1 of 1

Write now Article Tools

Page 4 of 4

transition in east. However it has continued to rise despite the structural changes that have been made.

It was thought that the initial shock of these policies would be followed by massive growth, this was known as the J-curve effect. However, in many economies the predicted boom failed to materialise, as it did in Eastern Germany. To make matters worse, key markets in Asia and Russia were involved in their own market crises in the mid to late 1990s. It is now thought that the best method of transition is to take a more slow and steady approach, as is being done currently in China. There is no doubt that the sudden transition from planned to market economy has had a detrimental effect on the eastern economy and placed additional stress on western Germany.

In 2003 Agenda 2010 was announced, it consisted of a set of policies which aimed to reverse the economic situation through major structural reform. Germany was stuck in a cycle whereby public debt was slowing growth, which led to unemployment, which increased the burden on the welfare system which, in turn, increased public debt. The plan focused on reductions in health care benefits, restructuring labor regulations, tax cuts and pension system reform. The plan was ambitious and yet retained the social market philosophy. Businesses used the looser regulation to downsize and restructure, which was not the effect which the government intended.

The results of the reforms were not immediate or dramatic and government has since changed hands. However, business are now seeing record profits and should have increasing confidence. The new government, led by Angela Merkel, is continuing these reforms and economic indicators are beginning to look positive. Growth and sentiment is up and unemployment is slightly down. Speculation is that, given there are shocks to the economy, it will continue its fragile upswing. The German economy may now only need time to complete its belated J-curve.

Since the effects of the initial Wirtschaftswunder wore off, Germany has been struck by damaging economic events which have made it impossible to stage s sustained recovery. Well intentioned, but misguided economic policies have made the German economy slow to respond to turbulent times since the end of World War II. The divide in living standards between East and West Germany became painfully apparent in the 1960s when the Berlin Wall was established, an action which was detrimental to both economies.

Further stress was caused by international supply problems in the early 70s, including the global oil crisis. Just as the economy of the West was beginning to recover in the late 80s, it became burdened by economic integration with the East. A hasty and costly transition to a unified market economy did not produce the boom that was expected. To further add to the pain, the late 1990s saw decreased demand from key markets in Russia and Asia.

That the German economy remains the third largest in the world after a series of sustained blows is, perhaps, the true economic miracle. Since the turn of the century a series of economic reforms have made the German economy more responsive so that it may recover faster from previous and future blows. Speculation suggests that the economy is poised for an upswing which should see a reduction in the disastrous figures of unemployment and public debt which have been rising since the 1960s.

Learn more about this author, Ben Winsor.
Click here to send this author comments or questions.

• << previous page
• 1
• 2
• 3
• 4

Add your voice

Know something about German economic recovery after the world wars?
We want to hear your view. Write now!