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Germany: Unified country, divided economy?

  • March 2014
  • -
  • MarketLine
  • -
  • 33 pages

Introduction

Ever since reunification in October 1990, there have been voices claiming that it was less of a reunification and more of a ‘feindliche Übernahme’ (hostile takeover) that would sow the seeds for an economic disharmony lasting decades. This case study examines the existence of an economic divide within Germany, the potential reasons for it and analyzes whether the gap is closing.

Features and benefits

* Examines the continued existence of an economic divide between the former East and West Germany.
* Analyzes the factors contributing to an economic divide between the former GDR and the former FRG.
* Assesses whether the economic divide between East and Germany is being bridged.
* Analyzes the statistical data on macroeconomic indicators such as unemployment, annual salary, house prices, and disposable income.

Highlights

Almost 25 years since unification, there remains a great deal of debate about how successful reunification has been from an economic standpoint. This report looks at key metrics such as household income, disposable income, gross annual salary, unemployment, and house prices, to determine whether an economic divide persists within Germany.
This report analyzes the role of government and EU subsidies have played in the reunification of Germany, and the rise of so-called Ostalgie, which has seen former GDR brands re-invent and reposition themselves as desirable brands, allowing them to become major players in the unified Germany.
This case study looks at how East and West Germany differed in terms of economic system. In the GDR, the state set production targets and prices and the means of production were state-owned. The FRG's free market economy saw decisions regarding investment, production and distribution based on supply and demand and there existed a free price system.

Your key questions answered

* Does an economic divide exist between the former East and West Germany?
* What are the reasons for the economic divide between the former GDR and the former FRG?
* Is the economic gap between the former East and West Germany being bridged?

Table Of Contents

Germany: Unified country, divided economy?
OVERVIEW
Catalyst
Summary
EAST VS. WEST: A CLEAR ECONOMIC DIVIDE
1990: Supposed economic union
The great currency exchange
GDR citizens saw their wealth shrink overnight
2014: The divide continues to exist
Income is lower in the former GDR
Unemployment is much higher in the new states
House prices are significantly lower in the former GDR
IS THE ECONOMIC GAP BEING BRIDGED?
Statistical evidence of future economic union
GDP
Former GDR vs. former FRG: GDP comparison
Unemployment has fallen steadily
Government and EU initiatives to boost growth
Solidaritätszuschlag (Solidarity Surcharge)
The new states were EU Objective 1 zones
Ostalgie and the economic revival of East Germany
ECONOMY OF THE GDR
The early years: 1949-1960
SED Third Party Congress
The First Five Year Plan: 1951-1955
Der Neue Kurs 1953
The Second Five-Year Plan 1956-1960
1960-1980: Constant reform
The Seven Year Plan 1959-1965
Neues Ökonomisches System (New Economic System)
Ökonomisches System des Sozialismus (Economic System of Socialism)
Die Hauptaufgabe (Main Task)
Coffee Crisis exposed inherent economic weakness
External debt crisis and collapse of the GDR
External debt crisis
The collapse of the GDR
ECONOMY OF THE FRG
The immediate post-war period brought little joy
1944-1946 saw output plummet
Reparations compounded the misery
Der Wirtschaftswunder (economic miracle)
Der Wirtschaftswunder in numbers
The Marshall Plan helped kick start the West German economy
Currency reform greatly aided economic recovery
Gastarbeiter provided necessary cheap labor
Germany's position as a leading exporter
Membership of European Coal and Steel Community aided exports
The Korean War necessitated German imports
Made in (West) Germany as a marker of quality
FRG as a global economic superpower
1990: The world's third largest economy
Economic comparison with the GDR 1990
CONCLUSION
Divide exists but the gap is closing
APPENDIX
Definitions
Sources
Further Reading
Ask the analyst
About MarketLine
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