Germany Country Brief
Overview
Australia and Germany enjoy an open and cooperative relationship underpinned by growing momentum across extensive political, economic and social links. Australia values Germany's continued political and economic engagement in the Asia-Pacific, including on counter terrorism initiatives, measures to encourage good governance, and aid.
The substantial - and growing – trade and investment links between Australia and Germany reflect in part the complementary nature of the two economies. Cooperation on development aid has also increased significantly: an MOU, signed in February 2007, is already resulting in collaborative projects. Germany makes a useful contribution, as a prominent EU member, in promoting stability and development in the Asia-Pacific region. It has a solid development cooperation program with some regional countries and provided emergency relief following events such as the 2004 Indian Ocean Tsunami and the 2007 earthquake and tsunami in the Solomon Islands.
Political Overview
System of Government
Germany is a federal republic. The Federal Government, based in Berlin, consists of the Federal Chancellor and the Cabinet of Federal Ministers. Federal elections are held every four years. In addition, there are 16 state governments and thousands of local government 'communes'. Each state has its own constitution and a state parliament. State elections are held every four or five years.
The federal legislative authority is the Bundestag whose members are elected through a combination of direct election and proportional representation. Following each election, the Bundestag elects a Chancellor by absolute majority. The current Chancellor, Dr Angela Merkel, was elected on 22 November 2005. The Bundesrat represents the 16 state governments and has 69 seats. Based on population size, a state has between three and six votes. The Bundesrat debates all legislation, but only approves legislation affecting state responsibilities (e.g. tax revenue distribution).
The Federal President, who has ceremonial duties, is elected every five years by the Bundesversammlung (Federal Assembly), a body comprising all Bundestag members plus an equal number of state representatives. Presidents can serve up to two terms. The current President, elected on 23 May 2004, is Dr Horst Köhler.
Recent Developments
The federal election, held on 18 September 2005, resulted in a grand coalition government of the two major parties, the Christian Democratic Union (CDU)/Christian Social Union (CSU) (35.2 per cent of the vote) and the Social Democratic Party (SPD) (34.2 per cent of the vote). The grand coalition government is led by Chancellor Angela Merkel, leader of the CDU. The next Federal election is due in September 2009.
In three state elections in early 2008, the CDU lost ground. In Hamburg, the CDU broke with tradition and formed a coalition government with the Green Party for the first time as the CDU’s traditional partner, the Free Democrats (FDP), failed to clear the 5 per cent vote required to enter state parliament. The CDU was returned in Lower Saxony but in Hesse remains as a caretaker government as none of the parties were able to agree on the usual power-sharing coalitions, due primarily to the emergence of the new Left party. The new Left won enough support to exceed the 5 per cent threshold to be represented in both Hesse and Lower Saxony and is now represented in 10 of Germany’s 16 state parliaments.
According to a number of reputable media commentators, the rise of the Left at the Federal and State levels is regarded as marking a structural shift in German politics from a four-party to a five-party polity. The Left is now the fourth largest party in the federal parliament behind the CDU, SPD and FDP but ahead of the Greens. The CDU leads 11 of Germany’s 16 state governments.
Foreign Policy
During its 2007 EU Presidency and as Chair of the G8 (group of eight major industrial nations), Germany took a leading role on a number of key issues, including climate change, energy, the Middle East, and international security. Germany also laid the groundwork for a reworked EU “reform” treaty signed on 19 October 2007 in Lisbon. Germany’s parliament ratified the Lisbon treaty on 24 April 2008 and the upper house is expected to ratify the treaty on 23 May 2008. Germany is the ninth EU member to ratify the treaty which is expected to enter into force in January 2009.
Germany is an important dialogue partner for Australia on a wide range of multilateral issues, including global security, arms control, disarmament, poverty alleviation, human rights and UN reform. Germany is a strong supporter of multilateralism and is the third largest contributor to the UN budget. Germany continues to seek a permanent seat on the UN Security Council, but the issue has taken a lower priority under Chancellor Merkel than her predecessor, Gerhard Schroeder. Germany continues to make a substantial contribution to the reconstruction of Iraq and provides humanitarian assistance for Iraqi refugees and internally displaced persons. The NATO alliance is the predominant focus of German defence and security policy.
Germany is the second largest troop contributor to the NATO-led mission in Afghanistan and provides the naval monitoring role in Lebanon as part of UNIFIL. Germany is also a contributing member of the UN mission in Darfur, Sudan.
Germany is increasingly engaged in the Asia Pacific region. In March 2008, Foreign Minister Steinmeier and ASEAN Secretary-General Pitsuwan concluded an agreement for capacity building for ASEAN institutions. In February 2008, Foreign Minister Steinmeier visited Indonesia, Singapore and Vietnam to boost bilateral ties, focus on regional issues and increase international cooperation.
Economic Overview
Analysis of the Economy
Germany was the world’s third largest economy in 2007 with a GDP of US$3,322 billion. In 2007 Germany was again the world’s largest goods exporter – around US$1,335 billion with a trade surplus of US$247 billion. Manufacturing is the mainstay of the Germany economy, around a quarter of GDP, with the export sector dominated by autos and machinery. Germany’s exports of services are relatively underdeveloped and reform in the services sectors, including transport and financial services, is slow. New sectors, however, such as IT, biotechnology and renewable energy are growing markedly. Agriculture is only one per cent of GDP.
Key Economic Indicators
Germany’s economic recovery is forecast to continue through to 2009 albeit at a slower pace (Consensus Economics, May 2008). GDP growth is forecast to ease from 2.5 per cent in 2007 to 1.7 per cent in 2008 due to the effects of the global financial crisis and the rising euro against the US dollar. Germany’s economic resilience is due to sustained exports, industrial production and investment in machinery and equipment. Inflation is forecast to rise to 2.6 per cent in 2008 due to rising energy and food prices. which will impact on consumer spending. However, falls in unemployment to 7.9 per cent will increase household incomes and consumer spending is forecast to increase 1.0 percent. The budget deficit returned to surplus in 2007, and a small surplus is forecast for 2008.
Bilateral Relationship
Cultural Relations
German settlement in Australia dates back to the 1830s, beginning in the Barossa Valley area of South Australia, where a thriving German community still exists. Today nearly four per cent of Australians can trace their origins back to Germany. These people to people links are significant. In 2007, approximately 152,000 Germans visited Australia and around 230,000 Australians visited Germany. In addition, 15,700 working holiday maker visas were issued to young Germans and around 400 working holiday maker visas to young Australians. Germany is Australia’s largest European market for students, with over 5,670 Germans studying in Australia.
Germany promotes its culture in Australia primarily through the Goethe Institute and regular visits of musicians, artists and writers. The Australia Council has a representative in Berlin, assisting Australian artists in the German market. A Cultural Agreement between Germany and Australia, aimed at enhancing cultural and academic exchanges, was signed in November 1997.
The discovery in March 2008 of HMAS Sydney and the German ship HKS Kormoran in March 2008, both of which sank off the coast of Western Australia in WWII has brought Australia and Germany closer together.
High Level Visits
The Minister for Environment, Nature Conservation and Nuclear Safety, Mr Garrett visited Germany in May 2008 and the Minister for Innovation, Industry, Science and Research, Senator Carr, visited in March 2008. In February 2007, the then Foreign Minister, Mr Downer participated in the international 43rd Munich Security Policy Conference and held bilateral discussions with German Foreign Minister Steinmeier, Defence Minister Jung and Development Minister Wieczorek-Zeul. German Finance Minister Steinbrück visited Melbourne in November 2006 for the G20 Finance Ministers’ Meeting.
Bilateral Agreements and Official Dialogue
In February 2007, Australia signed an MOU on development cooperation with Germany, which establishes a framework for ongoing cooperation in the Asia-Pacific region, a social security agreement on elimination of double payment of superannuation of temporary workers, and an enhanced working holiday maker arrangement. The Group of Eight Universities (Go8) signed a research cooperation arrangement with the German Academic Service (DAAD) in May 2007. Australia and Germany have a number of other bilateral agreements, including double taxation, extradition, cultural cooperation, reciprocal banking arrangements, and scientific and technological cooperation. Texts of bilateral agreements are available at the AUSTLII site.
Bilateral Economic and Trade Relationship
Bilateral Trade
Bilateral trade links between Australia and Germany are substantial, but heavily in Germany’s favour. In 2007, total two-way merchandise trade was valued at over A$11 billion, of which A$9.7 billion (88 per cent) were imports from Germany. Germany is ranked fifth largest in terms of imports (mainly cars) and is the largest source of imports from Europe. However, Germany is only ranked as Australia’s twenty third largest export market. Overall, Germany slipped from eighth to ninth among Australia's major trading partners in 2006-07.
Australia's merchandise exports to Germany in 2007 rose slightly over the year to A$1.4 billion driven by coal exports which made up almost 20 per cent of total exports. The almost doubling of coal exports over three years reflects Germany’s significant growth in demand for energy. The other main export was electrical circuits. Alcoholic beverages exports peaked at A$72 million in 2004 but have since fallen by almost a third.
Two-way trade in services between Australia and Germany was worth A$2.4 billion in 2007. Services trade is also heavily in Germany’s favour.
Bilateral Investment
Reflecting the growing trade relationship and increased business presence of Australian and German companies in each other’s countries, foreign direct investment (FDI) by Australia and Germany rose to A$5.1 billion and A$10.6 billion respectively in 2006. Germany was ranked as Australia's seventh largest source of direct investment in 2006 and the sixth largest destination of Australian direct investment. Australia’s FDI in Germany more than doubled between 2004 and 2006 during a period of strong GDP growth in Germany. On a per capita basis, given Australia’s population of about 21 million and Germany’s of 82 million, Australia’s FDI is twice the level of German FDI in Australia. Australia’s portfolio investment (short term in share markets) also increased substantially to around A$18.7 billion and this is significantly higher than German portfolio investment of A$13.8 billion in Australia.
The 330 German subsidiary companies and 470 branch offices of German companies in Australia are active across a vast range of activities: the automotive and automotive components industry (DaimlerChrysler, BMW, Bosch, Hella and VDO); telecommunications (Siemens); refining plants and environmental products (Lurgi, KruppUhde); building and construction (Hochtief and Bilfinger Berger through their affiliated companies Leighton Holdings and Baulderstone Hornibrook, respectively); and chemicals (Boehringer, Schering). German banks also have a significant presence in Australia with Dresdner having centralised its global commodities business in Sydney and Deutsche Bank, which celebrates its 34th year in Australia in 2008, being the largest European Bank operating in the Australian market.
Aerospace Australia, wholly owned by EADS, provided helicopters to the Australian Defence Forces. Blohm and Voss was the German partner in the multi-billion-dollar ANZAC frigate project, the largest single cooperative project between Australia and Germany. VUAG bought the Kurri Kurri aluminium smelter in the Hunter Valley. It is estimated that these companies together generate thousands of jobs in Australia.
About a third of the German subsidiary companies also manufacture or assemble in Australia, making an important contribution to Australia's exports and R&D capability. For example, VDO Australia develops and produces instrumentation, fuel-supply units, electronic modules, windshield-washer systems and sensors to markets in Germany, France, Malaysia and the United Kingdom and Australia is the site of one of the company's three worldwide research and development centres. Bosch has established a Centre of Competence for R&D into vehicle security systems, which services the entire company and is the only such centre located outside Germany. The German supermarket chain Aldi continues to expand its operations in Australia since entering the market a few years ago.
There is growing recognition by German business of the benefits of Australia as a headquarters for regional operations. Lufthansa, for example, has located its Asia-Pacific reservation call centre in Melbourne to take advantage of the wide range of available language skills and telecommunications infrastructure, and Volkswagen has established its Volkswagen Group Australia which imports and distributes VW cars, in the region. (For Australian companies operating in Germany, refer to Trade Successes below.)
Australian Trade and Investment Strategies
Germany's political and economic weight makes it influential in the EU policy formulation process. The Australian Government actively encourages Germany to show leadership within the EU in the current WTO Doha negotiations in pushing for increased international trade liberalisation, especially in agriculture.
The Australian Trade Commission (Austrade) is the Federal Government agency that helps Australian companies win overseas business for their products and services by reducing the time, cost and risk involved in selecting, entering and developing international markets. Austrade’s Opportunities Online website is a valuable resource for information on export opportunities to many countries, including Germany. Austrade has an office in Frankfurt.
Australia encourages German investment in Australia. In particular, the Australian Government is targeting stronger investment links with Germany's small to medium sized enterprises (the 'Mittelstand'). These companies account for around half of German output and employ two-thirds of the German workforce. Australia and Germany have a number of bilateral agreements to promote commercial activity and labour mobility covering double taxation, reciprocal banking arrangements and social security.
Export Opportunities
Germany offers Australian companies many commercial opportunities as a gateway into Central and Eastern Europe. Many German companies have strong commercial links with, and expertise in, Central and Eastern Europe. Australian companies can make useful contacts at trade fairs through which more than 90 per cent of new products and technologies are introduced into the German market.
Automotive
The German automotive and automotive parts industries are a major source of international investment. Opportunities in Germany include original equipment manufactures (OEM) components, light materials, aftermarket components and accessories (including replacement parts), alternative fuels technology and equipment, tooling and production equipment and engineering services.
Information and Communication Technology
Opportunities exist for Australian companies in IT security, software and niche hardware, telecommunications applications and e-commerce, e-government and e-banking services, particularly with the deregulation of the telecommunications sector and the launch of the German Government's program Bundonline 2005, which put 376 government services online.
Biotechnology
Germany has a large pharmaceuticals industry. The market has well established international networks and offers easy access through government-supported biotech clusters with access to public as well as private funding. Opportunities in Germany include research and development contracts, research and strategic collaborations, licensing agreements and export of base products (marine and plant organisms) for pharmaceutical manufacturing.
Education and Training
Germany is the largest source of foreign students from Europe – over 5,670 students in 2007. Increased opportunities in the postgraduate education sector can be expected as Germany undertakes reforms in its tertiary education sector. Postgraduate studies provide institutions with the greatest opportunities to enter the German market, particularly in the areas of Information Technology, International Law and International Business and Technology. The cooperative arrangement between the Group of 8 Universities (Go8) and German agency DAAD will help promote university research exchanges. Additionally, Working Holiday Maker visa holders aged 18 – 30 are able to undertake English Language Intensive Courses for Overseas Students (ELICOS) and vocational and training opportunities that offer short placements of up to three months duration.
Fresh Produce
Seasonal opportunities (September to May) exist for Australian exporters (with tightly controlled supply chain management and a strong import/distribution partner in Germany) to supply the German market with fruit, including apples, citrus fruits (Navels and easy peelers), pears and cherries. Limited opportunities also exist for high-quality seafood exports to Germany, particularly in niche markets.
Tourism
Tourism Australia launched a major advertising campaign in Germany in October 2007.
Trade and Investment Successes
As of 2007, more Australian companies are operating and investing in Germany. Geodynamics Power Systems, part of a three-way merger that formed Exorka International, is a renewable energy provider. The Australian Sonic Healthcare company acquired the laboratory company Bioscientia. Babcock & Brown has obtained 49% of BeNEX Holding, which operates local transport networks within Germany. Babcock & Brown have also recently acquired a 50 per cent holding in the Rostock port. Another major investment firm represented in the German market is Macquarie Bank. Macquarie recently acquired a majority ownership of Techem, a sub-metering company providing water and energy billing services, and with PBL own one of Germany’s largest real estate websites, Immobilien Sout.
One of the largest Australian companies manufacturing in Germany is CSL Behring. Based in Marburg, CSL employs over 2,000 people in the development of blood plasma products and plans to further expand its German operations in coming years. Quicksilver Technologies, a composite materials manufacturer, has secured a manufacturing development contract with Airbus Germany. Several precision engineering and production firms input into the German manufacturing supply line, including Bishop Engineering and ANCA Machinery (precision grinding).
In recent years, a range of other Australian companies have been active in a wide range of German sectors, including Cochlear, Transfield, Oztrak (mobile data communications systems), ResMED (anti-snoring), John Fairfax newspaper and magazines, Burns Philp (yeast and bakery), Greencorp Magnetics, (recording tapes), Brambles (waste management), Amcor (packaging), MIM, Moldflow (software solutions), SDI (dental products), Nufarm (agricultural products) and Greater Union (cinema).
TradeWatch Contacts
If you would like more information on the trade and economic conditions in Germany, please email the Department of Foreign Affairs and Trade: Tradewatch@dfat.gov.au
Last reviewed date: 02/06/2008