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rate for this time was 15%, which is more than three times the current target of most western economies, 4%. The success of the economic reforms was astounding and Ludwig Erhard was later elected Chancellor of Germany in 1963.

In the 1960s and 70s the German government sought to use its growth and prosperity to create a large social welfare system. Germany, since the war, has aimed to create a social/market economy, with balance between free market economics and social responsibility. During the 1960s and 70s many economists argue that the balance was tipped too far towards socialism. The government established large national pension plans, an extensive healthcare system and broad social welfare programs. These programs were funded through higher taxes, which restrained business and discouraged investment.

Additionally the government increased regulation and red tape with aims of economic protectionism. Bureaucracy and government intervention stifled freedom of entry and freedom of exit for businesses. This led to a less responsive and dynamic economy that became wary of investment in physical and human capital. Labor market regulation led to higher labor costs and may have, ironically, increased unemployment. A series of reforms outlined by Chancellor Schrder in 2003 recognised that changes still needed to be made in these areas. The set of reforms is called Agenda 2010 and outlines welfare reform, deregulation and tax relief. The extent to which the policies enacted in the 1960s and 70s damaged the German economy is debated, but it is widely acknowledged that they did have some negative impact.

It was not solely government reforms which created the current economic situation, The German economy was also hit hard by other factors in the 1960s and 70s. The West German economy did not grow as fast in the 1960s as it did in the 1950s. This was due in part to the establishment of the Berlin Wall in 1961 which cut of a supply of cheap fresh labor. This raised input costs and contributed to a slowing of economic growth in the 1960s. By the late 1960s the economy was beginning to adjust and growth was recovering, but this would not continue. Germany was hit hard by the oil shocks in the early 1970s which again raised input costs, this time for physical resources. These continued supply problems hampered growth in Germany, which was unable to respond dynamically due to the new restrictive government policies.

Global and domestic consumer and business confidence were

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