ResearchBPEA | 1992 No. 1
Economic Transition in Eastern Germany
1992, No. 1
ONLY A FEW months after the Berlin Wall came down in the fall of 1989,
the West German government decided that it should establish a currency
union with East Germany. I Shortly thereafter, the West and East
German governments agreed to economic, monetary, and social union.
By July 1991, the State Treaty, which formalized the union, came into
force; by October, the German Democratic Republic ceased to exist.
Left on the agenda is the task of rebuilding the eastern German economy.
But by now, the initial enthusiasm accompanying the fall of the
wall has all but vanished. Today, western Germans balk at the vast cost
of reconstructing the East and even doubt that the task can be done. In
eastern Germany, which functions as a welfare colony of its richer,
western neighbor, the initial support for the market economy has been
replaced by cynicism, if not outright hostility. Calls for an even more
active role of the state in sustaining eastern German industry increasingly