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Background: As Europe’s largest economy & 2nd most populous nation, Germany remains a key member of the continent’s economic, political & defense organizations. European power struggles immersed Germany in 2 devastating World Wars in the 1st half of the 20th century & left the country occupied by the victorious Allied powers of the US, UK, France & the Soviet Union in 1945. With the advent of the Cold War, 2 German states were formed in 1949: the western Federal Republic of Germany (FRG) & the eastern German Democratic Republic (GDR). The democratic FRG embedded itself in key Western economic & security organizations: the EC, which became the EU, & NATO, while the Communist GDR was on the front line of the Soviet-led Warsaw Pact. The decline of the USSR & the end of the Cold War allowed for German unification in 1990. Since then, Germany has expended considerable funds to bring Eastern productivity & wages up to Western standards. In January 1999, Germany & 10 other EU countries introduced a common European exchange currency, the euro.

Languages: German

Adminisitrative divisions: 13 states (Länder, singular – Land) & 3 free states* (Freistaaten, singular – Freistaat); Baden-Württemberg, Bayern*, Berlin, Brandenburg, Bremen, Hamburg, Hessen, Mecklenburg-Vorpommern, Niedersachsen, Nordrhein-Westfalen, Rheinland-Pfalz, Saarland, Sachsen*, Sachsen-Anhalt, Schleswig-Holstein, Thüringen*

Religions: Protestant 34%, Roman Catholic 34%, Muslim 3.7%, unaffiliated or other 28.3%

Ethnic groups: German 91.5%, Turkish 2.4%, other 6.1% (made up largely of Greek, Italian, Polish, Russian, Serbo-Croatian, Spanish)

Economic overview: Germany’s affluent & technologically powerful economy – the 5th largest in the world – has become one of the slowest growing economies in the euro zone. A quick turnaround is not in the offing in the foreseeable future; however, stronger growth this year has improved employment considerably. Growth in 2001-03 fell short of 1%, rising to 1.7% in 2004, falling back to 0.9% in 2005, & increasing to 2.2% in 2006. Unemployment fell to 7.1% in October 2006, based on the Internation Labor Organization’s measurement. The modernization & integration of the eastern German economy continues to be a costly long-term process, with annual transfers from west to east amounting to roughly $70 billion. Germany’s aging population, combined with high chronic unemployment, has pushed social security outlays to a level exceeding contributions from workers. Structural rigidities in the labor market – including strict regulations on laying off workers & the setting of wages on a national basis – & a lack of competition in the service sectors have made slow growth a chronic problem. Corporate restructuring & growing capital markets are setting the foundations that could help Germany meet the long-term challenges of European economic integration & globalization; however, the current government has failed to pass meaningful economic reform that would improve growth prospects. Higher government revenues from the cyclical upturn in 2006 reduced Germany’s budget deficit to within the EU’s 3% debt limit.