Economic issues in

Germany
1945-2005

Group 1, presentation 2:
Laura Bond-Powell
Joanne Eldridge
Andria Ioannou
Katie MacDonald
Catherine Wood

West Germany- Economy

(Post War)
In 1945, at the end of World War II, Germany's economy lay in ruin and
both West and East Germany had to be rebuilt.
The West German economy recovered at an amazing rate in the 1950's.

This recovery is described as West Germany's economic miracle and w

1. The powerful aid for investment and the reconstruction of Europe
by American funding known as the Marshall Plan.
2. The large influx of refugees to West Germany (among the more
than 11 million refugees from East Germany and former German
areas of Europe). This large population transfer was significant
and beneficial to the labour force as among these refugees there
were highly skilled labourers who were prepared to work hard for
lowstimulus
wage. Later,
guest workers
came from
Spain, and
3. aThe
to German
industry provided
byItaly,
the diversion
of
Turkey.
other Western resources for Korean War production
4. Tax laws favoring
owners
5. business
Heavy private
investment of a new stable currency, the
6. Introduction
deutsche
mark
After
the Nazi
experience, an economy free of state domination and
intervention
was needed. companies provided the basis for West Germany's
Small and medium-sized
economic prosperity.

West Germany- Economy

(1950s)
The West German boom began in 1950.

The growth rate of industrial production was 25.0% in 1950 and 18.1% in
1951.
Growth continued at a high rate for most of the 1950s.
By 1955, West Germany had made an amazing economic recovery.
Its prosperity helped the republic gain the support of its citizens.

The deutsche mark was the second most important currency in the world after
Wages and salaries rose over 80% between 1949 and 1955, catching up with growth.

West Germany was a founding member of the European Coal and Steel
Community (ECSC), created in 1951 which was a forerunner to the EEC
and EC
the helped
EU.
The
strengthen Germany's economy through increased trade with
other member nations.
In 1957 West Germanys new central bank, the Bundesbank was created.

West Germany- Economy

(1960s)
By 1960 industrial production had risen to 2.5 times the level of 1950 and
far beyond any that the Nazis had reached during the 1930s in all of
Germany.
GDP rose by 2/3 during the same decade.
The number of persons employed rose from 13.8 million in 1950 to 19.8
The
West
economy
however didrate
not fell
grow
consistently
the 1960s
million
in German
1960, and
the unemployment
from
10.3% to in
1.2%.
because:
such a pace could not be sustained,
the supply of labour from East Germany was cut off by the Berlin Wall,
built in 1961,
the Bundesbank was worried about possible overheating and slowed the
pace of growth several times.

West Germany- Economy

(1970s)
The West German economy led toward an extensive social welfare system
that has become one of the most expensive in the world.
The government began to protect and support some sectors and industries.
It preserved existing industries rather than providing a force for renewal.
In the 1970s, the state assumed an ever more important role in the
economy.
Growth did not again reach the levels that it had attained in the early
years of the Republic.
There had been a decline in the growth rate since the 1950s, an upturn in
unemployment since the 1960s and a gradual increase in inflation.
Global economic statistics showed that the West German share of total
world production had grown from 6.6% in 1965 to 7.9% by 1975 (since the
productive capacities of both East Germany and West Germany always
exceeded the absorptive capacity of their respective domestic markets).
Twelve years later, in 1987 it had fallen to 7.4%, largely because of the more
rapid growth of Japan and other Asian states.

West Germany- Economy

(1980s)
In the 1980s West Germany emerged as a leading economic power, along
with Japan and the USA.
West German international leadership became more prominent in the late
1980s.

The government took an active part in the reconstruction of the economy,

but never took complete control.
In 1982 it owned about $25 billion worth of assets (railroads, oil
companies, the largest national automobile producer (Volkswagen) and
other firms).
West Germany developed a mixed economy, in which the government
took an active part in the development of the resources but a free
In
the late 1980s
economy finally began to grow more rapidly.
enterprise
systemthe
remained.
The growth rate for West German GDP rose to 3.7% in 1988 and 3.6% in
1989, the highest levels of the decade.
The unemployment rate also fell to 7.6% in 1989, despite an influx of
workers from abroad.

West Germany- Economy

(Reunification)
The first decade, (1950s), had been that of the "economic miracle."
The second decade, (1960s), had seen consolidation and the first signs of
trouble.
The 1970s had brought the oil shocks, the social programs, the deficits, and
finally a loss of control.
In the 1980s, new policies and a more stable environment abroad led to
economic
recovery.
Since its creation
in 1949, the FRG has played an important role in the
world economy. Consistently among the most important trading nations in
the world, Germany often derives a higher share of its GDP from exports
than any other major state.
One of the first steps toward the unification of East Germany and West
Germany was the union of the two economies.
On July 1, 1990, the economies of the two Germanys became one.
It was the first time in history that a capitalist and a socialist economy had
suddenly become one.
From 1990 the positive and negative distortions generated by German
West Germany
unification
set in.developed a system of high wages and high
social benefits that has been carried over into united
Germany.

East Germany- Economy

Similar economy to all other Soviet states

Centrally-planned economy (CPE)
State-owned factories etc.
Everyone employed to do something, however
insignificant
Prices fixed administratively by the CPE- didnt
necessarily reflect the products value
Entire years economy planned in advance: rate
of economic growth, utilisation of raw materials
& labour, amount of imports/exports
1981 Plan- assessed amounts of raw materials
and amount/quality of end product, to ensure
efficient use of resources

East Germany- Economy

All products consumed/used in the GDR were

also produced there
CPE ensured no private businesses and no room
for decisions/initiative
In 1985, over 95% of the total national income
was earned by state-owned enterprises.
Everything distributed in accordance with the
1981 Plan (System of Material Balances)
Couldnt predict amounts needed- some places
got too much of the product; some got too little
East German Ostmark practically worthless
Prices kept constant by heavy subsidies from the
government (80% of the cost of basic supplies)

East Germany- Economy

After reunification
High demand for West German products (seen as
better quality)- decline in domestic consumption of
Eastern products
Decline in output of manufacturing & construction
sectors- strain on the East German economy
Standard of living in the GDR rose from 50.1% of
that in the west (1990) to 71% (1993)
Similar-looking economy to West Germany (same
types of product, emphasis on exportation), but
totally different system
First phase of unification: West Germany went into
a boom, East Germany into a depression

Effect of reunification on
German economy

Cost so far = approximately Euro 1.5

trillion
Solidarity pact calls for the transfer
of another Euro 156 billion by 2019
1993 Germany registered a
negative growth rate of 1.2%
The German budget is now close to
exceeding the 3% maximum allowed
in the Euro-zone

Problems of rebuilding
the East

Conversion rates from East German

Mark to Deutsche Mark

High production costs of the East

Deindustrialisation of the East, leading
to an unemployment rate of 20%
Large dependent population in the East
Confusion over property rights

Possible reforms to combat

the problems of rebuilding

Job creation schemes & vocational

training programmes
Create a new sector of low skilled,
low pay jobs
Sacrifice some social benefits in
order to cut labour costs and raise
competitiveness

Impact of the
Reunification on
relations with the

Institutional change and Financial

implications

Treaty of Unification expanded the number of Lnder to 16 by

providing for the accession of the 5 new eastern Lnder:
Brandenburg, Mecklenburg-West Pomerania, Saxony, SaxonyAnhalt and Thuringia. Resulted in an increase in seat allocation in
the European Parliament from 81-99 MEPs between 1986-1994.

Problems with the Exchange Rate Mechanism

Demands for European Structural Funds

Demands for a reduction in budgetary contributions

German Budgetary
contributions

2003 figures

Forecast 2005
figures show a
German
contribution of
21 313 Million
(Source Europa)

From shifting trade patterns, to a new economy, and a

different Germany within the EU

Increase in imports from EU partners such as Italy, to provide for the

new demand in goods from the east. Between 1989 and 1991, imports
of goods and services increased by almost 23.5% in terms of value.
(Sourcewww.fatemi.com)

The implementation of the acquis communautaire of EU Law and

Treaties.

Increased unemployment due to the deindustrialisation of the East

From Junior member to Senior role. Taking a firm stance on the

EMU convergence criteria and formulating a more assertive role in
foreign policy e.g. German insistence on EU recognition of Bosnia,
Croatia and Slovenia in 1992, are instances which are reflective of a
gradual and, silent revolution affecting relations between EU
members and future EU development. (E. Kirchner, (1996)
Developments in German Politics 2, p.159 )

German Reunification as a precursor to Eastern enlargement: German

reunification was symbolic of European unification and paved the way
for the Central and Eastern European expansion in the 2000s.

Germany and the

Problems Euro
-Unemployment

has reached over

4 million in June
-Major companies have collapsed
putting thousands of jobs at risk
e.g. Babcock Borsig
-Some economists believe the
Deutschmark was 20%
overvalued
-German economic model is
unravelling

Germany and the Deutschmark

-

In the euro debate suggests Germany could bring

back a new DM

Study by Dr Colligon- DM would have been even

weaker without the euro

Euro weakness is a continuation of the previous

DM trend.

DM has been depreciating since 1995

Conclusion

Germanys economic problems stem

from the vast differences between the
economies of West and East Germany
Reunification has changed Germanys
relations with the EU, and has paved
the way for Central and Eastern
Enlargement
The adoption of the Euro has enhanced
problems inherent in Germanys
economy