The Economics of German Unification

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Expectations and Outcomes

Show Summary Details. More options …. Editor-in-Chief: Berlemann, Michael. See all formats and pricing. See all formats and pricing Online. Prices are subject to change without notice. Prices do not include postage and handling if applicable. Volume 69 Issue 3 Dec , pp. Volume 68 Issue 3 Dec , pp. Volume 67 Issue 3 Dec , pp. The once-crumbling skyline now blazes with office towers and luxury hotels.

Otto Von Bismarck-German Unification-Nationalism

But for all the cash thrown at eastern Germany, the economy remains fundamentally bankrupt. Even as wages have skyrocketed in a rush to catch up with those in the west, there are not nearly enough real jobs to go around. Unemployment is at 25 percent, growth has almost ground to a halt, output per worker is still half the rate of western Germany's, and exports are minuscule.

A third of the office space is vacant, including several of the fanciest new buildings. The only thing that keeps eastern Germany afloat are billions upon billions of marks handed out by Chancellor Helmut Kohl's government every year. All this is causing big problems not just for Germany but for Europe, too.

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And without Germany, there can be no Euro soon, wrecking the timetable on which Europe's political leaders have pinned much of their hopes for long-term economic recovery. The domestic repercussions are just as bad. Even as the 60 million western Germans become angrier about paying a 7. For all the excess, some experts argue that in the end Germans will witness a huge payoff from the eastern spending spree if they wait for a decade or more. But others contend that eastern Germany combines the worst of two worlds: the bankrupt legacy from 45 years of communist mismanagement and the gold-plated rigidity that has jeopardized western Germany's own ability to compete on the world market.

And to the government's chagrin, former Eastern bloc countries like Poland, Hungary and the Czech Republic, which received a fraction of eastern Germany's external aid, are growing faster and attracting a lot of unsubsidized investment from Germany's biggest companies. Those countries, by contrast, have kept wages competitive and relied mostly on free-market forces since the collapse of the Soviet system. In a well-intentioned but damaging series of decisions in the early s, the German government essentially imposed West Germany's entire structure of high wages and mandatory social benefits onto an economy that had collapsed.

West Germany's powerful labor unions added to the pressure, pushing hard to extend the terms for all western contracts into the eastern states in part to avoid hearing an immediate Ross Perot-style sucking sound of jobs moving from west to east. High labor costs are now making it hard even for western Germany to compete in the global economy.

But for eastern Germany, where the output per worker is only half as much, the wage situation is catastrophic.

The Economics of German Unification

But "labor costs are much lower in Spain or Portugal. But even that segment is now losing ground because of tremendous overbuilding. With too many high-priced workers chasing too few real jobs, the government has persuaded as many as , people a year to leave the work force through generous early retirement programs. Several hundred thousand people are in training programs and , more are in what officials candidly call make-work jobs.

Germany - Economic unification and beyond |

Germany was warned ahead of time about the potential for disaster. Thumann helped write an IMF paper in that pleaded for Germany not to raise wages too quickly in the east. Unlike other former Soviet bloc countries, East Germany was absorbed into the West virtually overnight. Its residents had been promised the full benefits of German citizenship, a promise crucial to their vote for reunification in If eastern German wages and benefits had remained far below those in western Germany, the most skilled residents would have simply flooded westward.

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Patzelt, a professor of political science at Dresden Technical University. For one, the flood of money from Bonn produced by the tax subsidies was so indiscriminate that billions have been spent on projects that so far have yielded little economic value. The complex looms over the surrounding farmland like a film noir vision of life after the apocalypse, with crumbling buildings ensnarled by hundreds of miles of rusting, leaky pipes.

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Thousands of windows have been smashed. Many walls are so soaked with poisonous mercury that the job of grinding them up has become a hazard.