Germany and the Euro

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