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AnExplana0onforGermany’sMacroeconomic Developmentfrom1918to1989 GDPpercapita 18.000 16.000 2ndOilCrisis 14.000 12.000 1stOilCrisis EconomicMiracle 10.000 8.000 GreatDepression 6.000 NaziRegime Stagfla=on Post-warPeriod GoldenTwen=es Hyperinfla=on 4.000 StundeNull (“ZeroHour”) WorldWarII 2.000 0 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1918-1923:ThebeginningsoftheWeimarRepublic& Hyperinfla0on 1924-1929:TheGolden Twen0es 1929-1933:TheGreatDepression ThenewYoungPlanslightlyreduced Germany’sdefeatinWorldWarIpresentedmul=plechallengesforthe Stabilitycouldonlyberegained repara=onannui=esandincludeda newdemocra=cgovernment:Itwasrequiredtoreduceunemployment throughacurrencyreform.The stabilisa=onloan.However,italsoabandoned ands=mulateeconomicgrowthwhilstsimultaneouslypaying132bn newReichsmarkwas=edtothe theconceptoftransferprotec=on.Instead, Reichsmarkinforeigncurrencytothevictoriouspowersasrepara=ons. goldstandard,andtheold repara=onpaymentswouldassumeseniority Thewarfinancinghadoccurredvialoans,andtheabandonmentofthe Reichsmarkwasconvertedtothe overcommercialloansaferoneyear.When goldstandardhadenabledthegovernmenttoincreasethemoney newoneatarateof1012:1.To newsofthisleakedinMarch1929,acrisisin supply.Toimprovethecountry’seconomicsitua=on,thegovernment addressthedebtproblem,the thebondandmoneymarketsensuedaswell con=nuedtoinvest,financedthroughprin=ngmoneyandraisingtaxes. DawesPlanwasputinplacein asasuddenstopofcapitalimports.A Addi=onally,theS=nnes-Legien-Agreementhadstrengthenedworkers’ 1924,reducingthetotalamountof governmentbondflota=onfailedinthesame rights.France,doub=ngGermany’sabilitytopaythedebt,occupiedthe repara=onpaymentsto42bn month.InOctoberof1929,thestockmarkets Ruhrvalleyin1923,thecentreofGermany’scoalandsteelindustries. Reichsmark.Itpromotedpayingfor crashedandtheGreatDepressionspread Consequently,Germanworkerswentonstrike,worseningthesitua=on. repara=onsbyusingcreditsince acrossGermany,resul=ngadisastrous Inconclusion,thegovernment’spoliciesreducedunemploymentand commercialclaimsenjoyedtransfer economicrecession.Despitethedras=c increasedGDP/capitaintheshortrun,buttheyprovedunsuccessfulin protec=onagainstrepara=ons.This increaseinunemployment,wagesweres=ll thelongrun:wardebtshadtoberepaidusingforeigncurrency,andthe resultedinlargeshort-termcapital rising.Thisfurtheredunemploymentand devalua=onoftheReichsmarkledtothehyperinfla=onof1923. inflowsandeconomicprosperity, increasedthecostofproduc=on,therefore knownasthe“GoldenTwen=es”. deterringinvestment. 50 45 40 35 30 25 20 15 10 5 0 1933-1945:TheNaziRegime&WorldWarII TheNaziparty’seconomicpoliciesfocusedonreducing unemployment,improvinginfrastructure,rearmament, and(unsuccessful)Germaneconomicautarky. Tradeunionsandstrikeswereprohibited,and industrialistsbecamemorepowerful.Morejobswere alsocreatedduetothena=onallabourservice,public workprogrammesandrearmament.Ordinaryworkers weremo=vatedthroughthe“StrengththroughJoy” organisa=on.Wagesfell,andhourswerelongerasa result.FinancingwassecuredbecausetheNazisstopped payingrepara=onsandintroducedthe“Mefo”bills. Addi=onally,womenandJewsweredismissed,andtheir jobsgivento“Aryan”men.Infrastructurewasimproved andfullemploymentwasachievedforashortperiod. However,regardlessofpoten=aleconomicsuccesses, theresultsofWorldWarIIandtheHolocaustdestroyed thecountryandkilledmanyinnocents. 1945-1966:Post-warPeriod,theSocialFreeMarketEconomy,andtheEconomicMiracleinWestGermany AfertheendofWorldWarII,thecountrywasdestroyed,ascanbeseenaboveandbelow.Thepictureaboveshowsthe ‘BrandenburgerTor’in1945.Thephotographnexttoitcelebratesthecomple=onoftheonemillionthVolkswagenin1955. ThethreepicturesbelowshowjetsflyingovertheReichstag,peopledemandingcoalandbread,andfinally,women workingtorebuildthecountry.Duringthepost-waryears,theGermanpopula=onwassufferingfromhunger,cold, illnesses,poverty,andhomelessness.Inordertodealwiththeseproblems,thenewgovernmentcooperatedwiththe alliedforces.ThefutureEastGermany(“GermanDemocra=cRepublic”,GDR)wasoccupiedbytheSovietUnion,and thereforeadoptedacommunistplannedeconomy.However,IwillfocusonWestGermany(“FederalRepublicof Germany”,FRG),whichwasunderthecontroloftheUSA,theUK,andFrance.Thus,theFRGadoptedacapitalistsystem. TheMinisterofEconomicAffairs,LudwigErhard(heisshownbelow,presen=nghisbook“Wohlstandfüralle”,“Wealthfor all”),oversawthecurrencyreforminJune1948(the“DeutscheMark”replacedthe“Reichsmark”),whichendedthe prevalenceofblackmarkettradeandbarter,andtheintroduc=onofthesocialfreemarketeconomy.Thisconcept combinedcompe==on,profitorienta=onandprivatepropertywithagovernmentredistribu=onconceptthatincludeda progressiveincometaxandsocialbenefits.Addi=onally,theMarshallPlanwasaUSforeignaidprogrammethatsawover $12bninvestedintoWesternEuropeandthereforeboostedGermaneconomicrecovery.TheGermancentralbankbecame independentin1957.Inthesameyear,aFederalCartelOfficewasestablishedtoensureacompe==vemarketeconomy. Allofthesefactorsresultedinthe“GermanEconomicMiracle”,anunprecedentedeconomicupswing:unemployment cameveryclosetozero(resul=ngintheneedtoaqractoveronemillionguestworkers),andGDPpercapitaincreased morethanfourfoldatacompoundannualgrowthrateofcirca7.5%. 1966-1972:KeynesianConcepts Bythemid-1960s,theeconomicboomhadsloweddown: GDPpercapitawasstagna=ng,andunemploymenthad beguntorise.Inordertoreturntoposi=veeconomic development,the“stabilitylaw”waspassedunanimously in1967.Itoutlinedfourmaineconomicgoals:pricelevel stability,highemployment,externaleconomicbalance, andcon=nuous&reasonableeconomicgrowth.Thenew government,notablyKarlSchiller,MinisterofEconomic Affairs,pursuedKeynesian-an=cyclicaleconomicpolicies: forexample,in1967,2.5bnMarkwereinvestedin infrastructure,andinterestrateswerelowered. Furthermore,the“concertedac=on”programme facilitatedthedialoguebetweenthegovernment, industrialists,unions,thecentralbank,andacademia. Thesepolicieshadaposi=veeffect:GDPpercapitagrewat around3.4%peryear,andunemploymentdecreasedun=l itwasclosetozero. 1972-1982:OilCrisesandStagfla0on Thenewgovernmentsubstan=allyexpandedthesocial securitysystem.Andin1973,theoilpricehikeputthe economyunderpressure.Forexample,thecyclistonthe motorwayinthepicturebelowillustratesoneoftheresultsof theshortageinoil:inNovemberandDecember1973,four Sundaysweredeclared‘car-free’.Thismeantthatapartfrom ambulances,taxisorfoodsuppliers,nobodywasallowedto usetheircar.Thepreviouslyposi=veresultspromptedthe governmenttoincreasepublicdebtdrama=cally.Thenew governmentalsosupportedworkers’wishesagainst industrialists.Thisiswhywagesincreasedsteeply.Theexcess debtcausedinfla=on,whilewageraisesresultedindeferred investmentandunemployment.Asaconsequence,GDPper capitagrowthsloweddowntocirca2%peryear,and unemploymentrosefrom1%in1972to7%in1982.Thislack ofeconomicgrowthincombina=onwithanincreasein infla=onwascalled“Stagfla=on”. 1982-1989:WaytoReunifica0on Theeconomicdownturncon=nuedwith highunemployment,debtandapersistent lackofeconomicgrowth.Risingwagesand theexcessivedebtmadebytheprevious governmenthadnothadthedesiredeffect. Thegovernmentaqemptedtominimiseits roleintheeconomybyusingsupplyorientedpoliciessuchasstrengtheningthe privatesectorandconsolida=ngpublic finances.Consequently,theeconomy recovered:GDPpercapitaincreasedagain ataround2.4%annually,and unemploymentbegantodecreasefromjust under9%inthemid-1980sto7.6%in1989. InNovember1989,thefalloftheBerlin Wallmarkedthereunifica=onofEastand WestGermany. UnemploymentRate GoldenTwen=es NaziRegime StundeNull (“ZeroHour”) Hyperinfla=on WorldWarII GreatDepression Stagfla=on Post-warPeriod EconomicMiracle Nodataavailable1940-1945 1918 1920 1922 1924 1926 1928 1930 1932 1934 1936 1938 1940 1942 1944 2ndOilCrisis 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1stOilCrisis 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988
