2013 Index of Economic Freedom

Germany

overall score72.8
world rank19
Rule of Law

Property Rights90.0

Freedom From Corruption80.0

Limited Government

Government Spending37.3

Fiscal Freedom61.8

Regulatory Efficiency

Business Freedom92.1

Labor Freedom43.8

Monetary Freedom81.2

Open Markets

Trade Freedom86.8

Investment Freedom85.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 81.8 million
  • GDP (PPP):
    • $3.1 trillion
    • 3.1% growth
    • 1.1% 5-year compound annual growth
    • $37,897 per capita
  • Unemployment:
    • 5.5%
  • Inflation (CPI):
    • 2.5%
  • FDI Inflow:
    • $40.4 billion
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Germany’s economic freedom score is 72.8, making its economy the 19th freest in the 2013 Index. Its overall score is 1.8 points better than last year, with improvements in six of the 10 economic freedoms including financial freedom, the management of government spending, and labor freedom. Germany is ranked 10th out of 43 countries in the Europe region and has become one of the 20 freest in the 2013 Index.

Demonstrating impressive resilience, the German economy has withstood the global economic uncertainty and the European sovereign debt crisis. The government has held firm to policies emphasizing sound public finance, keeping public spending under control through deficit-cutting efforts. Earlier labor market reforms that raised working-hour flexibility and reduced structural unemployment have contributed significantly to sustaining the relatively robust job market during the economic slowdown, and there appears to be strong momentum for recovery.

Germany’s dependable commitment to regulatory efficiency and open-market polices continues to be bolstered by a legal framework that provides effective protection of property rights. The rule of law is well maintained, and a strong tradition of minimal tolerance for corruption is firmly in place.

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Background

Despite the formation of a new governing coalition between Chancellor Angela Merkel’s Christian Democratic Union and the economically liberal Free Democratic Party in 2010, economic reforms remain stalled because of an almost exclusive focus on rescuing the euro. Germany has funded the lion’s share of large rescue packages for fellow eurozone member Greece. Germany and France have been the key proponents of the European Union’s Fiscal Compact Treaty. Although relations with France have cooled since the election of Socialist François Hollande as French president in 2012, it is still expected that the treaty will be ratified. Germany’s industrialized economy, the largest in Europe, is well integrated into the global marketplace and generates average per capita incomes that are among the highest in the world.

Rule of LawView Methodology

Property Rights 90.0 Create a Graph using this measurement

Freedom From Corruption 80.0 Create a Graph using this measurement

The legal framework is strong and functions well. Contractual arrangements are secure, and commercial law is fully respected. All property rights are well protected, and the judiciary is highly professional. Protection of intellectual property rights is consistent with world standards. Government transparency is high, and anti-corruption measures are enforced effectively.

Limited GovernmentView Methodology

The top income tax rate is 45 percent. The federal corporate tax rate is 15.8 percent (15 percent plus a 5.5 percent solidarity tax), but trade taxes raise the effective top rate to 36.3 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 36.3 percent of GDP. Government spending is equivalent to 45.7 percent of GDP, and budget deficits are narrowing. Public debt is still over 80 percent of GDP.

Regulatory EfficiencyView Methodology

The competitive regulatory regime aids dynamic business formation and innovation. With no minimum capital required, the process for launching a company and completing licensing requirements is straightforward. Labor relations are sound but heavily regulated, and employers and workers have worked cooperatively to adjust wages and work hours in response to the changing economic environment. Monetary stability is well maintained.

Open MarketsView Methodology

The trade-weighted average tariff rate is low at 1.6 percent, as with other members of the European Union. There are relatively few non-tariff barriers. The investment regime supports dynamic growth, with foreign and domestic investors treated equally. The competitive financial sector remains largely stable, offering a full range of services. The traditional three-tiered system of private, public, and cooperative banks remains intact.

Country's Score Over Time

Bar Graph of Germany Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Germany to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81-0.1
2Denmark76.1-0.1
3Ireland75.7-1.2
4Estonia75.32.1
5United Kingdom74.80.7
6Luxembourg74.2-0.3
7Finland741.7
8The Netherlands73.50.2
9Sweden72.91.2
10Germany72.81.8
11Georgia72.22.8
12Lithuania72.10.6
13Iceland72.11.2
14Austria71.81.5
15Czech Republic70.91.0
16Norway70.51.7
17Armenia69.40.6
18Belgium69.20.2
19Cyprus69-2.8
20Slovakia68.71.7
21Macedonia68.2-0.3
22Spain68-1.1
23Malta67.50.5
24Hungary 67.30.2
25Latvia66.51.3
26Poland661.8
27Albania65.20.1
28Romania65.10.7
29Bulgaria650.3
30France64.10.9
31Portugal63.10.1
32Turkey62.90.4
33Montenegro62.60.1
34Slovenia61.7-1.2
35Croatia61.30.4
36Italy60.61.8
37Serbia 58.60.6
38Bosnia and Herzegovina57.30.0
39Moldova55.51.1
40Greece55.40.0
41Russia51.10.6
42Belarus48-1.0
43Ukraine46.30.2
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