The Legacy of Germany’s Reunification

Berlin Wall 15305565944

Thirty years after Germany’s reunification between East and West, the two parts of the country remain strikingly different. The origins of many of the differences lie in the contrasting living realities of the socialist Eastern German Democratic Republic and Western Germany before their reunification. For example, at the end of socialist rule in 1989, Eastern Germany’s GDP per capita was a mere 55% of Western Germany’s.[1] But importantly, today’s disparities are also due to the integration policies enacted by the German government since then.

The origins of Germany’s unification lie in the 1970s and 80s, but the open, clearly visible integration process began in 1989 when Eastern Germans protested against the socialist regime’s authoritarian practices and economic underperformance, which culminated in the fall of the Berlin Wall on November 9, 1989. After a short period of uncertainty, in East Germany’s first democratic elections in decades in 1990, Eastern Germans overwhelmingly voted for a conservative government, which then together with Western Germany’s government decided to first install a currency union and then quickly strive for reunification.[2] The currency union was intended to prepare the unification of both states, and policymakers decided on an exchange rate of one to one.[3] The currency union’s exchange rate, however, meant that labour costs in the East increased drastically, and many Eastern German companies suddenly found themselves unable to compete internationally. Their output decreased and East German unemployment rose rapidly.[4]

Shortly after the currency union, the East and West officially reunified in October 1990. This development was initially marked by euphoria on all sides, yet the following years proved to be difficult, especially for the Eastern companies that still suffered from the economic consequences of the currency union. Importantly, as a remnant of socialist rule, all large and most small Eastern companies were still state-owned. To deal with the East’s companies, the government decided to handle all 8000 large and 25,000 small state-owned enterprises with a trust agency called Treuhandanstalt, which oversaw a staggering 4 million employees.[5] The task of the Treuhandanstalt was to privatise, restructure and liquidate the East’s state-owned firms and it did so with immense speed. Four years later, in 1994, all previously state-owned East German companies were either closed or privatised.[6]

This rapid process also came with starkly increasing unemployment, as two and a half of the four million employees of the Treuhandanstalt’s managed companies lost their jobs and many workers protested the policies.[7] What added to the outrage of the protestors was that 80% of all privatised Eastern German companies were sold to Western German owners, and only 6% to Eastern Germans.[8] This dynamic is dubbed the ’sale of the East’ by some because it meant that Western Germans would largely profit from and control most of the East’s companies.

Nevertheless, reunification has also brought Eastern Germans many economic advantages. For example, they were incorporated into the social safety net of Western Germany, which was largely financed by Western German employees and companies. Furthermore, large-scale private and public investments in the East also led to strong GDP growth in the years after reunification and wages in the East saw strong growth.[9] Hence, a nuanced evaluation of the East’s development is complex. Many Eastern Germans lost their jobs following reunification and they were largely financially incapable of buying the newly privatised companies. But at the same time, Western Germany investments helped the East to improve its outdated infrastructure and led to economic growth and higher wages.

Eastern and Western Germany continue to experience the effects of reunification, and the two geographic regions remain quite different even today. For example, Eastern Germany’s GDP per capita is still 30% below Western Germany’s.[10] This is partly because since the privatisations in the 1990s nearly all large German companies and their suppliers are situated in Western states. And it has direct consequences on people’s wages: Eastern Germans with the same qualifications as their Western counterparts receive 17% lower wages because there are less high paying jobs in Eastern Germany.[11]

The main political fallout of this continuing economic divergence is that many in the East are disappointed about some of the processes of unification. While there is generally strong support for reunification, 70% of Eastern Germans believe that the privatisations in the 90s were mostly done for the benefit of Western Germans.[12] Especially Germany’s more radical parties, the left-populist Linke and the far-right populist Alternative für Deutschland, pick up these more contentious aspects of the German reunification and frequently claim that Eastern Germany has been disadvantaged.[13] According to election results, this strategy seems to work out as both the Linke and the Alternative für Deutschland are particularly strong in the East of the country.

What this analysis then shows is the current stark economic and political differences between Eastern and Western Germany can be traced back to their starting positions but crucially also to many of the enacted policies since their integration. In Germany, as in many countries worldwide, a look at the geographic disparities is worthwhile and indicates some crucial insights into the country’s economic and political situation.


Works Cited

[1] Busch, Kühn, Steinitz, “Entwicklung und Schrumpfung in Ostdeutschland,“ 17.

[2] Böick, ”economic transformation in Eastern Germany,” 148.

[3] Baum, “Als die D-Mark in die DDR kam“.

[4] Akerlof, Rose, Yellen, Hessenius, „East Germany: The Economic Aftermath of Currency Union,” 5.

[5] Bundeszentrale für politische Bildung, “Privatisierung durch die Treuhand“.

[6]  Böick, ”economic transformation in Eastern Germany,” 151.

[7] Bundeszentrale für politische Bildung, “Privatisierung durch die Treuhand“.

[8] Bundeszentrale für politische Bildung, “Privatisierung durch die Treuhand“.

[9] Statistische Ämter des Bundes und der Länder „25 Jahre Mauerfall,“ 34, 69.

[10] Schnabl, „Leeres Land“.

[11] Groll, „Ostdeutsche arbeiten immer noch mehr für weniger Geld“.

[12] Infratest dimap, „30 Jahre Mauerfall“

[13] Weiland, “Wahlkampf mit dem Treuhand-Ausschuss”


References

Akerlof, G. A., Rose, A. K., Yellen, J. L., Hessenius, H., Dornbusch, R., & Guitian, M. (1991). East Germany in from the cold: the economic aftermath of currency union. Brookings Papers on Economic Activity, 1991(1), 1-105.

Baum, A. (2015). Als die D-Mark in die DDR kam. Deutschlandfunk. Retrieved from https://www.deutschlandfunkkultur.de/waehrungsunion-vor-25-jahren-als-die-d-mark-in-die-ddr-kam.1001.de.html?dram:article_id=323928

Böick, M. (2020). In from the socialist “cold,” but burned by the capitalist “heat”? The dynamics of political revolution and economic transformation in Eastern Germany after 1990. Sustainability: Science, Practice and Policy, 16(1), 143-154.

Bundeszentrale für politische Bildung (2015). Das Vermögen der DDR und die Privatisierung durch die Treuhand. Retrieved from https://www.bpb.de/geschichte/deutsche-einheit/zahlen-und-fakten-zur-deutschen-einheit/211280/das-vermoegen-der-ddr-und-die-privatisierung-durch-die-treuhand

Busch, U., Kühn, W., & Steinitz, K. (2009). Entwicklung und Schrumpfung in Ostdeutschland. Aktuelle Probleme im 20. Jahr der Einheit. Hamburg: VSA-Verlag.

Groll, T. (2019). Ostdeutsche arbeiten immer noch mehr für weniger Geld. Zeit. Retrieved from https://www.zeit.de/wirtschaft/2019-10/gehaltsunterschiede-ost-west-lohn-arbeitnehmer-studie?utm_referrer=https%3A%2F%2Fwww.google.com%2F

infratest dimap (2019). 30 Jahre Mauerfall. Retrieved from https://www.infratest-dimap.de/umfragen-analysen/bundesweit/umfragen/aktuell/30-jahre-mauerfall/

Schnabl, G. (2018). Leeres Land. Zeit. Retrieved from https://www.zeit.de/2018/40/ostdeutschland-chemnitz-toleranz-wirtschaftskraft

Statistische Ämter des Bundes und der Länder (2015). 25 Jahre Deutsche Einheit. Wiesbaden: Statistisches Bundesamt.

Weiland, S. (2019). Wahlkampf mit dem Treuhand-Ausschuss. Spiegel. Retrieved from https://www.spiegel.de/politik/deutschland/afd-und-linke-wahlkampf-mit-dem-treuhand-ausschuss-a-1267438.html

Author

marius.zeevaert@student.uva.nl