incurred in integrating East Germany was financed by
raising taxes and social security contributions and by cutting spending. Germany’s recent
economic performance has been stable, with record low unemployment rates and a sound

2. fiscal position, which sets it apart from many other EU countries(Deutsche Bundesbank,
1997)
Gross Domestic Product
The Gross Domestic Product (GDP) in Poland expanded 0.6% in the fourth quarter of
2013 over the previous quarter. GDP Growth Rate in Poland averaged 1.03% from 1995
until 2013, reaching an all time high of 6.4% in the first quarter of 1997 and a record low
of-3.2% in the fourth quarter of 1996. (Trading economics Poland GDP, 2014) The GDP in
Germany expanded 0.40% in the fourth quarter of 2013 over the previous quarter. GDP
Growth Rate in Germany averaged 0.29% from 1991 until 2013, reaching an all time high
of 2.1% in the second quarter of 2010 and a record low of -3.7% in the first quarter of
2009.
“Germany is the fourth largest economy in the world and the largest within the
Euro Area. The German economy is heavily export-oriented. Germany is the
second largest exporter in the world and exports account for more than one-
third of national output. As such, the export of high added value products has
been the main driver of growth in recent years.” (Trading of-3.7%economics
Germany GDP, 2014)
(Trading economics, 2014)

3. Government Budget Surplus/Deficit
Poland recorded a government budget deficit of 11734.70 Million Polish zloty (PLN) in
02/2014. Government Budget Value in Poland is reported by the Ministry Of Finance,
Poland. Government budget deficit in Poland averaged-15079.19 Million from 1994 to
2014. It reaching an all time high of 4407.34 Million in 01/2008 and a record low
of-44591.10 Million in 12/2010 (Trading economics Poland Deficit, 2014). Germany
recorded a Government budget surplus of 0.3 billion euros in 2013. From 1996 - 2013,
Germany Government Budget averaged-2.0 Percent of GDP reaching an all time high of
1.3% of GDP in 12/2000 and a record low of -4.2% of GDP in 12/2010. (Tradingeconomics
Germany Surplus, 2014)
(Tradingeconomics, 2014)

4. Government Debt to GDP Ratio
Poland recorded a Government Debt to GDP of 57.1% of the country's GDP in 2013.
Government Debt To GDP in Poland averaged 46.57% from 1995 until 2013, reaching an
all time high of 57.1% in 2013 and a record low of 36.8% in 2000. (Trading economics,
Poland Debt to GDP, 2014). Germany recorded a Government Debt to GDP of 78.4% in
2013. Government Debt To GDP in Germany averaged 66.69% from 1995 to 2013,
reaching an all time high of 82.5% in 2010 and a record low of 55.6% in 1995
(Tradingeconomics Germany Debt to GDP, 2014)
(Tradingeconomics, 2014)

5. Inflation
The inflation rate in Poland was recorded at 0.7% in 02/2014. From 1992-2014, Inflation
averaged 10.14%, reaching an all time high of 46.5% in 04/1992 and a record low of 0.2%
06/2013. The inflation rate in Germany was recorded at 1.04% in 03/2014. Inflation Rate in
Germany averaged 2.48% from 1950-2014, reaching an all time high of 11.4% in11/1951
and a record low of -7.63%t in 02/1950 (Tradingeconomics Poland Inflation, 2014).
(Tradingeconomics, 2014)
Conclusion
Since the outbreak of the economic crisis in 2008, Poland has avoided a recession
through increasing public investment by utilising available EU funds. However, due to limits
on the size of its Government debt and pressure from the EU, the Government will reduce
this spending which threatens to suppress growth and further increase unemployment.The
Government has partly dismantled the compulsory private pension system, which has
temporarily reduced Government debt. Germany’s medium term potential growth
prospects remain subdued. Germany although doing solidly, has a number of challenges,
such as an ageing population, low hours worked by women and under productivity in non-
manufacturing sectors. Germany’s ageing population and increasing demand for elder
care and treatment of age-related conditions, and heightening concerns about the
sustainability of the public health care system(Deloitte,2014)

6. b) With regard to one of your chosen countries, outline the extent and role of
Government provision of Public goods and services with specific reference to either
Public provision of Education/or Health care.
(Your answer should make reference to market failures (e.g.. externalities, public
goods) and redistribution issues and all figures, tables and data should be
referenced)
All countries in the OECD use a mix of public sector expenditure and private contribution
to pay for health care, but to variant degrees. Public financing is confined to government
revenues in countries where governments are primarily responsible for financing health
services directly. In these countries it can comprise from both general government revenue
and social contributions through funding from social insurance. Private financing covers
patients’ out-of-pocket payments either directly or as co-payments. Third-party payment
arrangements are done through various forms of private health insurance, health services
directly provided by employers, and other direct benefits provided by charities, etc.
Health care in Germany is funded by a statutory contribution system that ensures free
health care for all.
“Insurance payments are based on a percentage of income, shared between
employee and employer. Health insurance in Germany is divided between
statutory and private schemes. The statutory health insurance of Germany is
the Gesetzliche Krankenversicherung (GKV) (Bundesaerztekammer, 2013).
About 90% of the population are covered by statutory health insurance, which is
compulsory for all with a gross income of less than 4,125 EUR per month. Private
healthcare insurance provides either a complete health service for those who opt out of the
GKV, or top-up cover for those who remain within it.(Bundesaerztekammer, 2013)
Germany’s total health care spending is expected to rise by an average of 2.8% a year
from 2013-2017, to 355 Billion Euro, and from 11.7% of GDP in 2009 to 11.9% in 2017
(Deloitte,2014).
An externality is any impact, that can be positive or negative, on individuals or groups not
involved in an exchange or transaction. In health care, the critical externality in most
systems is the care provided to others. You benefit from others being healthy because it
reduces the likelihood of you catching their illness. You benefit from a positive externality

7. of others receiving health care. Your health care costs are also affected by others choosing
to purchase health care. The healthy pay more to the insurance company than they
receive in treatment, while the opposite is true for the sick. Insurance essentially operates
by taking the money from healthy people to pay for the procedures required by sick people
(boundless 2013).
Statutory contribution funding of health care, when combined with the age structures
typical in more developed countries generate a positive externality to population growth.
This is because is because the net flow of wealth transfers in these systems is upward, on
net from younger to older people(Sanderson, 2013). Having more working age adults
diminishes the burden on each one of them to support the older generation. However,
Germany’s population aged 65 or older is likely to exceed one in five by 2017, increasing
demand for elder care and treatment of age-related conditions, and heightening concerns
about the public health care system’s sustainability(Deloitte,2014) (OECD, 2014).
Conclusion
Among the issues facing Germany’s health care sector in 2014 are a continued need for
cost minimisation, efficiency and demands for increased transparency around clinical
quality and patient outcomes. These issues could see further market consolidation,
privatisation and/or strategic partnerships, as the health care providers strive for scale and
cost efficiencies.The German federal and regional governments will to continue attempting
to hold down health care spending growth but these cost controls. Chancellor Angela
Merkel’s new Government will push for new health system reform which will involve
politically salient decisions. What form this may take, are as yet unclear (Deloitte, 2014).

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