GERMANY

The last general elections, held in September 2009, showed again that Germany’s democratic electoral process is both sound and fair. Germany’s Basic Law ensures that members of the German Bundestag, the country’s lower parliamentary house, are elected in general, direct, free, equal and secret elections, serving for a legislative period of four years.
The Political Parties Act (PPA) sets general criteria for the treatment of political parties and candidates. While independent candidates have to fulfill a signature-gathering prerequisite in order to be eligible to stand for election, parties must meet strict organizational requirements. If parties have continuously held at least five seats in the Bundestag or in one of the parliaments of the federal states throughout the last legislative period, they are allowed to contest the election and to submit their nomination lists without any initial approval by the Federal Election Committee (FEC). All other parties have to formally notify the Federal Returning Officer (Bundeswahlleiter, FRO) of their intention to compete in elections at least 90 days before the election is held. On the basis of the FRO assessment, the FEC rules on each party’s eligibility to participate in general elections. Due to the fact that the formal criteria stated in the PPA are vaguely formulated and open to interpretation, some political parties have argued that the decision on parties’ eligibility risks falling prey to subjectivity. In its recent Election Assessment Mission Report, the OSCE called for definition of “a set of precise, objective and measurable criteria to determine which parties and associations are eligible to participate in elections” (OSCE 2009: 12).
Parties that defy the constitutional order can be prohibited by the Federal Constitutional Court, but no party has been subjected to the last resort of banning for more than 50 years. However, active debate on a possible ban of the rightist National Democratic Party (NPD) has been renewed since December 2008.
It is evident that the German judicial and administrative systems show a high sensitivity with regard to the fairness of the electoral process and the rights of parties. Nevertheless, an incident dating from the last general election is worth mentioning. The Federal Constitutional Court rejected the urgent motion of two small parties whose lists of candidates for the general election had been dismissed in all federal states by the local state election commissions. As expected, the judges rejected the complaints as inadmissible, ruling that there was no right to appeal until after an election. Although there has not been the slightest concern in the public debate that this exclusion might have been influenced by any political factors, or that the FRO may have been influenced by the established parties, the judgment drew critical commentary from some lawyers. For instance, some constitutional lawyers complained about the lack of legal redress for small parties following cases where they have been barred from the electoral lists. Although this is perceived as a legal gap, the Federal Constitutional Court has so far not shown any intention to close it.

The legal framework for electoral campaigns is based on the freedom of assembly, which is codified in Article 8 of the Basic Law and ensures the “right to assemble peacefully and unarmed without prior notification or permission” but “(i)n the case of outdoor assemblies, this right may be restricted by or pursuant to a law.”
Whereas assemblies are regulated in detail, campaigning is largely unregulated by federal legislation. As mentioned above, the Political Parties Act (PPA) sets general criteria for the treatment of political parties. Of particular importance in the conduct of elections is Article 5, which requires that “where a public authority provides facilities or other public services for use by one party, equal treatment must be accorded to all parties.” During the period of an electoral campaigns, this general criterion applies to all parties that have submitted election proposals. The amount of services parties are able to use depends on their relative importance measured by the results obtained in the last general election. This is called the “principle of gradual equality” and constitutes the basis of parties’ access to media in conjunction with the Interstate Treaty on Broadcasting and Telemedia. In Article 25 of this latter treaty, the plurality of opinion is ensured: “The editorial content of commercial broadcasting must express plurality of opinion. The important political, ideological and social forces and groups shall be given appropriate opportunity to express themselves (…and) minority views shall be taken into account….”
This general guideline is further explored in the context of general elections: Article 42/2 states that “(p)olitical parties participating in elections for the federal parliament shall (…) be granted an appropriate amount of broadcasting time if an election list of this party has been admitted in at least one (federal) state.” This also counts for “…any party or other political association participating in the elections of representatives from the Federal Republic of Germany for the European Parliament (…) if at least one electoral proposal has been approved.” The principle of gradual equality is also applied to television airtime, but the time granted to large parliamentary parties is not allowed to exceed twice the amount conceded to smaller parliamentary parties, which in turn receive no more than double the amount of airtime given to parties currently unrepresented in the federal or state parliaments. While campaign spots on the public media networks is provided free of charge, the private media can not impose airtime prices more than 35% of that demanded for commercial advertising (Arbeitsgemeinschaft Landesmedienanstalten 2005: 11). Non-parliamentary parties in particular rely on this broadcast advertising as an essential tool of campaigning. In addition, private media traditionally match the airtime allocation schemes of the main public broadcasters ARD and ZDF, thus giving airtime to non-parliamentary parties as well.
During the general election of 2009, parliamentary parties in general were satisfied with their access to public broadcast media. Criticism – especially from the Free Democratic Party (FDP), the Greens and the Left Party– arose when ARD and ZDF decided to cancel a debate among the party leaders of the five biggest parties due to reluctance by the Social Democratic Party (SPD) and the Christian Democratic Union (CDU) to take part. Furthermore, according to OSCE’s election report, “(s)ome of the non-parliamentary parties expressed dissatisfaction with the media’s tendency to focus coverage on the six largest parties, and stated that they were rarely invited to participate in political discussion programs or to give interviews.” Although that is true, in our view the principle of gradual equality seems to be an elaborate attempt to preserve a fair share of media coverage for small as well as for larger parties.

The period under review here saw a number of important elections. Most important were the general elections held on September 27, 2009, and the reelection of Federal President Horst Köhler (CDU) by the Federal Assembly on May 23 the same year. The Federal Assembly only convenes to elect the federal president and is composed of the members of the Bundestag and the same number of additional delegates nominated by the parliaments of the federal states. The federal president is thus not elected directly by the people. This absence of a direct legitimacy derived from the sovereign is unproblematic in our view. Germany’s president has mainly representative functions, and his or her opportunity to intervene in the legislative process is rare and limited to reviewing the procedural constitutionality of laws. Nevertheless, it is worth mentioning that there has been some discussion in the media dealing with the feasibility and desirability of electing the federal president directly. To sum up the debate, proponents of direct election have typically also argued for enhancing the federal president’s powers (cf. Sueddeutsche Zeitung: 25.5.2009).
Based on the requirement of German citizenship, people aged 18 or over are eligible to vote and to run for election to the Bundestag, provided that they have been resident in Germany for at least three months. The right to vote can be denied to criminals by judicial order, to persons without legal capacity or to convicts currently residing in a psychiatric hospital. Every citizen not falling under the stated exceptions and who is registered in the municipal civil registry is automatically included in the voter register. Because registration with local authorities in Germany is mandatory, this system operates without severe difficulties. In the run-up to the election, every registered citizen eligible to vote receives a notification with all required information necessary to exert his or her right to vote, as well as an application form for postal voting. Citizens not included in the civil registry, such as homeless people, are eligible to vote but have to apply to the authorities in order to be registered. No problems have been reported in recent years. There is no real doubt that the legal situation also describes administrative reality.
The grand coalition cabinet under Chancellor Angela Merkel introduced several amendments to the Federal Electoral Act – the last one in May 2009 – including the broadening of the right of Germans living abroad to vote. Beginning with the last election, German citizens abroad who have lived in Germany for at least three months have been able to apply to register for the vote with the authorities of their last domestic residence. If this is done at least 21 days before the election, they then can cast their votes by mail. Furthermore, the need to justify (i.e., give a valid reason for) the desire to cast votes by mail was abolished. These reforms can be seen as qualitative enhancements to an already high standard. Worth mentioning too are the efforts of authorities to facilitate voting for people with disabilities. In general, one can conclude that all adult citizens can participate in national elections if they so wish. Exceptions to this rule are scarce, and those that do occur are well considered and justified. Thus, no observable structural discrimination occurred in the period under review.

Germany’s political parties finance their activities in line with the PPA, through state funding, membership fees and donations. Sponsorship has recently drawn attention as a fourth but still minor source of revenue. In order to be eligible for state funding, parties must win at least 0.5% of votes in federal or EU elections and 1% in federal state elections. Every vote up to a 4 million cutoff point results in a state contribution to the party of €0.85; votes above that receive €0.70. Additionally, individual donations up to €3,300 are matched by the state with €0.38 per euro collected. According to the OSCE report, most parties are satisfied with the current arrangements (OSCE 2009: 16). German legislation does not contain any specific provisions regarding campaign financing or expenditure.
Transparency is a basic principle of the German party financing system, but is still open to improvement. The OSCE recommended that in order “(t)o further enhance transparency of party financing, including of electoral campaigns, consideration could be given to requiring immediate publication of information on large donations, as well as to speeding up the publication of annual reports” (OSCE 2009: 17).
With respect to campaign finance monitoring, German regulation is well developed, but again with room for improvement. The Basic Law and the PPA stipulate that the president of the Bundestag receives parties’ annual financial reports by the end of the third quarter of the following year. A certified auditor verifies the financial reports before the submission. The reports include detailed income, expenditure and asset accounting, and list all donations as well as the names of donors whose total contribution exceed €10,000. If a party does not meet these requirements, a fine double or even three times the amount of the misstated donation can be imposed. Recently, several parliamentary parties were confronted with accusations of circumventing the PPA regulations. In December 2009, the Free Democratic Party (FDP) and the Bavarian Christian Social Union (CSU) were accused of accepting donations made by a German billionaire and hotelier of approximately €2 million in exchange for supporting a value-added tax (VAT) reduction for the hotel industry. This scandal has not yet provoked any change in regulation. But the scandal ignited a heated debate lasting several weeks concerning the questionable quid pro quo relationship between political parties and their sponsors.
In the spring of 2010, the prime minster of the federal state North Rhine-Westphalia, Jürgen Rüttgers, drew negative international attention. In order to finance an election campaign, Christian Democratic campaign organizers had approached several companies proposing that in return for a contribution of €6,000, a personal conversation with Rüttgers would be arranged at the party’s convention. The scandal grew in size when party officials of the Christian Democrats in Saxony had to admit that they were conducting similar sponsorship practices. Although the affair resulted in the resignation of Rüttgers as secretary general, the lasting effects of the revelation seem to be minimal. The cases of questionable party-sponsoring led to an open letter by Transparency International Germany and other organizations asking the chairmen of the parliamentary parties to tighten the PPA. So far, initiatives to enhance transparency and to regulate sponsorship of parties more specifically in the PPA have been introduced in the Bundestag by the Left Party and the Greens (Bündnis90/Die Grünen). They will probably be rejected by the coalition majority, however. On the one hand, these debates indicate that there could be a problem with illegitimate influence by donors. On the other, the resulting negative attention shows that transparency works at least partially, and that parties risk sullying their reputation if they cannot dispel this criticism.

The German Basic Law guarantees the freedoms of expression, press and broadcasting, and prohibits censorship (with limitations set by mutual respect, personal dignity and the protection of young people). This high standard of independence from political interference holds true for the print media, which is largely self-regulated. The German Press Council was established to protect the freedom of the press. However, Germany found itself at only 18th place in the Worldwide Press Freedom Index 2009, a disappointing showing compared with the aforementioned high aims. In the realm of television, the Interstate Treaty on Broadcasting and Telemedia creates a general countrywide framework for public and private broadcast media. In the private broadcasting sector, governmental influence is limited to general provisions, regulations and guidelines aimed at preventing discrimination or other abuse of broadcast media as stated in the interstate treaty. While the relationship between public authorities and private media can be seen as unproblematic, there are observed dependencies between authorities and the public media that are at least questionable.
An event in late 2009 raised considerable doubts as to whether German party-biased public authorities are still willing to guarantee the independence of publicly owned media outlets. The politically motivated dismissal of ZDF Chief Editor Nikolaus Brender by the ZDF administrative board attracted extensive attention. The issue was raised as to whether German politicians should be allowed to influence the career prospects of the journalists who report on them. Several constitutional lawyers raised constitutional objections to the composition of the board itself. The quarrel will have legal ramifications. In the aftermath of Brender’s dismissal, the executives of the federal states were unable to come to agreement on a reform package that would have redefined states’ involvement in the public media arena. Subsequently, Kurt Beck (SPD), prime minister of Rhineland-Palatinate, announced that his state would file a judicial review against the ZDF interstate treaty (Spiegel Online: 25.03.2010). Beck, who is also chairman of the ZDF administrative board, cited concerns regarding the unconstitutional exploitation of governmental power and questioned whether the publicly owned media truly possessed independence.
The appeal to the Constitutional Court has some prospects of success, as evidenced by the harsh reactions of constitutional lawyers to the ZDF case. A group of 35 constitutional law scholars discussed the high-profile case in an open letter, concluding that the incident was an “obvious attempt to strengthen the influence of party politics” (FAZ: 22.11.2009) on public broadcasting. While media freedom is without doubt given high value and is effectively protected in Germany, this affair indicates that not all politicians really respect this principle fully.

In Germany, the scope of media concentration is determined by law to ensure the representation of the entire spectrum of opinions. The Interstate Treaty on Broadcasting and Telemedia (Rundfunkstaatsvertrag, RfStV) defines a threshold of an annual average of 30% of viewers, at which a prevailing dominance over public opinion is assumed. The Federal Cartel Office (FCO) has used its powers to block several potential mergers in both the print and electronic media sectors. In a case current as of the time of writing, the FCO was looking into the planned merger of two news agencies that risked significant distortion of fair market competition.
Germany’s media environment can be described as pluralistic, decentralized, and compared with other European television and radio markets, very diverse. Such structural diversity guarantees the independence of media and facilitates substantive, content-related diversity in opinion and information (cf. Wyss 2002). In the broadcast sector, a variety of public and private television and radio channels across the country compete for the attention of the audience. Local and regional broadcasters play a meaningful role in this competition. Two main public television broadcasters operate at the national level: ARD – a conglomerate composed of various regional TV channels – and ZDF. According to the Arbeitsgemeinschaft Fernsehforschung, a media research cooperative, the public broadcasters had a combined market share of 42.9% in 2009. The program share of reports on the political process is relatively high, and can be characterized as in-depth and well investigated. On the other hand, private networks obviously have a significant market share as well. In the private sector, two media groups are dominant: The RTL Group holds an audience share of 25.2%, while ProSiebenSat.1 Media AG accounts for a 21.9% share. Since it is also possible to receive international news channels via satellite, independent political coverage is available to everyone.
The nationwide print media market is dominated by five leading daily newspapers and the Bild tabloid, which has by far the biggest circulation in Germany. Additionally worth mentioning as agenda-setters are a number of weeklies. The Internet has become an increasingly important medium for citizens to gather information and broadcasters, radio stations and newspaper publishers have adapted to the new circumstances by providing a large portion of their services online.
Besides the variety of different broadcasters, radio stations and newspapers, several German-speaking news agencies exist, among which the leading German news agency merits special mention. It is a joint venture of several broadcasters and newspaper publishing companies, and affords a network of correspondents around the globe, thereby guaranteeing its shareholders independent and firsthand news coverage.

In his second annual report for the years 2008 – 2009, the Federal Commissioner for Data Protection and Freedom of Information (FCDI) made clear that the effort to create a transparent federal administration remains far from complete. The 2006 Freedom of Information Act (FIA) remains largely unknown among the citizenry. Moreover, although many federal agencies try to ensure transparency, some public authorities have taken a very restrictive regulatory interpretation when evaluating information requests. Some have even sought to delay the process in order to deter citizens seeking to exercise their right to information. According to the FCDI, changes in governmental practices as well as further limitations to statutory exceptions are needed. Furthermore, the coexistence of different standards regarding information requirements in the FIA, the Environmental Information Act and the Consumer Information Act has proved to be an impediment. The commissioner’s annual report listed 248 cases where citizens sought help in response to federal authorities’ reluctance to make documents available to the public. In a third of the cases, the FDCI confirmed that the information was protected by confidentiality provisions or other FIA exceptions. In almost 40% of the cases, the commissioner’s activity resulted in the release of information. In four cases, the FCDI issued a formal complaint. German authorities, thus, have room for maneuver, and they clearly make use of it.
For instance, the Federal Administrative Court decided that the Ministry of Transportation is not obliged by the FIA to release information on the movements of alleged CIA rendition flights. Whether access to official information can be rejected because of possible adverse effects on international relations is subject to an evaluation by the competent authority. This evaluation can be made only by the administrative courts, the judges argued (NVwZ 2010: 321). Some experts perceive this to be a general tendency. Moreover, some critics contend that the fees citizens must pay in advance in order to obtain official information are excessive. These costs might serve as a deterrent.
Finally, Germany is not one of the 12 Council of Europe states that signed the Convention on Access to Official Documents in June 2009. This, together with the low media attention paid to the FIA, indicates that this general complex of ideas and rights is not a high priority for the German public or media.

All civil rights mentioned are codified in the Basic Law, and their modification is only possible through a two-thirds majority in the Bundestag and Bundesrat. Indeed, some of the provisions concerning basic human rights are not alterable at all. This provision ensures that fundamental human rights are inviolable even for a majority of citizens or the parliament.
In general, all state institutions respect individual freedoms and protect civil rights. The court system works independently and effectively protects individuals against executive encroachments and legislative acts. In the Economist Intelligence Unit’s Democracy Index, Germany was ranked 8th, with a score of 9.41 out of 10.
In 2009, the European Court of Human Rights (ECHR) found 18 violations of human rights principles in Germany, mostly associated with the length of legal proceedings. In December 2009, the ECHR ruled against Germany on a case in which preventive detention for a violent criminal was extended well beyond the individual’s original sentence. The ruling is expected to have far-reaching consequences.
Moreover, recent developments in the collaboration with other states in the war on terror have weakened the prohibition against torture in Germany. Some states use torture to gather information. It has become evident that there are no clear rules for dealing with information from foreign sources that was gained through torture. In a speech held in September 2008, Deputy Federal Attorney General Rainer Griesbaum argued that when facing the threat of global terrorism, no kind of information should be discarded categorically. Rather, each case had to be assessed individually, he said. The legal opinion of Hamburg’s Higher Regional Court in the case of El Motassadeq, which argued that the usage of information should be prohibited only if the use of torture in the acquisition of information could be verified, has become the majority legal opinion among German judges, reducing the legal principle of benefit of the doubt to absurdity.
With respect to the limitation of state power, a very disturbing case recently gained public attention: The Federal Court of Justice decided in January 2010 that Oury Jalloh’s death by fire while in police custody had to be retried. In 2008, the Regional Court Dessau (Saxony-Anhalt) had acquitted two police officers respectively of aggravated bodily injury resulting in death and involuntary manslaughter. In his oral ruling, the judge criticized the testimony of most of the police officers, which had made a proper trial impossible. As of the time of writing, a case is still pending due to false testimony in court against one police officer. The judge was also highly critical about the “perfunctory inquiry” performed by the police. Amnesty International stated that this case was not isolated, and that in fact several examples of police misconduct and the use of excessive violence could be found in the last couple of years. Since there are statistics neither on the number of indictments nor on sentences against police officers, quantification of this issue beyond the summing up of particularly severe cases is difficult.
Amnesty International and other human rights organizations have also criticized Germany with regard to the deportation of asylum seekers.

Political liberties enjoy the utmost protection of the German Basic Law. Given the historic experience of Nazism, there is a high awareness on the part of all governmental organizations that limitations of the right to speak, assemble, organize, worship or petition must be kept to an absolute minimum.
Political pluralism is in general guaranteed, but is constrained by laws restricting the far left and far right. Nazism is illegal, but the government’s attempts to ban the NDP failed in 2003. Freedom of expression is protected in the Basic Law, though there are exceptions for hate speech and Nazi propaganda such as Holocaust denial. Except in the case of opposition to the democratic order, the right to assemble peacefully is guaranteed and not infringed upon. In this context, the Federal Constitutional Court overruled the newly established Bavarian Assembly Act on the basis of doubts as to the stated obligations of disclosure. The freedom to associate and to organize is generally respected. Non-governmental organizations operate freely. Every person has the right to address requests and complaints to the “competent authorities and to the legislature” (Article 17 of the Basic Law). Freedom of belief is also protected by the Basic Law, but some churches are provided with particular advantages. As “corporations under public law,” they fulfill public duties, but this role also hinders a complete separation of church and state. Furthermore, public sector workers are not allowed to wear prominent religious symbols such as headscarves, as these are considered to be contradictory to the employees’ secular tasks. Aygül Özkan (CDU), minister of social affairs in Lower Saxony and the first minister with a Turkish migration (and Moslem) background, provoked a storm of protest when she highlighted as contradictory the fact that religious symbols such as the crucifix remained in public school classrooms while headscarves were banished. Nonetheless, religious communities without a long tradition in Germany, such as Muslim communities, are allowed to build houses of worship. Legal disputes sometimes emerge over the particularities of these buildings, but these disputes emanate from the administrative rules governing new buildings in general, and any discriminative administrative praxis is hard to identify.
A new data-retention law requiring firms to store information such as emails and telephone conversations for up to six months went into effect at the beginning of 2008, but was overturned by the Federal Constitutional Court. The data storage “represents an especially grave intrusion” into citizens’ privacy and could “cause a diffusely threatening feeling of being under observation that can diminish an unprejudiced perception of one’s basic rights in many areas,” said the president of the court as he read out the decision. While not annulling the legislation entirely, the court asked for immediate deletion of stored data and for a massive modification of the law, ensuring that the use of stored data must be limited to a proven “concrete danger.”

The Basic Law stipulates that every person, irrespective of parentage, sex, race, language, ethnic origin, disability, faith, or religious or political belief has the same rights. The 2006 General Equal Treatment Act added age and sexual orientation to that enumeration. The Federal Anti-Discrimination Agency (FADA) monitors compliance with anti-discrimination norms and principles, supports persons who have experienced discrimination, mediates settlements, informs the public about infringements, and commissions research on the subject of discrimination. FADA reports about 9,600 contacts with people feeling discriminated against in the period August 2006 to March 2010. Discrimination on the ground of age (23.6%), gender (21.3%) and handicap (17.9%) were most frequent.
An initiative by several federal states to incorporate a ban on discrimination based on sexual identity in the Basic Law was rejected by the Bundesrat in November 2009. In April 2010, several legal scholars confirmed that the existing article and the General Equal Treatment Act together guarantee sufficient protection for lesbian, gay, bisexual, transgender and intersex persons. A draft provision aimed at reducing the wage gap between women and men was dropped after the inauguration of the second Merkel administration. It is debatable whether a law-based approach is promising on this issue. Critics argue that it is methodologically difficult to prove the existence of a discrimination-based wage gap, given that many determinants beyond gender can legitimately cause wage differentials. These difficulties can leave a law-based solution ineffective, and risk creating an expensive and useless new bureaucratic burden for companies and employees. Nevertheless, the issue remains on the agenda because the previous strategy of voluntary agreements between the government and leading private-sector associations has turned out to be insufficient.
In the courts, several important verdicts were rendered in favor of persons subject to discrimination, including on the issue of the unequal treatment of marriage and (same-gender) civil partnership with respect to a dependent’s pension. The Federal Constitutional Court ruled the previous legal situation to be unconstitutional (cf. Antidiskriminierungsstelle des Bundes (ed.) 2010: 20). Other judgments supported existing law such as the ban on religious head-scarves in public buildings, or the distinction between disability and illness in the context of permissible questioning during job interviews (cf. Antidiskriminierungsstelle des Bundes (ed.) 2010: 11p.).
More broadly, international non-governmental organizations recently criticized the German government for rejecting an EU Council of Ministers draft measure concerning equal treatment and equal opportunity. Again, the fear of imposing additional bureaucratic burden in return for questionable benefits was among the reasons for this rejection.

According to the Basic Law, Germany is a constitutional state, and German authorities live up to this high standard in constitutional reality as well. One indicator illustrating the trust among German citizens and foreigners is the particular confidence shown in the quality of contract enforcement, property rights, the police and the courts. According to the Global Competitiveness Report 2009 – 2010, foreign investors appreciate Germany’s positive legal environment very much.
In addition, Germany’s judicial branch is in an inarguably strong position with regard to the assessment of administrative legality. In general, the more independent courts are from political influence, the more powerful they are with respect to competences and resources, and the easier it is for citizens to get access to the courts, the more that the government and administration are bound to act on the basis of and in accordance with legal provisions to provide legal certainty. Doing otherwise under these conditions would risk being continually overruled, which would undermine institutional legitimacy. Germany’s supreme court stands out due to its substantial institutional powers in combination with a high degree of independence from political exertion of influence (cf. Kneip 2009: 647p.). For instance, as in most countries in the SGI report, public authorities as well as legislative acts are bound by Federal Constitutional Court (FCC) verdicts; neither government nor parliament can overrule a decision (unless the Basic Law itself is changed). The FCC’s final say on the interpretation of the Basic Law secures the high degree of legal certainty that holds in Germany.
Nevertheless there have been some incidents that raise doubts about governments’ willingness to act in accordance with legal provisions at all times. An example is the alleged promotion of a party colleague to a top police position the state of Hesse by Volker Bouffier, the Hessian secretary of state. This action was found to be faulty and “grossly illegal” by the Higher Administrative Court of Hesse, and had to be retracted. But this incident also demonstrates that the rule of law works and is protected by the courts.

All government bodies are obliged to comply with the Basic Law. The structural principles of Germany’s constitutional jurisdiction can be described by the term “specialized” (cf. Kneip 2008). Specialized courts review state actions, for example. According to the Global Competitiveness Report 2009 – 2010, Germany’s judicial branch acts independently of influence by government members, citizens or companies (achieving a report score of 6.4 out of 7) (The Global Competitiveness report 2009 – 2010: 350). This remarkably high score is an expression of the significance of the judicial branch in Germany. Judicial independence on all levels is secured by the Basic Law. In addition to the Federal Constitutional Court, there are five supreme federal courts in Germany: the Federal Court of Justice as the highest court for civil and criminal jurisdiction, the Federal Administrative Court, the Federal Finance Court, the Federal Labor Court, and the Federal Social Court. This division of tasks guarantees highly specialized independent courts with manageable workloads, and thus fulfills the requirement of a differentiated organization. Professionalism is generally secured by well-established procedures for legal education, although the system’s scholastic backwardness and reluctance to agree upon Europe-wide education standards is sometimes subject to criticism (Zeit 2009). Germany’s Federal Constitutional Court (FCC), which is not subject to supervision by any ministry, has extensive powers (Kneip 2008: 646). The FCC ensures that all state institutions obey the Basic Law and act particularly to apply the fundamental rights. The court acts only when an appeal has been made, but can declare a law unconstitutional and has exercised this right several times. In case of conflicting opinions, the decision made by the FCC is final; all other governmental and legislative institutions are bound to comply with its verdict. The FCC’s most important procedures are as follows: If a measure, administrative body action, court verdict or law is believed to infringe a fundamental right, anyone can lodge a constitutional complaint. In addition, courts, the federal government, a state government or one-third of the members of the Bundestag can file a complaint if they consider a statute to be unconstitutional. Furthermore, the Federal Constitutional Court adjudicates in cases of constitutional dispute regarding mutual constitutional rights, the duties of constitutional bodies, or between the federal government and the federal states. In such cases, only the federal president, the Bundestag, the Bundesrat or the federal government can appeal.
The work of the FCC thus has tremendous political implications. For example, the court instructed the parliament to ensure that the Bundestag and the Bundesrat had sufficient participation rights in European lawmaking and treaty amendment procedures. In another ruling, the FCC decided that provisions concerning the standard social benefits did not comply with constitutional requirements. The justices unanimously criticized the method of calculating the subsistence minimum benefit payment as insufficiently precise. Hence, the FCC ordered a revision of the so–called Hartz IV legislation by the end of 2010.
In 2008 and 2009, a total of 12,886 new cases were brought forward (for annotated figures, see website of the Federal Constitutional Court). Two of these were concerned with complaints regarding electoral proceedings, eight dealt with constitutional disputes between federal bodies, two involved review of statutes after application by a constitutional body, 80 reviewed statutes following judicial referral, 241 were temporary injunctions and 12,553 were constitutional complaints. In the judicial year 2009, a total of 128 constitutional complaints were lodged against sovereign acts of federal, federal state or European Union authorities. While these figures indicate that most of the cases heard were appeals against judicial decisions or legal provisions, it is also obvious that the supreme institution of the judicial branch controls whether government and administration act in conformity with the law.
If there are problems with the courts monitoring the rule of law these are related to resources and the duration of processes. The courts are overloaded, which leads among other problems to lengthy proceedings. In 2008, 43% of proceedings in front of the administrative courts were concluded within six months and 65% within 12 months. However, the differentiation of proceedings, allowing for urgent decisions, guarantees that these problems do not affect the power of the FCC to effectively oversee public administrative and legislative compliance with the Basic Law.

Federal judges are appointed by the responsible sectoral minister and the Committee for the Election of Judges, which consists of the respective subject-area ministers of the states and an equal number of members of the Bundestag. Half the Federal Constitutional Court justices are appointed by the Bundestag, and the other half by the Bundesrat. The FCC consists of 16 justices, who exercise their duties in two senates (panels) of eight members each. Whereas the Bundesrat, in accordance with the provisions of the Basic Law, elects justices directly and openly, the Bundestag delegates its decision to a committee, where the election takes place indirectly, secretly and not transparently. The composition of this 12-deputy committee is proportional to party strength in the chamber. Decisions in both houses require a two-thirds majority. To sum up, in Germany justices are 1) elected by 2) several independent bodies. The election procedure is 3) representative, because the two involved bodies do not interfere in one another’s decisions. The 4) required majority in each chamber is a qualified two-thirds vote. By requiring a qualified majority, the political opposition has a secure influence over the selection of justices, regardless of temporary majorities. Nevertheless, attention should be drawn to the non-transparent election procedure of one-half of the justices, although even here candidates are extensively discussed in the media prior to the decision.

In the Heritage Foundation/Wall Street Journal Index of Economic Freedom 2010, Germany achieved a score of 79.0, ranking 14th in the category “freedom from corruption.” Although that may seem mediocre, one has to acknowledge that Germany is doing better than its peers France, Great Britain or the United States. Additionally, Germany achieved a score of eight out of 10 in the 2009 Transparency International Corruption Perception Index (CPI) (http://media.transparency.org/imap s/cpi2009/). Compared with the beginning of the millennium, Germany has made slight improvements. According to the World Bank’s “control of corruption” indicator, Germany is doing quite well relative to the world’s 10 most important economies. With a score of 93.2 it is the runner-up behind Canada (which achieved a scored of 95.7).
On the other hand, Germany has signed but not ratified the United Nations Convention against Corruption (UNCAC). In addition, national rules concerning asset declarations by members of parliament are loose and subject to critique. As early as June 2005, the German Bundestag amended the Political Parties Act and the Annex to the Rules of Procedure of the German Bundestag, the code of conduct for members of the German Bundestag. Despite inarguable improvements, the new practice of publication of asset declarations still possesses significant shortcomings. The goal of the reform was to give the electorate insight into the deputies’ activities and income structure, but this is not achieved in the best possible way. Each member of the German Bundestag is obliged to give information about his or her ancillary income when it exceeds €1,000 in an individual month or €10,000 per year. In the most recent report as of the time of writing, 25.2% of Bundestag members had to declare additional revenues, with 16.9% earning more than €7,000 in one or more activities during the current legislative term (data extracted on April 25, 2010: www.spiegel.de). In 2007, the average minimum ancillary income for members of parliament was approximately €9,300 (own estimation according to data provided on www.nebeneinkuenfte-bundestag.de) – a figure which has not changed significantly in the last several years. An analysis of the data (www.nebeneinkuenfte-bundestag.de) shows that the release of three income levels provides no clarity as to the potential influence of politicians’ external financial interests in the political process. Transparency International has demanded that, in order to increase transparency, comparability and uniformity, all regulations concerning the code of conduct of members of parliament should be integrated into a single comprehensive body of legislation. That is not the case with the current provisions.
Furthermore, according to the experts from the Group of States against Corruption (GRECO), the definition of corruption in the national parliament is also “extremely limited,” and the provisions for political bribery, which are laid down in the criminal code (§108e), are not in accordance with international standards. Only the actual buying or selling of votes in elections is considered to be a criminal offense. The unequal treatment afforded to parliamentarians, public officials and public service employees is also striking. While the latter two categories face prosecution in the case of bribery, no such rules apply to parliamentarians.

The recent years have been characterized by a series of reforms which have aimed at preparing the pension system for demographic change, improving the tax system’s global competitiveness and consolidating the budget. The priorities of the reform program have been adequate given the external constraints: that is, taxes have been lowered particularly in areas where taxpayers are highly mobile (as in the case of multinational companies).
The GDP decline in Germany following the global financial crisis was clearly above the OECD average due to Germany’s marked export orientation. Therefore, the German economy’s export dependency is sometimes criticized as too one-sided. However, the labor market performed remarkably well during the crisis, and the bulk of new jobs were created not in the export-oriented sectors, but rather in the service sector.
What is also remarkable is that the improvement in Germany’s economic performance has not been achieved solely by political intervention, but also by highly responsible industrial relations. Trade unions and employers’ associations have paved the way for a high degree of flexibility in wage settlements, working-time arrangements and other issues. Thus, the competitive situation of each single sector and company is now much better reflected in its specific working conditions, compared to the high degree of uniformity that prevailed in former times. Stable unit labor costs have also enhanced the competitiveness of German exporters.
Beyond these structural successes, the government has also acted quite determinedly in order to steer the economy through the economic crisis. The first stimulus package, launched in November 2008, amounted to €3.9 billion in 2009 (0.2% of 2008 GDP) and €7.1 billion in 2010. The most important elements of the package were a temporary reintroduction of declining-balance depreciation for certain types of investment goods and an increase in public investments. The second stimulus package, launched in January 2009, was significantly larger, amounting to €54.3 billion to be spent in 2009 and 2010. Its measures comprised, inter alia, infrastructure improvements, incentives to buy new vehicles through the car scrappage scheme, a loan and guarantee program for companies, and other measures including subsidies for R&D investments by small and medium-sized businesses (SMEs). The third stimulus package, passed in December 2009, envisaged measures worth €8.9 billion, including increases in the standard child allowance and in child benefits, a reduction in the inheritance tax, a revision of recent tax reforms to ease burdens on medium-sized businesses, and the lowering of VAT for hoteliers. Although all three packages provoked controversial debate, their basic constitution was welcomed by mainstream economic advisors such as the Council of Economic Advisors.
Recent simulations by the OECD suggest that the measures contained in the first and second stimulus packages boosted GDP by around 0.5% in 2009 and a further 0.2% in 2010. Beyond these policies the expansion of subsidies for reduced-hour working programs (Kurzarbeit) had major stabilizing effects due to its positive impact on employment stability and consumer confidence.
Since the beginning of the crisis, the country’s budget deficit and gross public debt have risen substantially, although deficit levels contrast very favorably to deficits as much as twice as large in countries including the United Kingdom and the United States, and also to the relatively much higher deficits in France.
However, major challenges remain to be addressed in the coming years. Labor market reform remains an issue. Budgetary policy must lower structural deficits. Furthermore, the underlying causes of the banking sector problems need to be addressed in a more coordinated manner. In addition, Germany has continuing weaknesses in research, development and education; the unfavorable climate for the employment of women; and an overly restrictive immigration law for non-European Economic Area citizens.

Germany’s labor market performance has improved considerably in recent years, and has shown strong resilience coupled with surprising stability over the course of the financial crisis. The country’s approach to regulation is very specific. While employment protection is far-reaching for employees with regular contracts, some flexibility exists with respect to fixed-term contracts. Furthermore, the temporary employment sector has expanded quickly, offering a substitute for the lack of dismissal flexibility.
While wage settlements are characterized by collective agreements, there is a growing leeway on the individual firm level to deviate from the collective agreements, particularly if the individual firm is in a weak competitive situation.
To date, the use of minimum wages has been very limited. No overall statutory minimum wage exists. However, in a few specific sectors, minimum wages have been introduced. With some exceptions (e.g., the minimum wage for postal services) the levels of these minimum wages have been moderate enough that no negative effects on the number of jobs materialized.
In the years prior to the current economic crisis, unemployment fell continuously. While this decline in unemployment came to a halt in 2008, the reaction of the German labor market was small compared to many other countries. Despite the dramatic reduction in real GDP at the end of 2008, the unemployment rate did not rise in 2009. Moreover, the number of unemployed individuals began to fall again in 2010, a development standing in sharp and positive contrast to the trends in most other industrial countries.
There are several explanations for this so-called German job miracle. Some of these are demographic, since the number of workers retiring now exceeds the number of young people entering the labor market. Furthermore, this development reflects the far-reaching labor market reforms passed in 2003 and 2004 (the so-called Hartz reforms), which merged the unemployment and social assistance benefit schemes, improved the efficiency of the labor office, liberalized temporary work and included numerous other measures. This reform was only recently stabilized in terms of its legal basis. While the Constitutional Court ruled against the measures’ creation of mixed administration in job centers (ventures cooperatively operated by municipalities and the regional offices of the Federal Employment Agency), government and opposition eventually agreed upon a constitutional amendment in March 2010. Furthermore, non-wage labor costs were reduced to below 40% of gross wages. In addition, some of the adaptability seen during 2009 can be explained by the widespread use of short-time working programs. With this instrument, the Federal Employment Agency subsidizes 60% of the difference between the previous income and the reduced income attributable to curtailed working hours, and 67% of the income difference for employees with children if a company reduces working time for economic reasons. As a result of the financial crisis, the maximum period of short-time working benefit eligibility was extended to 18 months. Additionally, the Federal Employment Agency subsidizes 50% of social security contributions, and 100% starting from the 7th month of short-time work.
Overall, German labor-market institutions have improved considerably through a specific model which is by no means comparable to the Anglo-Saxon hire-and-fire or the Danish flexicurity model. In the course of the crisis, these institutions showed their particular strength relative to the Anglo-Saxon model, under which unemployment rates reacted with high elasticity to the economic slump.
Nevertheless, several shortcomings still exist. Unemployment is still at an unacceptably high level, even if it is now well below the record levels of 2005. A substantial portion of labor costs are connected to the financing of social security systems, an aspect that threatens to become even worse. Furthermore, certain segments of the labor force, particularly workers of low productivity and poor education, are still at high risk of long-term unemployment.

With regard to competitiveness indicators, Germany holds a medium position, ranked behind several other members of the European Union. The most prominent disadvantages of Germany as a business location include high levels of regulation and bureaucracy. Nevertheless, Germany is an attractive investment location for private equity investors, and is expected to gain further importance. Significant advantages include the availability of capital sources and the country’s strong innovation potential.
Growth has been particularly weak in the service sectors. In contrast, the manufacturing sectors expanded rapidly prior to the recent crisis, leading to a strong increase both in imports and exports. However, the increase in exports was temporarily halted by the crisis, which hit Germany harder than many other countries from the perspective of GDP growth. Conversely, the German economy has also benefitted particularly strongly from the economic recovery in 2010.
In recent innovation surveys, Germany has continued to occupy a weak middle position, while competitors such as Canada or the Netherlands have made greater progress. While the strength of intellectual property rights, research-intensive industries, and networking between companies and research facilities is above the OECD average, Germany has significant weaknesses in research, development and education; its unfavorable climate for the employment of women; and an overly restrictive immigration law for non-European Economic Area citizens. Above all, the difficulty of access to loans or venture capital remains one of the system’s gravest weaknesses. The Act on the Modernization of Framework Conditions for Venture Capital and Equity Investments and the law on venture capital investment, adopted in August 2008, were important steps in this direction. However, these acts need to be revised thoroughly since the European Union recently blocked parts of them due to doubts on the measures’ compatibility with EU guidelines on risk capital. The strengthening of the German venture capital market should be a central element of future strategies.

The 2008 reform of corporate taxes lowered the formerly very high effective tax burden faced by German companies to a level more in line with Western European standards. The revenue situation was improved by increasing the relative weight of indirect taxes, especially the value-added tax (increased from 16% to 19% in 2007). Before the crisis, the state’s revenue situation had substantially improved, leading almost to a balanced government budget in the year 2008.
However, several shortcomings remain. Due to high social security contributions, the German tax system puts an exceptionally high burden on average earners, who are confronted with substantial labor-supply disincentives and incentives to shift their work into the shadow economy. Furthermore, the German tax system has remained both highly complex and non-transparent. The business tax and inheritance tax reforms launched by the grand coalition in 2008 and partly revised by the new government in December 2009 certainly had some positive effects for medium-sized businesses. However, they have also led to significant complications in terms of tax law.
Following a decision of the Federal Constitutional Court, the grand coalition issued a tax-relief law focused on individuals, which came into effect in January 2010. It mainly allows for higher tax deductibles for public health insurance and long-term care insurance contributions, and also includes some temporary business tax reductions. Combined with the three economic stimulus packages, these measures were considered necessary to tackle the consequences of the economic crisis. On the other hand, temporary tax relief cannot replace essential reforms to improve the structure of the tax system.
There have also been intensive discussions on the question of raising environmental taxes. Germany has certainly made significant progress in recent years in restraining environmentally harmful behavior. However, in terms of revenues from environmental taxes, Germany still ranks in the lower middle range of OECD countries, with annual revenues of slightly less than 2.5% of GDP.
In addition, the German government has sought to reduce practices such as cross-border shifting of company profits though accounting gimmicks. Overall, German tax policy has been largely consistent in recent years. The promise of tax cuts – prominently offered by the liberal FDP party in the last general election campaign – was unable to be met in the current conditions without risking budgetary sustainability.

Public finances had improved significantly prior to the recent economic crisis, with the budget deficit coming close to balance in 2008. Since then, the budget deficit and the gross public debt have been pushed up by crisis-related revenue shortfalls and anti-crisis stimulus packages.
Three such packages were launched as part of the government’s attempt to revive the economy (for the details, see Economy). The stimulus launched in November 2008 amounted to €3.9 billion in 2009 (0.2% of 2008 GDP) and an additional €7.1 billion in 2010. The second stimulus package, launched in January 2009, was significantly larger, amounting to a total of €54.3 billion to be spent in 2009 and 2010. The third stimulus package, implemented beginning in December 2009, included measures worth €8.9 billion. Overall, as a result both of the automatic stabilizers and the discretionary packages, the government balance turned to deficit (around 3.3% of GDP in 2009 and around 4.5% of GDP in 2010, according to the June 2010 forecast). However, these figures contrast favorably with the much worse deficit figures posted by other EU and industrial countries, reaching the double-digit level in countries including the United Kingdom, the United States and Ireland.
Germany appears to be at medium risk with regard to the long-term sustainability of public finances. The long-term budgetary impact of aging is close to the EU average. However, public finances are increasingly coming under pressure due to rising pension and health care costs. To address these and other structural challenges, a constitutional debt limit was introduced in 2009 which restricts the federal government’s cyclically adjusted budget deficit to a maximum of 0.35% of GDP, and requires balanced cyclically adjusted budgets for the individual federal states. As a result of a transitional rule, this reform will become binding for the central government in 2016 and for the states in 2020. The aim of this constitutional revision is to provide a clear prior commitment to fiscal consolidation, greater transparency and clarity, and consistency with the European Stability and Growth Pact. However, the implementation needs careful monitoring in order to prevent pro-cyclical behavior, close remaining loopholes, strengthen the stability council and preserve budgetary flexibility on all governmental levels.
The German federal government enjoys an undisputed triple-A rating as a debtor from all rating agencies, with its reputation even enhanced in the wake of the European debt crisis originating from Greece. In this situation, the yields on German government bonds fell to unprecedentedly low levels. This development has led to substantial savings on interest payments.

Health policy is still an evolving issue in German social policy. Due to a decision by the former grand coalition, the so-called health fund became effective in January 2009, fundamentally changing the funding of German health care. It is a centralized institution responsible for collecting income-based contributions and allocating the money to the various health insurance plans. The latter activity is done with reference to a highly complicated morbidity-oriented risk structure compensation scheme, which compensates for variations among the insured within the various insurance plans, and fosters fair competition between plans as they seek to attract new members and reduce costs. In addition, the health care system is increasingly subsidized by government monies, thus breaking with the hitherto basic principle of a solely contribution-financed system. The grand coalition also introduced a uniform contribution rate, which for the first time is set by the government and not by the individual insurance plans.
After the general elections, the coalition agreement between the CDU/CSU and FDP announced additional far-reaching reforms focusing mainly on financial matters. First, the parties agreed to freeze the contribution rate for employers at the level of 7%, thus breaking with the principle of parity-financing the health care system. Expected future increases in the contribution rate will thus be borne only by employees. Second, high-income earners are allowed to opt out of the compulsory health care insurance program after one year of exceeding the income threshold of the state system (instead of three years), and to change instead to private insurance companies.
Because of some ambiguous passages in the coalition agreement and subsequently intense conflict between the coalition partners, a heated debate arose over how to reform health care more broadly. Due to the fiscal crisis, it seemed impossible to shift financing to a lump-sum payment model as favored by the FDP and elements within the CDU. Introducing this new mode of funding the system would drastically increase the government funds provided to the health care system. Low-income earners would have to be subsidized by the state to be able to finance their lump sum payments, whereas high-income earners would be better off compared to the contribution-financed system. At the time of writing, it remained unclear whether the government would stick to its coalition agreement or redefine its policies and retain the existing contribution-based system.
In the meantime, the new government has sought to contain pharmaceutical costs. The Federal Ministry of Health has proposed key points aimed at reducing drug costs. Pharmaceutical companies have to provide a dossier on the expected benefits of new drugs. In addition, the trade association for health insurance plans is allowed to bargain with pharmaceutical companies over price reductions of up to 16% of the market price.
In addition, a committee was established to debate future health care reforms to be introduced in 2011. However, the committee consists exclusively of members of the government, and includes not a single nonpolitical expert. As of the time of writing, it appeared that the proposed reforms would focus on financial issues, and would not be likely to increase health care system efficiency, which is low compared to that of other European countries. From January 1, 2009, due to reforms implemented by the grand coalition, all citizens in Germany will have health insurance coverage, whether in the private or state sector. However, the rationing of medical services could increasingly become an issue. Already today, some types of rationing exist: While patients with insurance coverage from a private health insurance company get fast access to all kinds of diagnostic tests and specialized doctors, patients with coverage from the statutory health insurance plans face significantly longer waiting times and increasing copayments. This de facto rationing of diagnoses and treatment must be expected to spread further if no major efficiency improvements are realized.

Expenditures for social security and poverty reduction are still high in Germany. However, social inequality and poverty risk is increasing. During the years of rising unemployment, poverty risks increased as well, setting Germany on the path to a more unequal society. But this data does not yet appropriately reflect the successes of recent years in lowering long-term unemployment, a key driver of poverty. Thus, it remains to be seen whether the robust labor-market situation will be reflected in social data.
Regional heterogeneity is substantial. In the former East Germany, the average poverty level is 20%, with levels reaching nearly 30% in some areas. By contrast, some of the former West German or “old” states in the south (Hesse, Bavaria, and Baden-Württemberg) have poverty rates around 11%. “Old” states in the north show higher poverty rates than do their counterparts in the south. Though there is a methodological dispute as to whether these figures are realistic given the significantly lower costs of living in the former East Germany, a fact not adequately reflected in the study, these results point to marked differences between East and West.
In addition, there are considerable differences in income levels between the individual states. The poverty line is drawn at an income level which is less than 60% of the national average income wage. For singles this amounts to €764 per month, and for couples without children to €1,376. The average poverty rate nationwide is 14.3%, with the average in the former West being 12.9%, 6.6% lower than in the former East. A more detailed picture is given by the German federal government’s 2008 Report on Poverty and Wealth. More and more workers with fulltime jobs have incomes which are below the poverty line. In addition, the middle class, defined as having income between 70% and 150% of the average income, is constantly decreasing. Only 54% of employees are now grouped as being part of the middle class, compared to 62% in 2000. Only a small number jumped into the wealthy group (with income above 150% of the average), whereas most of those leaving the middle class fell into the group with high poverty risk. Within the poor income groups, income has consistently moved away from the 60% of average income level, thus intensifying the poverty risk.
Children’s poverty rates have also increased in recent years. Today it is estimated that more than 3 million German children live in poverty; in some cities, such as Berlin, more than 35% of all children are poor.
Concerning pensioners, only 2.3% are dependent solely on basic social security. However, today’s favorable situation of relatively wealthy pensioners cannot be extrapolated into future decades. After many years of high levels of unemployment, low Hartz IV welfare payments, decreasing wage incomes and unsteady work lives, an increasing share of the population will be faced poverty in retirement. In addition, changes to the pension formula in recent years have aimed at reducing pension benefit payments.
A simulation study performed by the German Institute of Economic Research (DIW) makes clear that pensions in the years to come will consistently decline. Whereas East Germans may currently expect a pension between €900 and €1000 per month, for those who were born between 1962 and 1971, the level will sink to around €600 per month, which is near the basic income security level. Younger cohorts may face pensions which lie under that line. In addition, low-income groups are unable to save money in private pension funds, which would complement their low state pensions with private assets.
Reducing the various risks of social exclusion while at the same time making the German welfare state sustainable for future challenges – primarily demographic changes and changes in labor conditions – seems an impossible task. The groups particularly at risk of poverty are mainly the unemployed with uncompleted or no vocational training, single parents, and persons with a migration background. To effectively deal with the problems of these groups remains a task for the years to come. However, there have been discussions about setting a government-guaranteed minimum wage, something that has previously been done only through the social partners. The Assigned Workers Act requires that a collective bargaining agreement should apply to at least 50% of workers in a given industry, thus varying from sector to sector. The outgoing government changed the Assigned Workers Act in order to make it easier for the social partners to introduce minimum wages in a larger number of sectors. Today, around 3 million workers are covered by minimum wages agreements. The question of whether statutory minimum wages can be part of a coherent strategy to boost employment and fight poverty, and thus foster social inclusion, remains a highly controversial issue in German politics and economic theory in general. There is the risk that a politically motivated establishment of an excessive statutory minimum wage may not reflect economic realities, thus leading to unemployment for those with low educational attainment. If that were the case, a minimum wage could even worsen the problem of social exclusion and transfer dependency.
Since unemployment is the major economic factor in poverty risk, the recent favorable labor market developments represent a sign of hope. This trend could demonstrate that the Hartz labor market reforms were successful in fighting poverty in the medium term due to their success in reducing structural unemployment.
Apart from these issues, it is uncontroversial that social inclusion should be addressed through reforms of the education system aimed at reducing the share of people leaving the system without some type of formal qualification.
Other phenomena of social exclusion are even harder to address through political strategies. Looser family ties, shrinking involvement in associations and lower membership in religious communities all point to trends implying a greater risk of individual isolation. Government policy to date has provided a quite favorable environment for citizen involvement, with policies such as the generous tax treatment of voluntary donations to charities and other public interest organizations.

Improving the compatibility of employment and parenthood has recently been high on the German political agenda. This objective has been addressed through a variety of initiatives. In 2008, an entitlement for a place in a child care facility for children below the age of three was introduced, to take effect in 2013. To date, this entitlement has only covered children beginning at age three. Another instrument is the parental leave benefit introduced in 2007 under the grand coalition. Child care facilities are heavily subsidized, with a trend even toward the free provision of services in many federal states. Transfers toward families through various mechanisms are substantial, such as through the free insurance coverage of children in the statutory health insurance program.
The family policy of the new CDU/CSU and FDP government is much more in flux than that of the grand coalition. This is mainly due to a change in the minister in charge of this area. The incoming minister, 32-year-old Kristina Schröder, initially tried to extend the period for parental leave from 14 to a maximum of 16 months. However, this was promptly rejected by the Ministry of Finance due to additional costs of about €250 million. She then tried to introduce a two-year part-time work benefit associated with caretaking, with participants receiving 75% of their former income. Under the proposal, worker would have to work full-time for two additional years, continuing at 75% of their previous wage. However, employer’s organizations strongly criticized the plan, as they would have to bear the financial risks of layoffs during the two periods. Furthermore, Schröder announced that the so-called child care subsidy could be paid out in the form of vouchers for learning opportunities. According to the coalition agreement, this is planned to start in 2013 for parents who raise their children at home. The deal would see parents receiving €150 per month in child care benefits for children under three years of age. However, the proposal was vehemently rejected by the FDP; the CSU and parts of the CDU also strongly opposed the voucher idea. Currently, the budget consolidation debate also relates to family-related expenditures.
Taken together, the recent innovations show that German politics takes the objective of combining parenting with labor market participation very seriously. Whether the new instruments will help to raise the country’s fertility rates remains to be seen. The high and income-related subsidy for parental leave can be criticized as producing windfall gains for wealthy young academics, and its cost-benefit analysis is controversial. According to an estimate by the Ministry for Family Affairs, Senior Citizens, Women and Children, Germany spends € 250 billion, with effects that remain largely unclear. The birth rate remains at the same low level as in years before, and no evaluation of the huge amount of money spent on family policies has taken place. However, the ministries of Finance and Family have agreed to delay evaluating the effects of the family policies until 2013.

There has been a large number of pension reforms in the recent past, most recently involving the gradual increase of the age of pension eligibility from 65 to 67, a provision adopted in 2007. All these reforms have boosted the long-run sustainability of the pension system, leaving it in a favorable condition compared to systems in France or southern European countries, for example.
However, given the increasing political power of pensioners, the long-term nature of this success can not be guaranteed. In our period of observation, two relevant examples can be noted. First, the government decided that in 2008 and 2009, pensions benefit levels should be increased by more than the amount determined by the pension formula. Second, the link between pensions and wages was temporarily loosened in May 2009, because wages decreased. With an eye to the coming elections, the government introduced a law guaranteeing that no nominal cuts in pensions would occur. However, this guarantee is to be compensated for by lower pension growth rates in subsequent years. This nominal pension guarantee is still in force; as a result, the pension system faces additional burdens of about €10 billion through 2013.
In spite of these wrong turns, the substance of the recent pension reforms remains effective, keeping the German pension system more stable. Whether the German pension system puts an unacceptable burden onto the younger generation is a controversial question, however. It is unavoidable that there will be a double burden on the younger generation in an era of falling fertility: necessarily, the younger generation will have to honor the older generations’ pension promises while simultaneously caring for their own pensions to a larger extent than did former generations. But one can also argue that the younger generation benefits from much higher real incomes than those of their parents or grandparents, justifying a higher pension burden.
However, the pension system alone will be less successful in the future in preventing poverty among the elderly. Today’s pensioners are relatively wealthy, and only rarely exposed to poverty. Longer unemployment spells in the current working population will increase the risk of poverty in the future. Preventing poverty among the elderly will become the next big reform issue for the German pension system.

Germany is known as a country of immigration; about 15 million people (20% of the population) have a migration background, and this number is increasing. Integration policy in Germany aims at two groups of migrants.
On the one hand, the government tries to attract highly skilled employees to work in Germany, and therefore facilitates immigration for this group. This is due to unfulfilled demand for skilled workers. These migrants are usually well integrated. On the other hand, the government focuses on the integration of people with a Muslim (especially Turkish) background. Members of this group tend to be less integrated in society and usually of a lower skill level. Many of them were born in Germany (third-generation migrants). In particular, this immigrant group has fallen behind in terms of educational attainments and labor market performance. Thus, there is a strong link between the debates on immigration policy and on reform of the education system.
Overall, an explicit and consistent integration policy in Germany is still in the early stages of development; over the last 10 years, there have been several changes in integration policy, with only limited effects.
In 2009, the new government refused to create a new ministry of integration at the federal level, arguing that better integration policy was not related to creating additional bureaucracy. Today, integration policy is associated with the Federal Ministry of the Interior, through the Federal Office for Migration and Refugees, and is represented by Minister of State in the Federal Chancellery (and Federal Government Commissioner for Migration, Refugees, and Integration) Maria Böhmer. Some of the federal states have their own ministries for integration. In 2005, the former governing coalition passed a national integration plan, which tried to identify the main goals for integration.
In 2006, then Minister of the Interior Wolfgang Schäuble established the German Islam Conference (Deutsche Islam Konferenz, DIK), with the aim of developing the intercultural dialog between representatives of Muslim organizations in Germany and government officials. The design is to support societal cohesion, integration and reaching consensus with respect to values. The new government decided to continue the conference, with a new focus. The new Minister of the Interior Thomas De Mazière aims to transform the results of the first period into practical policy.
The most important goal is to support children and women in learning the German language as the main prerequisite for good education and integration. Therefore, the government provides free language courses for immigrants and has established a language test, which everyone has to pass before moving to Germany. In addition, since Sept. 1, 2008, everyone who wants to become a German citizen has to pass the citizenship test.

Germany is a well-integrated member of international alliances such as NATO, the United Nations, the European Union, and the OSCE. This integration guarantees highly professional standards and structures within which the German army, the Bundeswehr, provides an important contribution to security and defense.
In these contexts, German military forces have participated in a number of European and international peacekeeping missions in various countries. In recent years, these missions have led to vigorous debate in political and in public circles, as they are not popular among the German population. This has been particularly true since the first deaths of German soldiers, and since the Bundeswehr’s involvement in incidents resulting in the deaths of civilians, such as the Kundus air strike in September 2009.
A more fundamental debate mainly revolves around the general role of the Bundeswehr, which was originally founded as a mere defensive army, but now faces new tasks and international military engagement. A basic problem is that the military forces are not yet fully adapted to their new international role, and seem not to be well prepared for these new missions. There has been much criticism of the service’s current training and equipment, which does not meet military and logistical requirements. It is also highly questionable whether the military conscription model appropriate during the cold war remains justifiable today, or whether it rather represents an obstacle to establishment of a cost-efficient army. A transition to a more professional army would likely boost the cost-effectiveness of the German military services, given that the new government has reduced the time of service for draftees to just six months.
Overall, the German territory has thus far been effectively protected from major terrorist attacks, and there appears to be no direct military threat. Whether missions such as that in Afghanistan really serve the long-run security interests of German citizens remains a controversial question.

Internal security is a longstanding issue on the political agenda, and governments provide well for it.
Two issues have recently provided challenges to internal security policy. First, extremist right- and left-wing activities are an increasing problem, arising mainly but not exclusively in the federal states of the former East Germany. Second, fighting terrorist and extremist activities has emerged as both a domestic and international phenomenon. Recent events have clearly demonstrated that even small terrorist groups of Islamic fundamentalists are able to paralyze the whole security system for weeks at a time. Today, internal security policy is closely intertwined with EU strategies and policies.
Due to the events of 9/11 and its effects on the subsequent “war on terrorism,” former Minister of the Interior Wolfgang Schäuble focused on policies strengthening internal security in order to prevent future terrorist attacks. In 2007, there was a debate on data retention, with policy mandating the storage of all phone and Internet communications for six months. In Germany, the government implemented an EU policy on data retention, but this law was overturned by the Federal Constitutional Court in March 2010.
Another law enables the police forces of the Federal Criminal Police Office to implement preventive measures against terrorism, including monitoring private communications via personal computers or telephones, and observing individuals with video cameras. There has also been some debate over how the military forces could be used domestically to prevent terrorist attacks, an idea that was ultimately dropped.
In 2009, the EU Commission recommended the implementation of body scanners at European airports to increase safety. Most European governments initially refused to use them, but another failed attack would probably lead the scanners to be implemented soon. Generally, the relationship between security and freedom consistently drives heated and controversial discussions. Nonetheless, authorities have so far been successful in preventing major terrorist attacks, at times by detecting conspiracies at an early stage.

In recent years, there has been a change from traditional regulation policies to new environmental policies such as eco-taxes, tradable permits and environmental agreements. German environmental policy is embedded in and influenced by the European framework, but without doubt, Germany has established itself as a pioneer and leader in the field.
The environmental policy of the former grand coalition primarily focused on issues of climate change. In collaboration with Great Britain, Germany plays a leading role in the European Union, mainly concerned with the reduction of CO2 emissions. On the national level, former governments promoted renewable energy use, offshore-wind farms, cogeneration, and the energy-efficient redevelopment of buildings and the infrastructure.
The government faces a multitude of powerful pressure groups, such as the car and energy industries, which try to influence environmental policies. New pressure groups have also emerged representing interests such as the solar energy industry, which benefits from the massive subsidies for renewable energy sources.
The most important economic interests come from renewable energy sector. Solar technologies and other renewable have long been subsidized by consumers through a subsidy financed by a markup on the price of electricity. In March 2010, the government started reducing these subsidies for solar energy, and wants to revise the renewable-energy law further given the substantial burden on consumers and the disputable ecological benefit provided.
Whether the former SPD-Green Party coalition plan to bring an end to nuclear power generation can be reconciled with the objectives of climate policy remains a controversial question. The new government has discussed changing the deadline for the shutdown of nuclear power stations.
In spite of these disputes, however, there exists a broad consensus within German society and across German political parties that environmental objectives such as fighting climate change have a high priority.

Due to comparatively high production costs, the German government hopes to gain competitive advantages by placing emphasis on innovation. As a result, Germany has increased its expenditure on research and development, and now spends above the European average. In fact, Germany has a leading position in Europe with regard to the number of patent applications. In recent years, medium-sized businesses have begun contributing markedly to this development.
The government has also continued its “excellence initiative.” The federal government and the federal states agreed to resume the Joint Initiative for Research and Innovation, and want to increase the budget by 5% every year (2011 – 2015).
In 2010, the government increased the budget of the Ministry of Education and Research by €660 million (to a total €10.6 billion). The goal is to encourage the translation of research results into products. In addition, the Ministry of Economics and Technology spent €2.5 billion on technological research. To boost the business innovation budget, the ministry established a program targeting small and medium-sized businesses (SMEs) in 2008. All in all, the government plans to increase spending on research and innovation to a total of 3% of GDP by 2015.
Though Germany thus mobilizes substantive resources, there is a debate as to whether the instruments chosen are appropriate. Many other industrial countries foster corporate R&D activities through general tax incentives. By contrast, Germany fosters R&D through government expenditure, which involves a difficult assessment as to which R&D activities are promising. Therefore, the German approach faces the criticism that politicians and bureaucrats determine R&D allocation, this bearing a responsibility they are unable to fulfill. With this in mind, the new German government has announced general tax incentives for R&D for SMEs. As of the time of writing, however, this had not been enacted.

In Germany, the individual states have been almost completely responsible for education policies since 2006. As a consequence, there are no generally binding standards for primary and secondary education, and one can note a significant and increasing divergence of approaches between the states, resulting in diverse educational standards.
In recent years, the states have launched extensive reform projects aimed at improving their educational systems. First, they started to reduce the 13 years previously needed to gain the Abitur, the German degree issued after the completion of secondary schooling. However, there is no consensus on the direction of further reforms, and the states have thus followed very different paths. Simultaneously, the states have begun reforming teachers’ university training as a result of the Bologna reforms. Today, there is no common curricula for bachelor’s or master’s studies for future teachers. As a consequence, the minister for education is trying to shift influence on educational policies back to the federal level.
The government has called education and specifically equality in education one of the most important issues of the future. The most important challenge is to reduce inequality. Program for International Student Assessment (PISA) surveys have shown that there is a significant difference between children with high and low socioeconomic backgrounds. Since the results of the first PISA survey were released, several programs have been established seeking to create a better environment for education, and to facilitate advancement on every education level. Thus, the government and the states have sought to support infant development, particularly in the German language, aiming to reduce inequality in this dimension before the children start their school career. This approach reflects the insights of education researchers who point to the crucial impact of the first years of life on life-long education and labor market successes. So far, the German preschool system and the relatively low standards of qualifications met by kindergarten teachers are not yet appropriate, given the importance of this phase in the life cycle.
The BAföG system of state educational support has been renewed to help disadvantaged students. In addition, to facilitate the international exchange of students, foreign qualifications will soon be accepted more readily.