STATISTICS OF MACROECONOMIC AGGREGATES.

COMPARISON BETWEEN ROMANIA AND GERMANY

Ionescu Cristina Luciana Alecsandres cu Monica Ionela Dragomir Vasile Valentin Busine ss Communication Master 1st Year

STATISTICS OF MACROECONOMIC AGGREGATES

Economics is the science that studies the production, distribution, and consumption of goods and services. Economics is divided into microeconomics and macroeconomics. 1. There are four principal ways in which macroeconomics differs from microeconomics: it focuses on how the accumulated effects of individual actions can lead to unintended macroeconomic outcomes; it allows greater scope for government intervention; it studies long-run growth; it uses economic aggregates, measures that summarize data across various markets for goods, services, workers and assets. Modern macroeconomics arose from efforts to understand the Great Depression. One key concern of macroeconomics is the business cycle, the short-run alternation between recessions, periods of falling employment and output, and expansions, periods of rising employment and output. Modern macroeconomics arose largely to prevent the occurrence of another depression, a deep, prolonged economic downturn. The labour force, the sum of employment and unemployment does not include discouraged workers. non - working people capable of working but who have given up looking for a job. Labour statistics also do not contain data on underemployment employed workers who earn less than they would in an expansion due to lower-paying jobs or fewer hours worked. The unemployment rate, which is usually a good measure of conditions in the labour market, has arisen and fallen repeatedly over time. Aggregate output, the total level of output of final goods and services in the economy, moves in the opposite direction of unemployment over the business cycle.

Taking all above-mentioned into account, macroeconomics studies the structure, functioning and the overall behavior of the economy as a whole - ,, with booms and recessions, the economys total output of goods and services and the growth of output, the rates of inflation and un employment, the balance of payments over long periods of time and with the short-run fluctuations that constitute the business cycle. Thus its main task is to explain relation among aggregates of a national economy and its main goal is to explain the way in which the level of the national economic activity is established at a certain period in time. 2. The basic macroeconomic aggregates are: Gross Domestic Product (GDP), Consumption, Investment, Government purchases, Net exports, Imports, Inflation, Unemployment, Population etc. Here are explained some of the macroeconomic aggregates: a) Gross Domestic Product (GDP): - the value of output produced within a country in a certain period of time (over a 12-month period). From the point of view of statistics there are four approaches of estimating GDP: - The production approach - that is to add up the value of all goods and services produced in the country industry by industry. We focus on firms and add up their production. - The consumption approach It is based on the equation: GDP = Cp + Cg + FBC + EN where: Cp = Private Consumption; Cg = Government purchases; Cp + Cg = Final Consumption; FBC = Investment (Gross Fixed Capital Formation); EN = Net Exports = Exports Imports. - The income approach refers to the production of goods and services, generates incomes for households in the form of wages, salaries, interest, rent and profits. This method is to add up all these incomes.
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GDP (at market prices) =GVA + taxes on products Subsidies on products GVA = Gross value added at basic prices is the sum of all the values added by all industries in the economy over a year. The figures exclude taxes on products (such as VAT) and include subsidies on products. - The expenditure approach. This approach focuses on the expenditures necessary to purchase the nations production. In this simple model of the circular flow of income, with no injections or withdrawals, whatever is produced is sold. The value of what is sold must be the value of what is produced. The expenditure approach measures this sales value. The output includes: consumer expenditure (C), government expenditure, investment expenditure (I), exports on goods and services (X). We have to subtract imports of goods and services (M) from the total, in order to leave just the expenditure on domestic product. So, we have to subtract the part of consumer expenditure, government expenditure and investment that goes on imports and also the imported component (e.g. raw materials) from exports. Thus, GDP (at market prices) = C+G+I +X-M. Because of the way the calculations are made, the four ways of calculating GDP must yield the same result. In other words: National product=National income=National expenditure=National consumption. An important distinction is made between Nominal GDP and Real GDP. Nominal GDP (also called money GDP) measures GDP in the prices ruling at the time and does not take account of inflation. Real GDP measures GDP in the prices that ruled in some particular year. Thus we can measure each years GDP. This will enable us to see how much real GDP had changed from one year to another. The GDP Deflator = a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100: GDP Deflator= Nominal GDP . 100 Real GDP b) Unemployment Unemployment fluctuates with the business cycle. It can be expressed either as a number or as a percentage.
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The number of the people unemployed includes those of working age, who arent working, but who are available for work at current wage rates. If unemployment is expressed as a percentage, the percentage represents the total labour force which means the people employed plus the people unemployed. For example if 25 million people were employed and 1.5 million people unemployed, the unemployment rate would be: (1.5/25 +1.5)x 100 = 5.7%. The official measures of unemployment are: claimant unemployment and standardized unemployment rate. Claimant unemployment is a measure of all those in receipt of unemployment related benefits. The statistics exclude those of working age who are available for work at current wage rates, but who are not eligible for benefits. Examples of people who are ineligible for benefits: the temporary unemployed, people over 55, people seeking part-time work. Standardized unemployment rate Here the unemployed are the people of working age who are without work, available to start work within two weeks and actively seeking employment or waiting to take up an appointment. The duration of unemployment Unemployment lasts only a certain period of time. The duration of unemployment is determined by three factors: the number of unemployed individuals (also known as the size of the stock of unemployment; the higher the stock of unemployment, the longer the duration of unemployment. Thus more people will compete for vacant jobs), the rate of inflow and outflow from the stock of unemployment (inflow the people that quit their jobs; outflow the people that find jobs). The duration of unemployment will depend on the rate of inflow and outflow. The rate is expressed as the number of people per period of time. The phase of the business cycle - once a recession has lasted for a period of time, people on average will have been out of work longer, and this long-term unemployment is likely to persist even when the economy is pulling out of recession. The composition of unemployment

Unemployment rates vary enormously between countries and between different groups within countries. We can talk about geographical differences, sex difference, age differences and ethnic differences.

Geographical differences Unemployment varies from country to country and also varies substantially within a country from one area to another. Most countries have some regions that are more prosperous than others, inner-city unemployment is very much higher than suburban or rural unemployment. Differences in unemployment rates between women and men In many countries, female unemployment has traditionally been higher than male unemployment (differences in education and training, discrimination by employers etc), but in recent years male unemployment rates are higher than female. The main reason is the decline in many of the older industries, such as coal and steel, which employed mainly men. Differences in unemployment rates between different age groups Unemployment rates in the under-25 age group are higher than the average, and substantially so in many countries. There are various explanations for this, including the suitability (or unsuitability of the qualifications of school leavers, the attitudes of employers to young people and the greater willingness of young people to spend time unemployed looking for a better job or waiting to start a further or higher education course. The causes of unemployment are: equilibrium unemployment and disequilibrium unemployment. The equilibrium unemployment level is the difference between those who are employed at a given wage rate and those who can work. In other words when the aggregate demand for and supply of labour at the current
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real

wage

rate

are

equal.

(http://www.encyclo.co.uk/define/Equilibrium%20unemployment, http://www.oenb.at/dictionary/termini.jsp?EINTRAG_ID=2032) Disequilibrium unemployment is unemployment considered to be caused by the aggregate demand for labor being less than the aggregate supply of labor at the current real wage rate. (http://encarta.msn.com/dictionary_561546901/disequilibrium_unemployment.html) c) Inflation The rate of inflation measures the annual percentage increase in prices. The most usual measure is that of consumer prices: i.e. retail prices. The inflation rate (II) is calculated from the following formula: t =Pt Pt-1/Pt-1 x 100 where Pt is the price index for year t and Pt-1 is the price index for the previous year. Thus, if the price index for year 1 is 149.1 and for year 2 is 149.0, then inflation in year 2 is: 11 = (149.1 - 140.0 /140.0) x 100 = 6.5 % . A rise in inflation means a faster increase in prices. A fall in inflation means a slower increase in prices. The costs of inflation If people could correctly anticipate the rate of inflation and fully adjust prices and incomes to take account of it, then the costs of inflation would indeed be relatively small. Redistribution Inflation redistributes income away from those on fixed incomes and those in a weak bargaining position, to those who can use their economic power to gain pay, rent or profit increases. It redistributes wealth to those with assets (e.g. property).Retired people may be particularly badly hit by rapid inflation. Uncertainty and lack of investment Inflation tends to cause uncertainty among the business community, especially when the rate of inflation fluctuates. (Generally, the higher the rate of inflation, the more it fluctuates.) If it is difficult for firms to predict their costs and revenues, they may be discouraged from

investing. This will reduce the rate of economic growth. On the other hand, policies to reduce the rate of inflation may reduce the rate of economic growth, especially in the short run. Balance of payment Inflation is likely to worsen the balance of payments. If a country suffers from relatively high inflation, its exports will become less competitive in world markets. At the same time, imports will become relatively cheaper than home-produced goods. Thus exports will fall and imports will rise. As a result, the balance of payments will deteriorate and/or the exchange rate will fall. Both of these effects can cause problems. Resources Extra resources are likely to be used to cope with the effects of inflation. Accountants and other financial experts may have to be employed by companies to help them cope with the uncertainties caused by inflation. The costs of inflation may be relatively mild if inflation is kept to single figures. They can be very serious, however, if inflation gets out of hand. If inflation develops into 'hyperinflation', with prices rising perhaps by several hundred per cent or even thousands per cent per year, the whole basis of the market economy will be undermined. Causes of inflation The causes of inflation are: demand-pull inflation and cost-push inflation. Demand-pull inflation is caused by continuing rises in aggregate demand. It is typically associated with a booming economy. Cost-push inflation is associated with continuing rises in costs and hence continuing leftward (upward) shifts in the aggregate supply. Such shifts occur when costs of production rise independently of aggregate demand. With demand-pull inflation, output and hence employment tends to rise. With cost-push inflation, however, output and employment tends to fell.
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We can distinguish various types of cost-push inflation: Wage-push inflation, Profit-push inflation, Import-price-push inflation. In all these cases, inflation occurs because one or more groups are exercising economic power. Additional causes of cost-push inflation include the following: Tax-push inflation, the exhaustion of natural resources. Demand-pull and cost-push inflation can occur together, since wage and price rises can be caused both by increases in aggregate demand and by independent causes pushing up costs. Even when an inflationary process starts as either demand-pull or cost-push, it is often difficult to separate the two. Policies to tackle inflation are Demand-side policies and Supply-side policies. Demand-side policies are Fiscal policy and Monetary policy. Fiscal policy involves altering government expenditure and/or taxation. Monetary policy involves altering the supply of money in the economy or manipulating the rate of interest. The aim of the supply-side policies is to reduce the rate of increase in costs. d) External debt It is the debt owed to creditors outside the country. This debt includes the debt owed to the governments from other countries, to private commercial banks or the debt owed to IMF or World Bank. (http://en.wikipedia.org/wiki/External_debt) According to the IMF external debt is classified into four heads i.e. (1) public and publicly guaranteed debt, (2) private non-guaranteed credits, (3) central bank deposits, and (4) loans. However the exact treatment varies from country to country. World Bank and IMF state that a country can be said to achieve external debt sustainability if it can meet its current and future external debt service obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without compromising growth.
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Indicators of external debt sustainability: There are various indicators for determining a sustainable level of external debt. - External debt ratio to GDP - the most widely used measure of the debt burden. - External debt service ratio to GDP or external debt service ratio to exports measure the debt servicing burden, in conjunction with indicators like interest to GDP. - Ratio of short-term debt to total debt and debt service due to total debt. Both are appropriate indicators of liquidity issues associated with external debt. As the ratio of short-term debt to GDP increases or the amounts falling due increase, there will be more questions about the viability of rolling over existing external debt. Debt sustainability exercises help to deal with problems of debtor countries. Normally, the emphasis is on the behaviour of the external debt to GDP ratio. The simplest policy proposition is that the debt/GDP ratio should either stabilize or decline, although there are no set rules as to what is an adequate level of debt. The ratio depends on the levels of debt, interest rates and GDP; and the movements in the real exchange rate. in countries dominated by crisis we can have recourse to a reduction in the actual level of debt. In the specific case of the public sector finances, the efforts to stabilize the ratio of debt to GDP will focus on the primary surplus. Debt restructuring cannot be seen as regular source of financing/refinancing, as it affects future access to financing. However, at times of crisis they become inevitable. Frequently there is a serious conflict among creditors at the time of debt restructuring exercises. Solutions are required including the development of qualified majorities and the use of neutral arbitrators. (http://www.development-finance.org/en/component/docman/cat_view/59-debt-strategy.html? start=26) e) Commerce is a division of trade or production which deals with the exchange of goods and services from producer to final consumer. It comprises the trading of something of economic value such as goods, services, information, or money between two or more entities. Commerce involves trade and aids to trade which help in the exchange of goods and services. Today commerce includes a complex system of companies that try to maximize their profits by offering products and services to the market (which consists both of individuals and other companies) at the lowest production-cost. There exists a system ofInternational trade, which some argue has gone too far. (http://en.wikipedia.org/wiki/Commerce)
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We have two branches of commerce: export and import. Export is when you trade something out of the country. In economics, an export is any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers. Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import. The advent of small trades over the internet, such as through Amazon and e-Bay, have largely bypassed the involvement of Customs in many countries because of the low individual values of these trades. Nonetheless, these small exports are still subject to legal restrictions applied by the country of export. Methods of export include a product or good or information being mailed, hand-delivered, shipped by air, shipped by boat, uploaded to an internet site, or downloaded from an internet site. Exports also include the distribution of information that can be sent in the form of an email, an email attachment, a fax or can be shared during a telephone conversation. (http://en.wikipedia.org/wiki/Export) International trade is exchange of capital, goods, and services across international borders or territories. It refers to exports of goods and services by a firm to a foreign-based buyer (importer). In most countries, it represents a significant share of gross domestic product (GDP). Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. International trade is a major source of economic revenue for any nation that is considered a world power. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly

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than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor the United States is importing goods from China that were produced with Chinese labor. (http://en.wikipedia.org/wiki/International_trade) The term "import" is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus an import is any good (e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale. Import goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country. Imports, along with exports, form the basis of international trade. Import of goods also requires involvement of the customs authorities in both the country of import and the country of export and they are often subject to import quotas, tariffs and trade agreements. When the "imports" are the set of goods and services imported, "Imports" also means the economic value of all goods and services that are imported. Now lets talk about the trade barriers. Trade barriers are generally defined as government laws, regulations, policy, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. While restrictive business practices sometimes have a similar effect, they are not usually regarded as trade barriers. The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services.
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f) Investment is the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance no matter for households, firms, or governments. An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset. In economics or macro-economics, fixed asset investment or formation (sometimes simply called investment) is the production per unit time of goods which are not consumed but are to be used for future production. Examples include tangibles (such as building a railroad or factory) and intangibles (such as a year of schoolings or on-the-job training like). In measures of national income and output, gross investment (represented by the variable I) is also a component of Gross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted (i.e. I = GDP - C - G - NX). Both non-residential investment (such as factories) and residential investment (new houses) combine to make up I. Net investment deducts depreciation from gross investment. It is the value of the net increase in the capital stock per year. Investment, as production over a period of time ("per year"), is not capital. The time dimension of investment makes it a flow. By contrast, capital is a stock, that is, an accumulation measurable at a point in time (say December 31). Investment is often modeled as a function of Income and Interest rates, given by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more
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costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than lending out that amount of money for interest. In finance, investment is the commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum. Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses. g) Government purchases represent a component of Keynesian expenditures that can be used as a tool for a government to influence the business cycle and provide economic stimulation when it is deemed necessary. (http://www.investopedia.com/terms/g/governmentpurchases.asp) They are called also government spending or government expenditure. It is classified by economists into three main types. Government purchases of goods and services for current use are classed as government consumption. Government purchases of goods and services intended to create future benefits, such as infrastructure investment or research spending, are classed as government investment. Government expenditures that are not purchases of goods and services, and instead just represent transfers of money, such as social security payments, are called transfer payments. The first two types of government spending, namely government consumption and government investment, together constitute one of the major components of gross domestic product. Government spending can be financed by seigniorage, taxes, or government borrowing. (http://en.wikipedia.org/wiki/Government_spending)

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Statistical Data about the Macroeconomic indicators of Romania and Germany

GDP Growth Rate (%)
10 8 6
4.8 4.5 4.9 4.1 8.1 7.7 6 7.1

4
3 2.7 2.2 0.4 0.4 -0.1 1.7 0. 9

2 0 -2 -4 -6

1.5

2.5 1

Romania Germany

-4.8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Though the economy had a good progress after 2000, better seen in the GDP of Romania, the current question is if this growth is sustainable after 2009 or not especially when facing a worldwide crisis. But the future prospects for the economy do not depend only on external factors. The internal political and economical frame counts as well. So lets have a look on the driving forces for the progresses in the last years. At first, an important part of growth in Romania was more a catch-up effect: when starting from a low level,

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even small achievements seem like big steps after they have been transformed into percentages. In absolute terms the GDP of Romania keeps being on a very low level, though it is certainly not idle and reached even more than a good third of the European average. An important driver for growth and development in Romania has been foreign direct investment. This is typically limited to the few developed economic centers. That is to say that FDI in Romania keeps being crowded in some developed cities of Romania. As a result the economy has to face sharp shortages on local labor markets, which again set low upper boundaries to the progresses experienced after 2000. In addition much of the FDI in Romania is yet rather labor intensive not based on technology. Romania seems highly vulnerable to the current crisis 2009, though, some export advantages, like in the case of Dacia, are also to be observed in early 2009. Growth will certainly continue, but on a much lower level. Estimations for 2009 2013 range from a little bit more than 0 to some 4%. Negative growth is seldom assumed. Overall, Romania certainly did great progresses in the past years, and it will continue to do so. However, upper boundaries for the future are currently low as the business environment(such as infrastructure and human capital) need significant improvements. But the political frame and governance are weak, and resemble rather southern Italian style. Hence, Mezzogiorno is a much more likely scenario for the future, rather than the Hungarian or Czech model. Romania could easily remain an additional case like South Italy in united Europe. The German economythe fifth largest economy in the world in PPP terms and Europe's largestbegan to contract in the second quarter of 2008 as the strong euro, high oil prices, tighter credit markets and slowing growth abroad took their toll on Germany's export-dependent economy. At just 1 percent in 2008, GDP growth is expected to be negative in 2009. Recent stimulus and lender relief efforts will make demands on Germany's federal budget and undercut plans to balance its budget by 2011. The reforms launched by the former government of Chancellor Gerhard Schroder, deemed necessary due to chronically high unemployment and low average growth, led to strong growth in 2007, while unemployment in 2008 fell below 8 percent, a new post-reunification low. Germany's aging population, combined with high chronic unemployment, has pushed social security outlays to a level exceeding contributions, but higher government revenues from the cyclical upturn in 2006-07 and a 3 percent rise in the value-added tax cut Germany's budget deficit to within the EU's 3 percent debt limit in 2007. The current government of Chancellor Angela Merkel has initiated other reform measures, such as a gradual
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increase in the mandatory retirement age from 65 to 67 and measures to increase female participation in the labour market. The modernization and integration of the eastern German economy - where unemployment still exceeds 30 percent in some municipalities - continues to be a costly long-term process, with annual transfers from west to east amounting to roughly USD 80 billion. While corporate restructuring and growing capital markets have set strong foundations to help Germany meet the longer-term challenges of European economic integration and globalization, Germany's export-oriented economy has proved a disadvantage in the context of weak global demand. So, if we compare, the two growth rates from the chart we see that Romanian GDP growth rate is higher than Germanys but from what we presented before, the causes are different. The Romanian GDPs growth rate was in a process of catching up with the rest of the countries that were part of U.E. The growth rate was alimented by the FDI not because of the Romanian business environment. Instead, Germanys growth rate of the GDP was influenced by two major factors: the costs of reunification and its export based economy.
Unemployment Rate (%)
14
11.7 10.5 9.8 9. 9 9.8 9.1 8. 3 7. 2 7.1 6. 3 9 7.8 10.6

12
11

11.5

10
10.5

Romania Germany

5. 9 6.1 4.1 4.4

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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Previously, we observed that the 2000-2009 period was one of the most prolific in what concerned the growth rate of GDP. But if we look deeper, what do we find? The number of unemployed fell from 1.1 million in 1999 to 368,000 in 2007, the unemployment rate reaching 4%. During the same period, however, the number of employees increased by only 262,000, which means that at least several hundred thousand unemployed were lost on the road, especially in conditions where the number fell to 168,000 retired people, so we can say that the unemployed were retired. The most likely destination for unemployed "no" was foreign countries. On the other hand, economic growth for consecutive 9 years should have lead to a significant increase in staff, which did not happen. Moreover, crude activity rate, e.g. the ratio of the working population and total population, has declined continuously, reaching from 50% in 1992 to 43% in 2000 and 42.2% in 2007. At this time, the number of unemployed has reached 625,000 and the unemployment rate to 6.9%. If we judge things by considering what happened after 1999, the unemployment rate is to reach a maximum in the first part of next year, then may begin to decline or not, depending on how the economy will return . In contrast to a number of other European countries and especially in contrast to the US, Germany appears to be unable to make almost any progress in reforming labor market institutions and the welfare state in order to reduce its stubbornly high unemployment rates. It forms in this respect an unholy triple alliance of reform laggards with France and Italy. Persistently high unemployment rates are just one side of the coin of an overall economic performance which is far from satisfactory. The other side of the coin is the lackluster performance with respect to growth rates, where Germany was in the course of the nineties not only outperformed by the US, but again also by a number of other European countries. It should therefore not be surprising that with respect to economics Germany, which used to be the economic powerhouse in the EU, is increasingly called the sick man of Europe suggesting that something is rotten in its institutional setting. Some thirty years ago German institutions along with its low unemployment rates and social cohesion were the envy of the world. Its unemployment rate was about one fifth of that in the US which was then about the same as it is today. Since German labor market institutions have by and large been kept unchanged over the last thirty years, only their interaction with changes in the economic environment is a plausible
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candidate for explaining rising unemployment. Why so? Firstly, German institutions might have worsened over time relative to other countries or even in absolute terms, reflecting the negative influence of special interest groups on political decision making in this country. The German economy is by now infamous among international policy observers for its excessive level of regulation, taxation and bureaucratization which not only distorts but also greatly reduces incentives to work in general, but especially to take risks such as investing in skills, in new firms or in venture capital. Secondly, the economic environment might have changed so that a formerly appropriate German institutional setup fostering GDP and employment growth is no longer conducive to achieving these goals. There is widespread evidence that the new economy of the twenty-first century, which has globalization and great technological advancement as its hallmarks, is characterized by greater variability and heterogeneity as well as more rapid change so that more institutional flexibility is called for. So, we see the trend in the chart, of decrease in both countries but we have reasons also to worry about the future of this statistical data. In Germany, the problem resides in the lack of structural adjustments, starting with the institutions in charge and in Romania; we are confronted with the possibility in the near future of new waves of specialized people that will leave in search for a better future.
Inflation Rate (consumer prices) (%)
50 45 40 35 30 25 20 15 10 5 0
15.3 9.6 9 6.8 0.8 2 1.3 1.3 1.1 1.6 2 1.7 4.8 2.3 2.7 22.5 34.5 44 45.7

Romania Germany

7.8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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The economy has generally grown below potential in the 2000-2006. After 2006 the economy experienced rapid and beyond potential growth which has generated inflationary pressures. The first quarter of 2009 marked the entry in a recession caused by the global financial crisis. Annual inflation rate was 6.8% in Romania in January 2009, fourfold higher than EU average, Romania recording the third highest annual inflation rate among EU Member States. Imported inflation can be explained by the evolution of the EUR/RON exchange rate. A depreciation of the local currency will cause an increase in the price of imports which will also generate price inflation. In the case of Romania, many domestic goods have their prices denominated in euro so the exchange rate channel has a greater impact over the inflation compared to other economies. The German Federal Government is expecting the average inflation rate for 2008 to be 2.3 pct, Financial Times Deutschland reported, citing an obtained draft of the annual economy report. In 2007, consumer prices rose by 2.2 pct, according to figures from the Federal Statistics Office. Recent media reports said that the government will also lower its GDP forecast for 2008 to 1.7 pct, down from 2.0 pct. So, the chart shows that Romanias inflation rate is growing and the reasons where
1600 1400 1200 1000 800
610 696.9 578 608 608 1016 893.3

presented before. Germany no doubt will have a decrease of the inflation rate in the nearest
1498

future.
Exports (Billion US $)
1133

1354

600 400 200

8.4

Romania Germany

11.2

11.5

13.7

17.63

23.54

27.72

33

40.32

49.41

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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Romanian volume sales abroad increased from 10 billion in 2000 to over 35 billion last year, but in November 2008 marked the first decline in exports. Romania's exports declined in December 2008 with approximately 17% over the equivalent period of 2007 and the first decade of January exports to non-EU states have suffered a compression more accentuated, with 46%, according to estimates Exporters Association. In November 2008, Romanian exports of goods decreased by 9% from the same months of 2007, up from 2.54 billion euros, while imports fell 17%, according to data published by the National Statistics Institute (NSI). From January to July, Romania exported goods of 16.4 billion euros, 3.9 billion euros less than in the same period last year. Germanys export sector, which forms the backbone of the country's economy, wont return to its former strength until 2014, warned an industry association. Germanys export industries are on the road to improvement, but the recovery process will take longer, BDI president Hans-Peter Keitel wrote in his introduction to the report. The export industries At this had rate, to we battle wont through get back a to tough pre-crisis setback levels in until 2009. 2014.

The figures were based on a large survey of German businesses across a wide range of sectors. Before the global economic crisis struck in 2008, the growth in German exports was humming along at eight percent a year, the report found. Germany has traditionally been the worlds biggest exporter and one third of jobs here rely on exports. But many economists believe China has either taken over, or is about to take over, Germany as world export champion. So, even both countries increase the exports, no one will get what desires most, Germany the position of the larger worlds exporter and Romania the rate of growth from 2007.

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Imports (Billion US $)

1400
1232

1200 1000 800

612 801 716.7 587 505 487.3 585 916.4

1075

600 400 200

9.6

Romania Germany

11.9

14.4

16.7

22.17

28.43

38.15

46.48

64.54

76.17

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Romania increasingly imports more and exports more or less. This is part of the "price" paid by EU integration. With the entry into the EU common market, our country imports increased significantly, compared with exports. Once high barrier duties, more and more foreign products have flooded the Romanian market, as otherwise expected. Germany represents the first trading partner of Romania. It is not just the second largest exporter in the world but also the second largest importer after U.S. The chart shows us that growth is the trend. But we face different problems because of the different contexts. Romania imports more and more because is connected to a larger market, the U.E. comparing to COMECON. Germany instead uses this in her own advantage. They have annually a surplus and we face constantly the deficit. From this, we see, results the lack of regulations.

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External Debt (Billion US $)

6000
5250

5000
3904 3626

4489

4000

3000

Romania Germany

2000

1000
9 9.3 11.6 13.7 18.34 24.59 35.68 42.76 74.54 101.6

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

As this chart shows, both countries confront with a rising external debt. Romania has no external debt in 1990, but now it has become one of the major debtors in Europe. Germany has fought two world wars and the bills werent paid not even until now. Still Germany tries to reduce the level of the external debt. Romania doesnt seem to care that it has a debt of over 8 times greater comparing with that from Ceaucescu era.

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Bibliography

1. Liviu-Stelian Begu, Statistica Internationala (Analize Comparative), Editura

Universitaria, Bucuresti, 2009;

2. http://en.wikipedia.org/wiki/External_debt 3. http://en.wikipedia.org/wiki/Government_spending 4. http://www.encyclo.co.uk/define/Equilibrium%20unemployment 5. http://www.indexmundi.com/g/g.aspx?c=gm&v=66 6. http://www.investopedia.com/terms/g/governmentpurchases.asp 7. http://www.oenb.at/dictionary/termini.jsp?EINTRAG_ID=2032

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