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When economies collide

September 21, 2010

Former chancellor Helmut Kohl promised citizens of the former East Germany a bright new future in 1990. A lot of money has been spent on development of the eastern states and the process is not yet finished.

Deutschmark notes
Citizens in the former East Germany were vocal in their calls for the deutschmarkImage: DW/R. Fuchs

Things did not go entirely to plan when, on July 1, 1990 monetary, economic and social union and the deutschmark were introduced in East Germany.

Citizens of East Germany greeted the changes with celebration but for the former socialist republic's economy the consequences were devastating

The fall of the Berlin Wall
The wall may have fallen, but economic divisions remain

Bonds and savings up to the value of 6,000 East German marks could be exchanged one-to-one for the deutschmark, but now firms had to pay for salaries in the new West German currency.

Overnight, eastern companies were plunged defenselessly into competition with the West German economy - and they could only emerge as losers.

Demand for East German products dropped dramatically as citizens simply did not want to buy the familiar old products with their new deutschmarks. Whether it was a basic food, a luxury item, technical equipment or a vehicle - it had to be a product from the West.

No alternative to monetary union

Experts had anticipated that monetary union would ruin the East German economy. However, the then West German Finance Minister Theo Waigel said there was no alternative in 1990. The popular East German call of that year became "If the deutschmark doesn't come to us, we will go to the deutschmark!" and there was already mass immigration to the West.

"In the finance ministry at the time we discussed all theoretical possibilities, step-by step plans and ways to make the situation better." said Waigel. "But introducing these plans would not have helped. It would have been like putting up another wall in Germany."

Theo Waigel
Finance Minister in 1990 Theo Waigel said all possibilities were exploredImage: picture-alliance / dpa

In the united Germany, economic power remained unevenly distributed. Former West German businesses did indeed sell their products in the East, but these continued to be produced in the West.

Industrial jobs in the eastern states emerged only slowly. Even today, the economic output in the former East German states is only 71 percent of the level in the West. Gross domestic product per capita generated by private industry - a standard measure of performance - stands at around 66 percent of that in the West.

Continued solidarity

Waigel said that the development of the East had been the greatest act of solidarity to have ever taken place in Germany. He added that this was continuing; It remains the case that none of the eastern states can finance itself.

According to the current plan of the German government the so called solidarity pact - about sharing the costs of development - is supposed to run until 2019.

Author: Sabine Kinkartz (rc)
Editor: Andreas Illmer