Posted by: Dirk | October 3, 2014

1989-2014: (Eastern) Germany after almost a quarter century of monetary union

Today is Tag der Einheit (day of reunification), and while many positive things stand out, it should also be mentioned that in terms of macroeconomics it has been difficult for Germany’s east. Having joined a currency union with West Germany in 1990, unemployment was higher in the east than in the west from the start because of a ‘lack of competitiveness’. A large fiscal program (Solidarpakt) transferred about €100 billion to the eastern Bundesländer from 1995 until 2004 (plus taking over some debts), and still until 2019 there will be fiscal support. This year it amounts to about €6 billion. Nevertheless, the unemployment rate has never been close to that of Western Bundesländer, as this graph from Sozialpolitik Aktuell shows (unemployment in Eastern states – blue line – and Western states – black line, average = red line):


As things go in the euro zone, with member countries having joined a common currency but no fiscal mechanism in place, it should not be surprising to see high unemployment in many countries. The lesson of Eastern Germany seems to be that these countries should not expect their unemployment rates to return to normal. Also, they should expect emigration of the young and able, which is what happened to Eastern Bundesländer as well.


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