by Ben Winsor

Created on: April 11, 2008   Last Updated: September 22, 2011

A Series of unfortunate economic events and mistakes have led to the decline of the German economy since the miracle of the 1950s. World War II left Germany physically and economically destroyed, yet in just 20 years the country had significantly rebuilt and its economic strength had become commanding. As early as the 1950's this recovery was termed the Wirtschaftswunder (economic miracle). The miracle' was brought about through currency reform, market liberalisation and targeted aid. This led to Germany becoming the largest economy in Europe and the third largest in the world yet Germany remains plagued by high unemployment and a disparity in development between east and west. These problems became evident when the infamous Berlin Wall was erected to prevent economic migrants fleeing East Germany.

The current situation stems from the mishandled economic integration of East and West Germany, which spiraled out of control as government intervention and labor costs increased. Improvement was further hampered in the late 1990s when vital markets in Asia and Russia suffered financial crises. Yet now it appears that reforms implemented by the Schroeder and Merkel Governments are beginning to take effect. Recent speculation suggests that the German economy remains strong and that growth and employment rates will continue to rise steadily. After the shock of unification and market turbulence, reforms have been made and Germany now needs time to recover.

The Wirtschaftswunder was created through careful implementation of economic theory that worked extremely well in postwar Germany. After the war German industry was at a standstill and unrestrained inflation had rendered the German currency, the Reichsmark, worthless. With support from the Allies, West Germany's newly installed Minister of Economics, Ludwig Erhard, designed a system that would facilitate the Wirtschaftswunder.

In 1948 Germany's national currency was changed to the Deutsche Mark, which halted the rampant inflation. The deregulation and living conditions after the war meant that labor was cheap and abundant. Economic investment provided under the Marshall Plan helped to rebuild and grow Germany's industry. This was all done in a new free-market economic system with no price or wage controls. These measures allowed for the rapid expansion of the postwar German economy and let the country rebuild itself. Industrial production increased by 4% in 1949 and by 12% in the first half of 1950. The average annual

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