Germany’s economic problems
- Bombings destroyed considerable parts of industry
- Transport and communication lines destroyed
- Reichsmark worthless — as a result Black Market was booming
- Di erent allied zones were run di erently by the Allied High Commission
- Lack of workers due to deaths
- At the Potsdam conference the Allies agreed that Germany’s economy had to be rebuilt but
also agreed it was important that Germany doesn’t start a war
Refugee problem
- 10-12 million Germans came as refugees to West Germany
• Escaping from the invading Russian army
• Expelled from eastern Europe
• Relocation of land and people agreed at Potsdam as a result of Germany’s newly drawn
borders
- Rationing had to be introduced to deal with the problem
• Rations were incredibly low — those in allied zones only received 1000-1250 kcals per day
The Basic Law
- There was a legacy of anti-parliamentarian traditions in Germany, thus the Basic Law assigned
the key rights and functions to Parliament
- The German Bundestag is the only organ of the Constitution that is directly elected by the
people; it is the task of Parliament to elect the Federal Chancellor and the Basic Law places
emphasis on the functions of political parties
- The Basic Law curtailed the rights of the Federal President in favour of the Bundestag in order
to prevent the concentration of power to an individual
- Due to the disastrous election of Hitler during the Weimar period, the Federal President was to
now be elected by the Federal Convention which represented the state parliaments
- An electoral threshold of 5% was introduced meaning that no candidates could enter
parliament unless they won 5% of the overall vote
• This prevented small and potentially extremist parties from having political representation
• It made it easier for parliamentary majorities to form and promoted stability
Stabilising the economy
- The economic aid given to western Europe (Marshall Plan 1948) and the creation of the
Deutschmark led to increasing tensions with the USSR and eventually the creation of the FRG
- Germany received 1.5 billion dollars (now approx. 24 billion)
- Erhard was appointed director of the economic administration who oversaw the introduction of
the new currency
• Rationing was abolished
• Wages were xed for a few months
- As a result of these measures people stopped hoarding goods and began selling them
- The ongoing compensation (Equalisation of Burdens Act 1952) helped many people to start
again
Social market economy
- Erhard faced opposition for converting from a command economy to a market economy
- Many wanted the pre-command economy back with cartels and price xing
- A combination of a capitalist market with a responsible government that provided safety for the
poor won Erhard enough supporters
- This allowed businesses tax concessions as well as setting up trade unions
- A policy of codetermination allowed workers’ representatives on managerial boards in industry
Economic takeo
- Companies that made pro ts during the war (robbing Europe and exploiting slave labour) were
left untouched by and large
• For example IG Farben, Commerzbank, Audi and Hugo Boss
- The unions agreed to peaceful coexistence with the employers, helps to create social
cooperation and peace
ff fi ff fi ff fi
, - The Allies paid for a lot of the rebuilding
Reasons for economic miracle
- The Korean War
• Sparked the need for war supplies
• The FRG produced chemicals, steel and electrical goods
- New investment
• Many businesses had recovered by this point which were able to invest in equipment and
factories
- Workers
• Refugees meant there was a large number of workers, many of them highly skilled and
educated and poor so willing to work for not very much
• So in a sense East Germany was educating and funding West Germany’s work force
- State funded reparations
• Adenauer agreed with the state of Israel in 1952 which meant lucrative contracts for German
companies
Economic miracle
- Living standards improved
- Germany receives a hard working cheap labour force from refugees from East Germany
- Post 1950 more exports than imports
- Unemployment declined
- Marshall plan — no strikes
First stage of economic strategy
- Neo-liberal social market economy or caring capitalism — with this approach and the support
of the USA Marshall Aid programme the FRG experienced an ‘economic miracle’
- This was needed to entrench democracy in the post-war world of the Cold War
- Statistically the FRG was inevitably going to progress economically as the base line was so
low but regardless the growth was very impressive
Second phase of economic strategy — Neo-Keynesianism 1966-82
- From the mid 1960s onwards until the early 1980s Germany experienced more uneven growth
and indeed recession in the 1970s
- In many ways this mirrored other European countries including the UK
- The government policy under Chancellor Brandt with economics minister Schiller was to
abandon the more laissez-faire economics and adopt more state intervention to allow
government to shape the economy to foster growth
- Also an expansion of social security, so the government take a greater role than before
Recession of 1966-67
- Trade reduced and unemployment increased
- Productivity began to fall
- Public spending was spiralling out of control due to government’s spending on welfare
- The economics minister, Schiller, introduced government planning and control
• 1967 economics Stabilisation Law (government intervention)
• 1968 provision was added to the Basic Law to enable moving money around between
Landers
• The economic downturn of the early 70s led to Schiller’s resignation
Oil crisis 1973
- As a result of the fourth Arab-Israeli War, OPEC put up oil prices sharply in 1973 and 1978
again — severe in ation
- The FRG got 80% of its oil from OPEC which cost 10.8 billion Deutschmark before the crisis
then raised to 49 billion in 1978
- Growth fell due to a decline in global trade
- Unemployment rose which was made worse by the baby boomers (increased working age
population)
fl
- Bombings destroyed considerable parts of industry
- Transport and communication lines destroyed
- Reichsmark worthless — as a result Black Market was booming
- Di erent allied zones were run di erently by the Allied High Commission
- Lack of workers due to deaths
- At the Potsdam conference the Allies agreed that Germany’s economy had to be rebuilt but
also agreed it was important that Germany doesn’t start a war
Refugee problem
- 10-12 million Germans came as refugees to West Germany
• Escaping from the invading Russian army
• Expelled from eastern Europe
• Relocation of land and people agreed at Potsdam as a result of Germany’s newly drawn
borders
- Rationing had to be introduced to deal with the problem
• Rations were incredibly low — those in allied zones only received 1000-1250 kcals per day
The Basic Law
- There was a legacy of anti-parliamentarian traditions in Germany, thus the Basic Law assigned
the key rights and functions to Parliament
- The German Bundestag is the only organ of the Constitution that is directly elected by the
people; it is the task of Parliament to elect the Federal Chancellor and the Basic Law places
emphasis on the functions of political parties
- The Basic Law curtailed the rights of the Federal President in favour of the Bundestag in order
to prevent the concentration of power to an individual
- Due to the disastrous election of Hitler during the Weimar period, the Federal President was to
now be elected by the Federal Convention which represented the state parliaments
- An electoral threshold of 5% was introduced meaning that no candidates could enter
parliament unless they won 5% of the overall vote
• This prevented small and potentially extremist parties from having political representation
• It made it easier for parliamentary majorities to form and promoted stability
Stabilising the economy
- The economic aid given to western Europe (Marshall Plan 1948) and the creation of the
Deutschmark led to increasing tensions with the USSR and eventually the creation of the FRG
- Germany received 1.5 billion dollars (now approx. 24 billion)
- Erhard was appointed director of the economic administration who oversaw the introduction of
the new currency
• Rationing was abolished
• Wages were xed for a few months
- As a result of these measures people stopped hoarding goods and began selling them
- The ongoing compensation (Equalisation of Burdens Act 1952) helped many people to start
again
Social market economy
- Erhard faced opposition for converting from a command economy to a market economy
- Many wanted the pre-command economy back with cartels and price xing
- A combination of a capitalist market with a responsible government that provided safety for the
poor won Erhard enough supporters
- This allowed businesses tax concessions as well as setting up trade unions
- A policy of codetermination allowed workers’ representatives on managerial boards in industry
Economic takeo
- Companies that made pro ts during the war (robbing Europe and exploiting slave labour) were
left untouched by and large
• For example IG Farben, Commerzbank, Audi and Hugo Boss
- The unions agreed to peaceful coexistence with the employers, helps to create social
cooperation and peace
ff fi ff fi ff fi
, - The Allies paid for a lot of the rebuilding
Reasons for economic miracle
- The Korean War
• Sparked the need for war supplies
• The FRG produced chemicals, steel and electrical goods
- New investment
• Many businesses had recovered by this point which were able to invest in equipment and
factories
- Workers
• Refugees meant there was a large number of workers, many of them highly skilled and
educated and poor so willing to work for not very much
• So in a sense East Germany was educating and funding West Germany’s work force
- State funded reparations
• Adenauer agreed with the state of Israel in 1952 which meant lucrative contracts for German
companies
Economic miracle
- Living standards improved
- Germany receives a hard working cheap labour force from refugees from East Germany
- Post 1950 more exports than imports
- Unemployment declined
- Marshall plan — no strikes
First stage of economic strategy
- Neo-liberal social market economy or caring capitalism — with this approach and the support
of the USA Marshall Aid programme the FRG experienced an ‘economic miracle’
- This was needed to entrench democracy in the post-war world of the Cold War
- Statistically the FRG was inevitably going to progress economically as the base line was so
low but regardless the growth was very impressive
Second phase of economic strategy — Neo-Keynesianism 1966-82
- From the mid 1960s onwards until the early 1980s Germany experienced more uneven growth
and indeed recession in the 1970s
- In many ways this mirrored other European countries including the UK
- The government policy under Chancellor Brandt with economics minister Schiller was to
abandon the more laissez-faire economics and adopt more state intervention to allow
government to shape the economy to foster growth
- Also an expansion of social security, so the government take a greater role than before
Recession of 1966-67
- Trade reduced and unemployment increased
- Productivity began to fall
- Public spending was spiralling out of control due to government’s spending on welfare
- The economics minister, Schiller, introduced government planning and control
• 1967 economics Stabilisation Law (government intervention)
• 1968 provision was added to the Basic Law to enable moving money around between
Landers
• The economic downturn of the early 70s led to Schiller’s resignation
Oil crisis 1973
- As a result of the fourth Arab-Israeli War, OPEC put up oil prices sharply in 1973 and 1978
again — severe in ation
- The FRG got 80% of its oil from OPEC which cost 10.8 billion Deutschmark before the crisis
then raised to 49 billion in 1978
- Growth fell due to a decline in global trade
- Unemployment rose which was made worse by the baby boomers (increased working age
population)
fl
