U.S. Department of State

Background Notes: Germany, May 1997

Released by the Bureau of European and Canadian Affairs.

Official Name: Federal Republic of Germany

PROFILE

Geography

Area: 357,000 sq. km. (137,821 sq. mi.); about the size of Montana.
Cities: Capital--Berlin (population about 3.5 million).
Seat of government--Bonn (pop. 298,000). The permanent seat of government for a unified Germany will be moved from Bonn to Berlin, in 1999 or the year 2000. Other cities--Hamburg (1.7 million), Munich (1.3 million), Cologne (1 million), Frankfurt (664,000), Dusseldorf (578,000), Leipzig (497,000).
Terrain: Low plain in the north; high plains, hills, and basins in the center and east; mountainous alpine region in the south.
Climate: Temperate; cooler and rainier than much of the U.S.

People

Nationality: Noun and adjective--German(s).
Population (1994 est.): 81 million.
Ethnic groups: Primarily German; Danish minority in the north, Sorbian (Slavic) minority in the east, 7 million foreigners.
Religions: Protestants slightly outnumber Roman Catholics. Language: German. Education: Years compulsory--10. Attendance--100%. Literacy--99%.
Health: Infant mortality rate (1990, original 11 states)--6/1,000. Life expectancy (1996, Germany-wide)--women 79 yrs., men 73 yrs.
Work force: 39 million (1994).

Government

Type: Federal republic. Founded: 1949 (Basic Law, i.e., constitution, promulgated on May 23, 1949). On October 3, 1990, the Federal Republic of Germany and the German Democratic Republic unified in accordance with Article 23 of the F.R.G. Basic Law. Branches: Executive--president (titular chief of state), chancellor (executive head of government).
Legislative--bicameral parliament.
Judicial--independent, Federal Constitutional Court. Administrative divisions: 16 Laender (states).
Major political parties: Christian Democratic Union (CDU); Christian Social Union (CSU); Social Democratic Party (SPD); Free Democratic Party (FDP); Alliance 90/Greens; Party of Democratic Socialism (PDS). Suffrage: Universal at 18.

Economy

GDP (1996): $2.4 trillion.
Annual growth rate (1996): 1.4%.
Per capita income: $25,000.
Inflation rate (Jan 1997): 1.8%.
Natural resources: Iron, hard coal, lignite, potash, natural gas.
Agriculture: Accounts for 1% of GDP. Products--corn, wheat, potatoes, sugar beets, barley, hops, viticulture, forestry, fisheries.
Industry (35% of GDP): Types--iron and steel, coal, chemicals, electrical products, ships, vehicles, construction.
Trade (1995): Exports--$498 billion: chemicals, motor vehicles, iron and steel products, manufactured goods, electrical products. Major markets--France, U.K., U.S.
Imports--$441 billion: food, petroleum products, manufactured goods, electrical products, automobiles, apparel. Major suppliers--France, Italy, Netherlands.

PEOPLE

The population of unified Germany is primarily German. There are almost 7 million foreign residents, including those granted asylum, guest workers, and their dependents. Despite tightening of asylum laws, Germany remains a prime destination for political and economic refugees from much of the Third World. An ethnic Danish minority lives in the north, and a small Slavic minority known as the Sorbs lives in eastern Germany.

Germany has one of the world's highest levels of education, technological development, and economic productivity. Since the end of World War II, the number of youths entering universities has more than tripled, and the trade and technical schools in the original 11 states of the Federal Republic of Germany (F.R.G.) are among the world's best. With a per capita income level of more than $25,000, postwar Germany has become a broadly middle class society. A generous social welfare system provides for universal medical care, unemployment compensation, and other social needs. Modern Germans also are mobile; millions travel abroad each year.

With unification on October 3, 1990, Germany began the major task of bringing the standard of living of Germans in the former German Democratic Republic (G.D.R.) up to that of western Germany. This will be a lengthy and difficult process due to the relative inefficiency of industrial enterprises in the former G.D.R., difficulties in resolving property ownership in eastern Germany, and the inadequate infrastructure and environmental damage that resulted from years of mismanagement under communist rule.

Drastic changes in the socio-economic landscape brought about by reunification have resulted in troubling social problems. The economic uncertainty in eastern Germany is often cited as one factor contributing to extremist violence, primarily from the right. Confusion about the causes of the current hardships and a need to place blame have found expression in an alarming wave of harassment and violence by some Germans directed toward foreigners, particularly non-Europeans. However, thousands of Germans have formed groups and marched to condemn violence or other anti-foreigner or extremist acts. Although violence or harassment directed at foreigners continued to occur within society as a whole, rightwing extremist violence peaked in 1992 and has since declined sharply.

HISTORY

The rise of Prussian power in the 19th century, supported by growing German nationalism, eventually ended inter-state fighting and resulted in the formation of the German empire in 1871 under the chancellorship of Otto von Bismarck. Although authoritarian in many respects, the empire eventually permitted the development of political parties, and Bismarck was credited with passing the most advanced social welfare legislation of the age. Dynamic expansion of military power, however, contributed to tensions on the continent. The fragile European balance of power broke down in 1914, and World War I and its aftermath, including the Treaty of Versailles, led to the collapse of the German empire.

Fascism's Rise and Defeat
The postwar Weimar Republic (1919-33) was an attempt to establish a peaceful, liberal democratic regime in Germany. This government was severely handicapped and eventually doomed by economic problems and the inherent weakness of the Weimar state. The inflation of the early 1920s, the world depression of the 1930s, and the social unrest stemming from the draconian conditions of the Versailles Treaty worked to destroy the Weimar government from inside and out.

The National Socialist (Nazi) Party, led by Adolf Hitler, stressed nationalist themes and promised to put the unemployed back to work. The party blamed many of Germany's ills on alleged Jewish conspiracies. Nazi support expanded rapidly in the early 1930s. Hitler was asked to form a government as Reich Chancellor in January 1933. After President Paul von Hindenburg died in 1934, Hitler assumed that office as well. Once in power, Hitler and his party first undermined then abolished democratic institutions and opposition parties.The Nazi leadership attempted to remove or subjugate all non-German peoples in Germany by forced migration and, ultimately, genocide. Hitler restored Germany's economic and military strength, but his ambitions led Germany into World War II. For Germany, World War II resulted in the destruction of its political and economic infrastructures, led to its division, and left a humiliating legacy.

After Germany's unconditional surrender on May 8, 1945, the United States, the United Kingdom, and the U.S.S.R. occupied the country and assumed responsibility for its administration. The commanders-in- chief exercised supreme authority in their respective zones and acted in concert on questions affecting the whole country. France was later given a separate zone of occupation.

Although the United States, the United Kingdom, and the Soviet Union agreed at Potsdam in August 1945 to a broad program of decentralization, treating Germany as a single economic unit with some central administrative departments, these plans failed. The turning point came in 1948, when the Soviets withdrew from the Four Power governing bodies and blockaded Berlin. Until May 1949, West Berlin was kept supplied only by an Allied airlift.

Political Developments In West Germany
The United States and the United Kingdom moved to establish a nucleus for a future German government by expanding the size and powers of the German Economic Council in their two zones. The program provided for a West German constituent assembly, an occupation statute governing relations between the Allies and the German authorities, and the economic merger of the French with the British and American zones.

On May 23, 1949, the Basic Law, the constitution of the Federal Republic of Germany, was promulgated. The first federal government was formed by Konrad Adenauer on September 20, 1949. The next day, the occupation statute came into force, granting powers of self- government with certain exceptions.

The F.R.G. quickly progressed toward fuller sovereignty and association with its European neighbors and the Atlantic community. The London and Paris agreements of 1954 restored full sovereignty (with some exceptions) to the F.R.G. in May 1955 and opened the way for German membership in the North Atlantic Treaty Organization (NATO) and the Western European Union (WEU).

The three Western Allies retained occupation powers in Berlin and certain responsibilities for Germany as a whole. Under the new arrangements, the Allies stationed troops within the F.R.G. for NATO defense, pursuant to stationing and status-of-forces agreements. With the exception of 45,000 French troops, Allied forces were under NATO's joint defense command. (France withdrew from the collective military command structure of NATO in 1966.)

Political life in the F.R.G. was remarkably stable and orderly. The Adenauer era (1949-63) was followed by a brief period under Ludwig Erhard (1963-66) who, in turn, was replaced by Kurt Georg Kiesinger (1966-69). All governments between 1949 and 1966 were formed by the united caucus of the Christian Democratic Union (CDU) and Christian Social Union (CSU), either alone or in coalition with the smaller Free Democratic Party (FDP). Kiesinger's 1966-69 "Grand Coalition" included the F.R.G.'s two largest parties, CDU/CSU and the Social Democratic Party (SPD). In the 1969 election, the SPD--headed by Willy Brandt--gained enough votes to form a coalition government with the FDP. Chancellor Brandt remained head of government until May 1974, when he resigned after a senior member of his staff was convicted of spying for the East German intelligence service.

Finance Minister Helmut Schmidt (SPD) formed a government and received the unanimous support of coalition members. He served as Chancellor from 1974 to 1982. Hans-Dietrich Genscher, a leading FDP official, became Vice Chancellor and Foreign Minister. Schmidt, a strong supporter of the European Community (EC) and the Atlantic alliance, emphasized his commitment to "the political unification of Europe in partnership with the U.S.A."

In October 1982, the SPD-FDP coalition fell apart when the FDP joined forces with the CDU/CSU to elect CDU Chairman Helmut Kohl as Chancellor. Following national elections in March 1983, Kohl emerged in firm control of both the government and the CDU. The CDU/CSU fell just short of an absolute majority, due to the entry into the Bundestag of the Greens, who received 6% of the vote.

In January 1987, the Kohl-Genscher government was returned to office, but the FDP and the Greens gained at the expense of the larger parties. Kohl's CDU and its Bavarian sister party, the CSU, slipped from 49% of the vote in 1983 to 44%. The SPD fell to 37%; long-time SPD Chairman Brandt subsequently resigned in April 1987 and was succeeded by Hans-Jochen Vogel. The FDP's share rose from 7% to 9%, its best showing since 1980. The Greens' share rose to 8% from their 1983 share of 6%.

Political Developments In East Germany
In the Soviet zone, the Social Democratic Party was forced to merge with the Communist Party in 1946 to form a new party, the Socialist Unity Party (SED). The October 1946 elections resulted in coalition governments in the five Land (state) parliaments with the SED as the undisputed leader.

A series of people's congresses were called in 1948 and early 1949 by the SED. Under Soviet direction, a constitution was drafted on May 30, 1949, and adopted on October 7, which was celebrated as the day when the German Democratic Republic was proclaimed. The People's Chamber (Volkskammer)--the lower house of the G.D.R. parliament--and an upper house--the States Chamber (Laenderkammer)--were created. (The Laenderkammer was abolished in 1958.) On October 11, 1949, the two houses elected Wilhelm Pieck as President, and a SED government was set up. The Soviet Union and its East European allies immediately recognized the G.D.R., although it remained largely unrecognized by non-communist countries until 1972-73.

The G.D.R. established the structures of a single-party, centralized, communist state. On July 23, 1952, the traditional Laender were abolished and, in their place, 14 Bezirke (districts) were established. Effectively, all government control was in the hands of the SED, and almost all important government positions were held by SED members.

The National Front was an umbrella organization nominally consisting of the SED, four other political parties controlled and directed by the SED, and the four principal mass organizations (youth, trade unions, women, and culture). However, control was clearly and solely in the hands of the SED. Balloting in G.D.R. elections was not secret. As in other Soviet bloc countries, electoral participation was consistently high, with nearly unanimous candidate approval.

Inter-German Relations
The constant stream of East Germans fleeing to West Germany placed great strains on F.R.G.-G.D.R. relations in the 1950s. On August 13, 1961, the G.D.R. began building a wall through the center of Berlin to divide the city and slow the flood of refugees to a trickle. The Berlin Wall became the symbol of the East's political debility and the division of Europe.

In 1969, Chancellor Brandt announced that the F.R.G. would remain firmly rooted in the Atlantic alliance but would intensify efforts to improve relations with Eastern Europe and the G.D.R. The F.R.G. commenced this Ostpolitik by negotiating non-aggression treaties with the Soviet Union, Poland, Czechoslovakia, Bulgaria, and Hungary.

The F.R.G.'s relations with the G.D.R. posed particularly difficult questions. Though anxious to relieve serious hardships for divided families and to reduce friction, the F.R.G. under Brandt was intent on holding to its concept of "two German states in one German nation." Relations improved, however, and in September 1973, the F.R.G. and the G.D.R. were admitted to the UN. The two Germanys exchanged permanent representatives in 1974, and, in 1987, G.D.R. head of state Erich Honecker paid an official visit to the F.R.G.

German Unification
During the summer of 1989, rapid changes took place in the G.D.R., which ultimately led to German unification. Growing numbers of East Germans emigrated to the F.R.G. via Hungary after the Hungarians decided not to use force to stop them. Thousands of East Germans also tried to reach the West by staging sit-ins at F.R.G. diplomatic facilities in other East European capitals. The exodus generated demands within the G.D.R. for political change, and mass demonstrations in several cities--particularly in Leipzig--continued to grow. On October 7, Soviet leader Mikhail Gorbachev visited Berlin to celebrate the 40th anniversary of the establishment of the G.D.R. and urged the East German leadership to pursue reform.

On October 18, Erich Honecker resigned as head of the SED and as head of state and was replaced by Egon Krenz. But the exodus continued unabated and pressure for political reform mounted. On November 4, a demonstration in East Berlin drew as many as 1 million East Germans. Finally, on November 9, the Berlin Wall was opened and East Germans were allowed to travel freely. Thousands poured through the wall into the western sectors of Berlin, and on November 12, the G.D.R. began dismantling it.

On November 28, F.R.G. Chancellor Kohl outlined a 10-point plan for the peaceful unification of the two Germanys based on free elections in the G.D.R. and a unification of their two economies. In December, the G.D.R. Volkskammer eliminated the SED monopoly on power, and the entire Politburo and Central Committee--including Krenz--resigned. The SED changed its name to the Party of Democratic Socialism (PDS) and the formation and growth of numerous political groups and parties marked the end of the communist system. Prime Minister Hans Modrow headed a caretaker government which shared power with the new, democratically oriented parties. On December 7, 1989, agreement was reached to hold free elections in May 1990 and rewrite the G.D.R. constitution. On January 28, all the parties agreed to advance the elections to March 18, primarily because of an erosion of state authority and because the East German exodus was continuing apace; more than 117,000 left in January and February 1990.

In early February 1990, the Modrow government's proposal for a unified, neutral German state was rejected by Chancellor Kohl, who affirmed that a unified Germany must be a member of NATO. Finally, on March 18, the first free elections were held in the G.D.R., and a government led by Lothar de Maiziere (CDU) was formed under a policy of expeditious unification with the F.R.G. The freely elected representatives of the Volkskammer held their first session on April 5, and the G.D.R. peacefully evolved from a communist to a democratically elected government. Free and secret communal (local) elections were held in the G.D.R. on May 6, and the CDU again won. On July 1, the two Germanys entered into an economic and monetary union.

Four Power Control Ends
During 1990, in parallel with internal German developments, the Four Powers--the United States, U.K., France, and the Soviet Union-- negotiated to end Four Power reserved rights for Berlin and Germany as a whole. These "Two-plus-Four" negotiations were mandated at the Ottawa Open Skies conference on February 13, 1990. The six foreign ministers met four times in the ensuing months in Bonn (May 5), Berlin (June 22), Paris (July 17), and Moscow (September 12). The Polish Foreign Minister participated in the part of the Paris meeting that dealt with the Polish-German borders.

Of key importance was overcoming Soviet objections to a united Germany's membership in NATO. This was accomplished in July when the alliance, led by President Bush, issued the London Declaration on a transformed NATO. On July 16, President Gorbachev and Chancellor Kohl announced agreement in principle on a united Germany in NATO. This cleared the way for the signing in Moscow on September 12 of the Treaty on the Final Settlement With Respect to Germany. In addition to terminating Four Power rights, the treaty mandated the withdrawal of all Soviet forces from Germany by the end of 1994, made clear that the current borders were final and definitive, and specified the right of a united Germany to belong to NATO. It also provided for the continued presence of British, French, and American troops in Berlin during the interim period of the Soviet withdrawal. In the treaty, the Germans renounced nuclear, biological, and chemical weapons and stated their intention to reduce German armed forces to 370,000 within three to four years after the Conventional Armed Forces in Europe (CFE) Treaty, signed in Paris on November 19, 1990, entered into force.

Conclusion of the final settlement cleared the way for unification of the F.R.G. and G.D.R. Formal political union occurred on October 3, 1990, with the accession (in accordance with Article 23 of the F.R.G.'s Basic Law) of the five Laender which had been reestablished in the G.D.R. On December 2, 1990, all-German elections were held for the first time since 1933.

GOVERNMENT

The government is parliamentary and based on a democratic constitution that emphasizes the protection of individual liberty and division of powers in a federal structure. The chancellor (prime minister) heads the executive branch of the federal government. The duties of the president (chief of state) are largely ceremonial; power is exercised by the chancellor. Although elected by and responsible to the Bundestag (lower and principal chamber of the parliament), the chancellor cannot be removed from office during a four-year term unless the Bundestag has agreed on a successor.

The Bundestag, also elected for a four-year term, consists of at least 656 deputies (more may be admitted when parties' directly elected seats exceed their proportional representation). There are 672 deputies serving in the current session. Elections for an all-German Bundestag were first held on December 2, 1990, and again on October 16, 1994. The Bundesrat (upper chamber or Federal Council) consists of 68 members who are delegates of the 16 Laender. The legislature has powers of exclusive jurisdiction and concurrent jurisdiction with the Laender in areas specifically enumerated by the Basic Law. The Bundestag bears the major responsibility. The role of the Bundesrat is limited except in matters concerning Laender interests, where it can exercise substantial veto power.

Germany has an independent federal judiciary consisting of a constitutional court, a high court of justice, and courts with jurisdiction in administrative, financial, labor, and social matters. The highest court is the Federal Constitutional Court, which ensures a uniform interpretation of constitutional provisions and protects the fundamental rights of the individual citizen as defined in the Basic Law.

Principal Government Officials

President--Roman Herzog
President of the Bundestag--Rita Suessmuth (CDU)
Chancellor--Helmut Kohl (CDU)
Vice Chancellor--Klaus Kinkel (FDP)
Minister of Defense--Volker Ruehe (CDU)
Minister for Foreign Affairs--Klaus Kinkel (FDP)
Ambassador to the U.S.--Juergen Chrobog
Ambassador to the UN--Detlev Graf zu Rantzau

Germany maintains an embassy in the United States at 4645 Reservoir Road NW, Washington, DC 20007 (tel. 202-298-4000).

Consulates general are located in Atlanta, Boston, Chicago, Detroit, Houston, Los Angeles, Miami, New York, San Francisco, and Seattle. Germany has honorary consuls in over 30 U.S. cities.

Political Parties
Christian Democratic Union/Christian Social Union (CDU/CSU). An important aspect of postwar German politics has been the emergence of a moderate Christian party--the Christian Democratic Union--operating with a related Bavarian party, the Christian Social Union. Although each party maintains its own structure, the two form a common caucus in the Bundestag and do not run opposing campaigns. The CDU/CSU is loosely organized, containing Catholics, Protestants, rural interests, and members of all economic classes. It is generally conservative on economic and social policy and more identified with the Roman Catholic and Protestant churches than are the other major parties, although its programs are pragmatic rather than ideological. Helmut Kohl has served as chairman of the CDU since 1973; Theo Waigel succeeded the late Franz Josef Strauss as chairman of the CSU in 1988. The parties together polled 41.5% of the national vote and won 294 seats on October 16, 1994, reaffirming the Union as Germany's largest party.

Social Democratic Party (SPD). The SPD is the other major party in Germany and is one of the oldest organized political parties in the world. Historically, it advocated Marxist principles, but in the Godesberg Program, adopted in 1959, the SPD abandoned the concept of a class party while continuing to stress social welfare programs. Although the SPD originally opposed West Germany's 1955 entry into NATO, it now strongly supports German ties with the alliance. The SPD has a powerful base in the bigger cities and industrialized Laender. Oskar Lafontaine was elected SPD chairman in November 1995, replacing the SPD's 1994 Chancellor candidate, Rudolf Sharping.

Free Democratic Party (FDP). The FDP has traditionally been composed mainly of middle- and upper-class Protestants, who consider themselves "independents" and heirs to the European liberal tradition. Although the party is weak on the state level, it has participated in all but three postwar federal governments and has spent only seven years out of government in the 46-year history of the Federal Republic. The party took 7% of the vote and returned 47 deputies to the Bundestag in 1994. Klaus Kinkel was elected chairman of the FDP in 1993. Wolfgang Gerhardt was elected by the party as Kinkel's successor on June 1, 1995.

Greens. In the 1970s, environmentalists organized politically as the Greens. Opposition to expanded use of nuclear power, to NATO strategy, and to certain aspects of highly industrialized society were principal campaign issues. The Greens received 8% of the vote in the January 1987 West German national election. However, in the December 1990 all-German elections, the Greens in western Germany were not able to clear the 5% hurdle required to win seats in the Bundestag. It was only in the territory of the former G.D.R. that the Greens, in a merger with Alliance 90 (a loose grouping of left- wing political entities with diverse political views), were able to clear the 5% hurdle and win Bundestag seats. In 1994, Greens from East and West returned to the Bundestag with 7% and 49 seats. The Greens Party leader is Joschka Fischer.

Party of Democratic Socialism (PDS). Under chairman Lothar Bisky and Bundestag caucus leader Gregor Gysi, the PDS is the successor party to the SED (the communist party of the G.D.R.). Established in December 1989, it renounced most of the extreme aspects of SED policy but has retained much of the ideology. In the December 1990 all- German elections, the PDS gained 10% of the vote in the former G.D.R. and 17 seats in the Bundestag. In October 1994, the PDS won four directly elected seats, to reenter parliament with a total caucus of 30 seats despite falling below the 5% hurdle for proportional representation which applied again throughout all of Germany.

Other Parties. In addition to those parties that won representation in the Bundestag in October 1994, 16 other parties were on the ballot in one or more states. The extreme right-wing Republikaner party saw its vote share sink to below 2% nationally, while the others drew even less support. Subsequent state elections have witnessed a continued decline in the party's fortunes.

Recent Election Issues
In the "super election year" of 1994-95, Germans voted in European Parliament, local, state, and federal parliamentary elections. On May 23, 1994, the President of Germany's Constitutional Court, Roman Herzog, was elected President of the Republic in a special federal convention. The most significant of these elections was the Federal Parliament (Bundestag) election on October 16. The coalition of the CDU/CSU and the FDP was returned to government with a narrow majority of 341 seats to 331 for the opposition parties. The new Bundestag, in turn, re-elected Helmut Kohl as Federal Chancellor for a four- year, renewable term of office.

There have been several state elections of note since the 1994 Bundestag elections. Overall, the results have done little to alter the political landscape of the F.R.G. Finally, in a May 1996 referendum, Brandenburg voters, for the second time, failed to approve a planned merger of that state with the city of Berlin.

Many of the most compelling public issues in Germany are domestically oriented, with the economy dominating the political debate. The high unemployment rate has become a primary concern. External issues, however, continue to play an important role. Germans are deeply concerned with the pace and scope of European integration. They also are concerned with the circumstances under which German military forces may participate in international peacekeeping or collective security operations.

ECONOMY

Germany ranks among the world's most important economic powers, witnessed by its presence among the G7. From the 1948 currency reform until the early 1970s, West Germany experienced almost continuous economic expansion, but real growth in gross national product slowed and even declined from the mid-1970s through the recession of the early 1980s. The economy then experienced eight consecutive years of growth that ended with a downturn beginning in late 1992.

After national unification, eastern German industrial output collapsed to about 40% of its 1989 level, leading to high unemployment in the new states. Reunification strained German public finance, hurt the labor market, and eventually exposed structural weaknesses in the economy. Following a reunification-induced western German economic boom during 1990-92 fueled by explosive consumer demand and capital spending, growth stalled while transfer payments to the eastern states rose to $90 billion per year. In an effort to contain the inflationary pressures of these transfers, the Central Bank (Bundesbank) maintained a high (short-term) interest rate policy which further dampened economic activity. In 1994, the German economy began to recover, and the 10% growth rate in the eastern states was the highest of any region in Europe. 1995 growth was unexpectedly low at 1.9%, though eastern Germany maintained growth of over 5%. 1996 GDP growth was an even lower 1.4%, due mainly to a drop in construction investment and lower private consumption. Growth forecasts for 1997 range from 1.5 to 2.5% -- not enough to reduce unemployment. Exports continue to drive growth in 1997 as private consumption remains low, dampened by modest nominal wage gains, higher contributions to the social security system and the postponement of tax relief measures.

Germans often describe their economic system as a "social market economy." The German Government provides an extensive array of social services. Although the state intervenes in the economy through the provision of subsidies to selected sectors and the ownership of some segments of the economy, competition and free enterprise are promoted as a matter of government policy. The government has restructured the railroad system on a corporate basis and is privatizing the national airline and postal service. The challenges of restructuring are similar to those faced by the United States a decade ago. The Government has worked hard to improve competitiveness by reforming the nation's social and fiscal systems but these efforts have run into difficulties. Changes to the German "social compact" have met with strong resistence from labor and management alike.

The German economy is heavily export oriented, with one-third of its national output going to the external sector. As a result, exports traditionally have been a key element in German macroeconomic expansion. Germany is a strong advocate of closer European economic integration, and its economic and commercial policies are increasingly determined by agreements among European Union (EU) members.

Outside the EU, the United States and Japan are Germany's major trading partners. U.S. - German trade is very dynamic, with both import and export sectors growing by over 10% in 1996. Two-way U.S.-German merchandise trade is more than $50 billion. The United States continued to run trade deficits with Germany; U.S. merchandise exports in 1995 were $22.4 billion, while German exports expanded to $36.8 billion. Major U.S. export categories include aircraft, electrical equipment, telecommunications equipment, data processing equipment, and motor vehicles and parts. German export sales are concentrated in motor vehicles, machinery, chemicals, and heavy electrical equipment. In services, the United States consistently shows a surplus in trade with Germany.

Germany follows a liberal policy toward foreign investment. About 65% of U.S. capital invested in Germany is in manufacturing. In 1996, total U.S. direct investment in Germany was $41 billion, making the U.S. Germany's the leading source of foreign investment. Total German investment in the United States in 1993 was $35 billion, also up significantly from the 1992 level of $30 billion.

Seven years after the unification of the two German states, great strides have been made, and the complex task of introducing a market economy in the east is well-advanced. Overall productivity in the former G.D.R., which was less than half that in the F.R.G., is now increasing, narrowing the gap in productivity rates. The challenge is to close the productivity gap altogether. The poor condition of the basic infrastructure, widespread environmental damage, and lower-than-expected levels of private investment in the east have complicated the process of economic integration. Private investment in eastern Germany has been slower than expected in large part because the issue of property ownership in the former G.D.R. has proven difficult to resolve. Most observers nevertheless believe that, after an initial period of economic adjustment, eastern Germany will enter an era of rapid and self-sustaining economic growth.

Germany's greatest economic problem is its persistently high unemployment rate. As of Spring 1997, unemployment figures were at their highest level since 1933, with nearly one in eight of Germany's working population is on some form of support. In January 1996, government, industry, and labor leaders worked out a "Fifty-Point Action Plan" proposal to halve unemployment by the year 2000, but the current plan cannot achieve its goal without further measures to stimulate growth and employment. Although a recent "Alliance for Jobs" program to trade wage restraint for job guarantees has had some success, it will probably not significantly decrease Germany's high unit labor costs any time soon. Massive layoffs by some of the country's biggest firms have spawned a feeling of insecurity new to western Germans.

However, despite the growing clamor to address structural rigidities in the labor market and excessive government regulation, the economy remains fundamentally strong and internationally competitive. Although production costs are very high, Germany is still an export powerhouse. Germany competes successfully in highly-engineered, quality products backed by excellent service. German firms are somewhat less successful in high-tech electronic goods. In 1995, Germany ran a merchandise trade surplus of over $60 billion and a manageable current account deficit of about $17 billion. Abundant human capital, low corporate debt burdens, and cooperative industrial relations continue to characterize the German economy. Additionally, Germany is strategically placed to take advantage of the rapidly growing central European countries. Although the Germans face fundamental economic adjustments, they have the discipline and the resources to meet the challenges ahead.

FOREIGN RELATIONS

Unified Germany continues to emphasize close ties with the United States, membership in NATO, the "deepening" of integration among current members of the EU, and expansion of union membership to include Central and Southern European neighbors. The F.R.G. took part in all of the joint postwar efforts aimed at closer political, economic, and defense cooperation among the countries of Western Europe. Germany is also a strong supporter of the Organization for Security and Cooperation in Europe (OSCE), which seeks to reduce tensions and improve relations among the European nations, the U.S., and Canada.

During the postwar era, the F.R.G. also sought to improve its relationship with the countries of Eastern Europe, first establishing trade agreements and, subsequently, diplomatic relations. With unification, German relations with the new democracies in Central and Eastern Europe have intensified. On November 14, 1990, Germany and Poland signed a treaty confirming the Oder-Neisse border. They also concluded a cooperation treaty on June 17, 1991. Germany concluded four treaties with the Soviet Union covering the overall bilateral relationship, economic relations, the withdrawal of Soviet troops from the territory of the former G.D.R., and German support for those troops. Russia accepted obligations under these treaties as successor to the Soviet Union.

Berlin
The Final Settlement Treaty ended Berlin's special status since 1945 as a separate area under Four Power control. Under the terms of the treaty between the F.R.G. and the G.D.R., Berlin became the capital of a unified Germany. The Bundestag voted in June 1991 to make Berlin the seat of government. The Chancellory, Bundestag, Foreign Office, and other government ministries will move to Berlin by the turn of the century. Berlin is also one of the Federal Republic's 16 Laender. Its first united government since 1948 was elected in December 1990.

The opening of the Berlin Wall on November 9, 1989, was a watershed in the developments which culminated in German unity on October 3, 1990. The infamous 165-kilometer (103 mi.) wall surrounding the western sectors of the city has been torn down, and the city has been physically reunited. President Clinton highlighted the lasting significance for all free nations of the fall of the Berlin Wall in a speech at the Brandenburg Gate on July 12, 1994--the first address by a U.S. president delivered from the eastern side of that Berlin landmark.

Shortly after World War II, Berlin became the seat of the Allied Control Council, which was to have governed Germany as a whole until the conclusion of a peace settlement. In 1948, however, the Soviets refused to participate any longer in the quadripartite administration of Germany. At the same time, they also refused to continue cooperating in the joint administration of Berlin and drove the government elected by the people of Berlin out of its seat in the Soviet sector and installed a communist regime in its place. From then until unification, the Western Allies continued to exercise supreme authority--effective only in their sectors--through the Allied Kommandatura. To the degree compatible with the city's special status, however, they turned over control and management of city affairs to the Berlin Senat (executive) and House of Representatives, governing bodies established by constitutional process and chosen by free elections. The Allies and German authorities in the F.R.G. and West Berlin never recognized the communist city regime in East Berlin or G.D.R. authority there.

During the years of Berlin's isolation--176 kilometers (110 mi.) inside the former G.D.R.--the Western Allies encouraged a close relationship between the Government of West Berlin and that of the F.R.G. Representatives of the city participated as non-voting members in the F.R.G. parliament; appropriate West German agencies, such as the supreme administrative court, had their permanent seats in the city; and the governing mayor of Berlin took his turn as President of the Bundesrat. In addition, the allies carefully consulted with the F.R.G. and Berlin Governments on foreign policy questions involving unification and the status of Berlin.

The Quadripartite Agreement on Berlin in 1971 also provided for practical improvements in the life of Berliners. It made possible unhindered civilian access to Berlin and greater freedom of movement between eastern and western sectors for a period of 20 years. In addition, it contained Soviet acknowledgment of the ties that had grown between West Berlin and the F.R.G., including the latter's right to represent Berlin abroad.

Between 1948 and 1990, major events such as fairs and festivals were sponsored in West Berlin, and investment in commerce and industry was encouraged by special concessionary tax legislation. The results of such efforts, combined with effective city administration and the Berliners' energy and spirit, were encouraging. Berlin's morale was sustained, and its industrial production considerably surpassed the prewar level. The Government of Germany asked the allies to maintain a military presence in Berlin until the complete withdrawal of the Western Group of Forces (ex-Soviet) from the territory of the former G.D.R. The Russian withdrawal was completed August 31, 1994. Ceremonies were held on September 8, 1994, to mark the final departure of Western Allied troops from Berlin.

U.S.-GERMANY RELATIONS

U.S.-German relations have been a focal point of American involvement in Europe since the end of World War II. Germany stands at the center of European affairs and is a key partner in U.S. relations with Europeans in NATO and the European Union.

But German-American ties extend back to the colonial era. More than 7 million Germans have immigrated over the last three centuries, and today nearly 25% of U.S. citizens can claim some German ancestry. In recognition of this heritage and the importance of modern-day U.S.- German ties, the U.S. Congress annually has declared October 6 to be "German-American Day."

The U.S. objective in Germany remains the preservation and consolidation of a close and vital relationship with Germany not only as friends and trading partners but also as allies sharing common institutions. During the 45 years in which Germany was divided, the U.S. role in Berlin and the large American military presence in West Germany served as symbols of the U.S. commitment to the preservation of peace and security in Europe. Since German unification, the U.S. commitment to these goals has not changed. The U.S. has made significant reductions in its troop levels in Germany, and, on July 12, 1994, President Clinton "cased the colors" at the Berlin Brigade's deactivation ceremony. American policies, however, continue to be shaped by the awareness that the security and prosperity of the United States and Germany depend--to a major extent--on each other. Over 80,000 U.S. military personnel remain in Germany to protect these common interests.

As allies in NATO, the United States and Germany work side by side to maintain peace and freedom. This unity and resolve made possible the successful conclusion of the 1987 U.S.-U.S.S.R. Intermediate-Range Nuclear Forces Treaty (INF), the Two-plus-Four process, which led to the Final Settlement Treaty, and the November 1990 Conventional Armed Forces in Europe (CFE) Treaty.

As two of the world's leading trading nations, the United States and Germany share a common, deep-seated commitment to an open and expanding world economy. Germany is the world's second- leading trading nation. It is the fifth-largest trading partner of the United States.

Personal ties between the United States and Germany extend beyond immigration to include lively foreign exchange programs, booming tourism in both directions, and the presence in Germany of large numbers of American military personnel and their dependents. In the commercial sphere, more than 600,000 Germans work for U.S. companies in Germany while Americans employed by German firms here number over 500,000.

The United States and Germany have built a solid foundation of bilateral cooperation in a relationship that has changed significantly over four decades. The historic unification of Germany and the role played by the United States in that process have served to strengthen ties between the two countries. The relationship is now a mature partnership but remains subject to occasional misunderstandings and differences. These strains tend to reflect the importance, variety, and intensity of U.S.-German ties and respective interests rather than fundamental differences.

German-American political, economic, and security relationships continue to be based on close consultation and coordination at the most senior levels. High-level visits take place frequently, and the United States and Germany cooperate actively in international forums.

Principal U.S. Embassy Officials
Charge d'Affaires--J.D. Bindenagel
Minister-Counselor for Political Affairs--Brian Flora
Minister-Counselor for Economic Affairs--Janice Bay
Minister-Counselor for Commercial Affairs--Robert Kohn
Minister-Counselor for Administrative Affairs--Warren P. Nixon
Minister-Counselor for Consular Affairs--Michael Marine
Minister-Counselor for Public Affairs--Robert Earle
Chief, Office of Defense Cooperation--Col. Karl D. Horn,
USAF Defense Attache--Col. Lawrence J. Kimmel, U.S. Army

The U.S. embassy in Germany is located at Deichmanns Aue, 53170 Bonn (0228) 339-1. A branch office of the embassy is in Berlin, and consulates general are in Frankfurt, Hamburg, Munich, Stuttgart, Leipzig, and Dusseldorf.

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides Travel Warnings and Consular Information Sheets. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Consular Information Sheets exist for all countries and include information on immigration practices, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country. Public Announcements are issued as a means to disseminate information quickly about terrorist threats and other relatively short-term conditions overseas which pose significant risks to the security of American travelers. Free copies of this information are available by calling the Bureau of Consular Affairs at 202-647-5225 or via the fax-on-demand system: 202-647-3000. Travel Warnings and Consular Information Sheets also are available on the Consular Affairs Internet home page: http://travel.state.gov and the Consular Affairs Bulletin Board (CABB). To access CABB, dial the modem number: (301-946-4400 (it will accommodate up to 33,600 bps), set terminal communications program to N-8-1 (no parity, 8 bits, 1 stop bit); and terminal emulation to VT100. The login is travel and the password is info (Note: Lower case is required). The CABB also carries international security information from the Overseas Security Advisory Council and Department's Bureau of Diplomatic Security. Consular Affairs Trips for Travelers publication series, which contain information on obtaining passports and planning a safe trip abroad, can be purchased from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954; telephone: 202-512-1800; fax 202-512-2250.

Emergency information concerning Americans traveling abroad may be obtained from the Office of Overseas Citizens Services at (202) 647-5225. For after-hours emergencies, Sundays and holidays, call 202-647-4000.

Passport Services information can be obtained by calling the 24-hour, 7-day a week automated system ($.35 per minute) or live operators 8 a.m. to 8 p.m. (EST) Monday-Friday ($1.05 per minute). The number is 1-900-225-5674 (TDD: 1-900-225-7778). Major credit card users (for a flat rate of $4.95) may call 1-888-362-8668 (TDD: 1-888-498-3648)

Travelers can check the latest health information with the U.S. Centers for Disease Control and Prevention in Atlanta, Georgia. A hotline at (404) 332-4559 gives the most recent health advisories, immunization recommendations or requirements, and advice on food and drinking water safety for regions and countries. A booklet entitled Health Information for International Travel (HHS publication number CDC-95-8280) is available from the U.S. Government Printing Office, Washington, DC 20402, tel. (202) 512-1800.

Information on travel conditions, visa requirements, currency and customs regulations, legal holidays, and other items of interest to travelers also may be obtained before your departure from a country's embassy and/or consulates in the U.S. (for this country, see "Principal Government Officials" listing in this publication).

U.S. citizens who are long-term visitors or traveling in dangerous areas, are encouraged to register at the U.S. embassy upon arrival in a country (see "Principal U.S. Embassy Officials" listing in this publication). This may help family members contact you in case of an emergency.

Further Electronic Information:

Department of State Foreign Affairs Network. Available on the Internet, DOSFAN provides timely, global access to official U.S. foreign policy information. Updated daily, DOSFAN includes Background Notes; Dispatch, the official magazine of U.S. foreign policy; daily press briefings; directories of key officers of foreign service posts; etc. DOSFAN's World Wide Web site is at U.S. State Department Home Page; this site has a link to the DOSFAN Gopher Research Collection, which also is accessible at gopher://gopher.state.gov.

U.S. Foreign Affairs on CD-ROM (USFAC). Published on a semi-annual basis by the U.S. Department of State, USFAC archives information on the Department of State Foreign Affairs Network, and includes an array of official foreign policy information from 1990 to the present. Contact the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. To order, call (202) 512-1800 or fax (202) 512-2250.

National Trade Data Bank (NTDB). Operated by the U.S. Department of Commerce, the NTDB contains a wealth of trade-related information, including Country Commercial Guides. It is available on the Internet (www.stat-usa.gov) and on CD-ROM. Call the NTDB Help-Line at (202) 482-1986 for more information.

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