No blueprint for reunification

On 1 July 1990, the Deutsche Mark was introduced in what was then still the German Democratic Republic (GDR). Exactly 31 years later, civil rights advocates Freya Klier and Richard Schröder, economist Reint Gropp and Bundesbank Executive Board member Johannes Beermann came together in a panel discussion to look back on that turning point and developments up to now.

Anja Heyde, television journalist and moderator of the panel, recalled that, after a meeting with the East German Staatsbank, the then President of the Bundesbank, Karl Otto Pöhl, had gone before TV cameras on 6 February 1990 to stress that it was still too early for German-German monetary union. Meanwhile, on the very same day, Federal Chancellor Helmut Kohl publicly announced the opening of negotiations with the GDR on monetary union. Some believed that the Federal Chancellor was acting alone in this.

Johannes Beermann, Bundesbank Executive Board member and then personal assistant in the Federal Ministry of Family Affairs, countered this view: “That decision didn’t come out of the blue, nor was it a decision made solely by Helmut Kohl. Back then, there were closed meetings and various concepts presented by different experts. The Chancellor weighed them up and made a decision. And, ultimately, he set the right course.

800,000 people drawn to the west

Richard Schröder, GDR civil rights advocate and Social Democratic Party parliamentary group leader in the first and last freely elected GDR parliament, stressed that German-German monetary union was needed to halt the population exodus from the GDR to the Federal Republic of Germany: “800,000 people went to the west in the second half of 1989 and first half of 1990. Even Hans Modrow, the Prime Minister of the GDR at the time, had already stated in Davos that the Deutsche Mark could also be the currency of the GDR.

Back then, as German-German monetary union took shape, the 1:1 conversion rate between the East German mark and the Deutsche Mark was highly controversial when it came to wages and salaries. The subsequent decline of the GDR economy was attributed, in part, to the resultant rapid rise in wage costs. “The conversion rate of course meant dramatic appreciation for East German products,” said Reint Gropp, President of the Halle Institute for Economic Research, adding: “But the GDR economy’s traditional sales markets in eastern Europe had shrunk at the same time. And GDR citizens themselves also wanted to buy western products. And the East German economy wouldn’t have fared any better with a cheaper conversion rate, because the exodus of decent specialised workers to the west would have been far greater still. That would have done quite immense damage to the GDR economy.

No monetary erosion or …

At this point, Mr Beermann noted that the average wage level in the GDR at that time was around 40% of the level in West Germany. Mr Schröder then argued: “If wages had been converted 1:2, that figure would have fallen to 20% of the West German level. It would then also have been below the western level of social assistance.” At the same time, Mr Schröder explained that the treaty which became effective on 1 July governed not just monetary union, but also economic and social union: “Immediately, there were also western support measures. Other eastern European countries did not have these social shock absorbers – and that’s something that the eastern German population unfortunately forgets today.” Other signatory states of the former Warsaw Pact experienced monetary erosion, in some cases significant, in the 1990s, Mr Schröder said, citing Russia and Poland as examples: “People in the GDR were spared this.” Economist Reint Gropp pointed out, however, that the growth curves in Poland and the Czech Republic were similar to that of the GDR, although they did not have this West German support.

The moderator, Ms Heyde, asked civil rights advocate Freya Klier if the conversion had not been adequately explained to GDR citizens back then. “The decision-makers themselves didn’t know where things were going,” Ms Klier answered. “The need to leave the GDR, to start something new, was enormous. People who had previously been denied the right to study could now go to university. There was no stopping the exodus.

As the reunification process was unfolding during the 1990s, the role of the Treuhand agency, which was set up to put GDR businesses on a market economy track, was hotly disputed. “The Treuhand agency’s strategy was to sell firms as quickly as possible and to leave things up to the market. In hindsight, perhaps it would have been better to take things a little slower, to win more East Germans as business owners and operators.” Freya Klier pointed out that even the GDR government under Modrow wanted to call in the Treuhand agency – and that in the early stages, especially, many businesses had been sold from one “comrade” to another.

… total sell-out

For Mr Schröder, the GDR economy was not completely sold out in the 1990s: “22,000 enterprises were transferred almost entirely to East Germans. Ultimately, though, they didn’t have the capital to buy larger firms.” He recalled, for example, that the Arzneimittel Dresden pharmaceutical plant was sold for 400 million marks, tied to a capital commitment of 250 million marks. And he pointed out that some figures were being interpreted incorrectly: “It simply isn’t true that only 6% of enterprises are in East German hands. That figure, 6%, is the share of East German payments in the total privatisation volume of the Treuhand agency. They were still able to keep 22,000 enterprises in existence with four billion Deutsche Mark. Now that’s not so bad.

In this connection, Mr Beermann stressed that there had been no blueprint for the unexpectedly approaching reunification: “Externally, it was extremely difficult; internally, there were a great many transition processes. Looking back now, perhaps more assistance schemes could have been put in place, but a culture of entrepreneurship in the GDR had to evolve first.” Mr Gropp continued: “The GDR economy was geared too heavily to the West German industrial society – and too little to research and development or services sectors.

Fate, but no question of blame

Even three decades after reunification, wages in eastern Germany are still lower than those in western Germany. Some people in the east of the country still feel as though they’ve lost out from unity, even today. “That feeling of being at a disadvantage was not created by reunification, though; the East Germans brought it with them,” Mr Schröder concluded. “For decades, they were walled in by the division and the orientation to the Soviet Union, they had no convertible currency and suffered economic disadvantages. You could see it even on holidays in Bulgaria. In the western Neckermann hotels, GDR citizens couldn’t even afford coffee. None of that was or is the west’s fault, it was fate.