The center-left coalition government of Chancellor Gerhard Schroeder that took office in late 1998 has consolidated its position and embarked on a number of economic reforms considered necessary to sustain economic growth and job creation, consolidate public finances, and improve Germany's investment climate. The government secured parliamentary approval in July 2000 for significant new tax reforms that will be phased in over 2001-2005. The reforms will cut high business and personal income tax rates, close loopholes and eliminate capital gains tax for corporations. The government has also proposed controversial reforms to Germany's public social security system, which faces intense financial pressure with the aging of society. Significantly, the government aims to institute these reforms while also reducing its budget deficit and official debt levels.
High unemployment is one of Germany's most serious problems.
The economic upswing and changes in Germany's labor force have combined to reduce the unemployment rate, 10.5 percent in 1999, to perhaps 9.7 percent in 2000 and 9.3 percent in 2001. Structural factors are largely to blame for continuing high joblessness, and the government has so far not pursued significant labor market reforms needed to promote new job creation. For American companies, the German market, Europe's largest, continues to be attractive in numerous sectors, and remains an important element of any comprehensive export strategy in Europe. While U.S. investors must closely study the bottom line before buying into Germany or expanding their position, they can count on high levels of productivity, a highly skilled labor force, quality engineering, a first-class infrastructure, and a location in the heart of Europe. Successful market entrants are those that have innovative products featuring high quality and modern styling.