Economic consequences of German reunification : 12 months after the big bang

Abstract

The author discusses how East Germany is faring 12 months after the big bang unification with West Germany. The experience with the German unification to date raises the question whether there would have been alternative and better courses of action. Such options can be considered in three broad areas: (a) the initial conversion rate and, closely connected, wage policies; (b) the wisdom of transferring the economic and legal system of the Federal Republic of Germany in its entirety; and (c) the desirability of the adopted mix of adjustment measures, in particular the trade-off between social assistance, public investment spending, and incentives for private investment. The"big bang"has worked. In Germany's special situation, more gradual approaches would not have worked because it was politically unthinkable to restrict east-west migration. The German unification provides an opportunity to learn a few lessons about the immensity of this task in the best of all circumstances: the take-over by a"big brother"who is ready to lend a hand in the reconstruction task, and willing to foot most of the bill.Banks&Banking Reform,Municipal Financial Management,Governance Indicators,Environmental Economics&Policies,Economic Theory&Research