The Berlin Republic: German Unification and a Decade of Changes

By Winand Gellner; John D. Robertson | Go to book overview

Economic Consequences of German Unification

MICHAEL MÜNTER and ROLAND STURM

Two alternative scenarios for the economic future of East Germany were discussed when Germany united in 1990. The optimists foresaw a second economic miracle, the pessimists feared that the East might become Germany's 'Mezzogiorno', an area in permanent need of subsidies from the West without any significant economic growth potential of its own. After a decade, economists concluded that 'economic unification turned out to be much more difficult than political unification'. 1 Most Germans would agree to this statement by Hans-Werner Sinn, head of the IFO-economic research institute in Munich. Economic unification preceded political integration. However, the remarkable pace of developments in the political sphere was matched by a similar pace of economic change for only a relatively short period of time. Wolfgang Thierse, President of the German Bundestag, echoed Sinn's remark when he observed: 'An honest review of the facts leads inevitably to the conclusion that the economic and social condition of East Germany is on the brink [of disaster].' 2

When analysing the process of economic unification, one should not forget, however, that it is difficult to imagine two economies converging which were more different than those of the Federal Republic of Germany (FRG) and the German Democratic Republic (GDR). After 40 years of political and cultural divergence, Germans in East and West found themselves in two separate economic worlds: the FRG had established a social market economy based on private property, economic competition, and the freedom of movement for people, goods, services and capital. The GDR, in contrast, had established a centrally planned and controlled economy with almost no private property, no economic competition, and fixed prices for most goods.

On a theoretical level, one could have argued that economic unification therefore had to be a long-term project. However, political realities forced decision-makers to opt for fast-track solutions. When the Berlin Wall fell on 9 November 1989, the possibility of rapid unification was still not on everybody's mind. The leaders of the allied powers of the Second World War, who still had a formal responsibility for Germany's sovereignty, were,

Michael Münter and Roland Sturm, University of Erlangen-Nuremberg

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