Division to unity 1949-1991: Economic

Question 1

What was the economic state of this time period described as?

Answer 1

An economic miracle

Question 2

What are the reasons for Germany’s economic miracle?

Answer 2

1. Germany was reestablished as 1 of the world’s leading industrial nations
2. GNP quadrupled over the time period

Question 3

What was the GDP annual growth rate of each decade?

Answer 3

1950s- 8.2% per year
1960s- 4.6% per year
1970s- 2.8% per year
1980- 0.7%
1984- 2.6%

Question 4

What are the reasons for the FRG’s great economic performance in the 1950’s?

Answer 4

1. West Germany inherited the industrially strong Rhineland
2. Period of allied occupation provided a foundation for growth, particularly UK and USA area (wage controls removed, income tax reduced, currency reform and Marshall Plan funds helped FRG to buy essential equipment and expand heavy industry)
3. West Germany had no colonies to sustain

Question 5

What did the social market economy promise?

Answer 5

1. Private businesses could set their own prices and wages
2. The state would regulate as necessary to ensure fair competition and fair labour relations

Question 6

What measures did the social market economy take?

Answer 6

1. 1951 Investment Aid Law- Provided government subsidies to aid the heavy manufacturing industry
2. 1951 Codetermination Law- Permitted workers in iron and steel a say in management decisions
3. Series of trade agreements and the halving of protective tariffs
4. Laws to prevent the establishment of monopolies to increase competition (Adenauer’s 1957 Anti Trust Law)
5. Banking controls to ensure Germany maintained a strong currency

Question 7

What was the 1950’s boom?

Answer 7

1. Unemployment fell to 0.5%
2. Exports remained strong and incomes increased in 1952/53
3. Consumer demand grew which boosted the internal market
4. Investment increases from 19% in 1950 to 24% by 1960
5. By 1960 West Germany had the 3rd largest economy in the world

Question 8

What was the economy like in the 1960’s and how was it resolved?

Answer 8

• Economy was stretched to full capacity and finding enough workers became a problem
• Solved by employing foreign workers who were encouraged by government schemes to come to the FRG and take up jobs in shortage areas
• Their numbers rose from 150,000 in 1959 to 1.2 million in 1966
• Made up 10% of the German workforce by 1970’s

Question 9

What was the economic state of Germany in the 1960’s?

Answer 9

• Unemployment was kept below 1%
• From 1965 there was a sudden unexpected economic slump when GDP fell to 2.9% and industrial growth fell to 1.2%
• 1966- Inflation running at 4%
• Schmidt complained that the CDU/CSU government had overspent on modernising railways, paid more than it should have on US military equipment and was ober subsidising agriculture
• Erhard tried to address the problems by reducing his spending plans by 10% and raising interest rates, but this put Germany into a further recession and he was forced to resign in 1966

Question 10

What measures did Kiesinger, Karl Schiller (Minister of Economics) and Strauss (Minister of Finance) take to help the 1960’s economy?

Answer 10

1. 1967 Stabilisation Law- Increased power of the federal government to raise loans, alter taxes and build funds for economic investment (key statement of FRG’s commitment to economic growth by making full employment, price stability and a healthy trade balance into government priorities)
2. Allocated special funds to improve infrastructure
3. Constitutional change which gave the central government greater control over the spending and taxation policies of the Lander
4. Increased direct and indirect taxation and public spending cuts of nearly 2000 million marks

Question 11

What was the economic state of Germany like by the end of the 1960’s?

Answer 11

1967- The budget balanced again
1968- Unemployment had decreased and industrial growth had increased to 6%
1969- Inflation fell to 1.5%

Question 12

What did the French suggest in 1950 and what did it lead to?

Answer 12

• Suggested merging the Western European coal and steel industries under a single supranational control
• An agreement was negotiated and in 1951 the Treaty of Paris was signed
• This established a single authority which merged the coal, iron and steel industries of West Germany, France, Italy, Belgium, Netherlands and Luxembourg
• It eliminated tariffs and created a free labour market
• European Coal and Steel Community began functioning in 1952 (also served as a ‘peace treaty’ between 2 traditionally opposed powers)

Question 13

When did Germany join the EEC?

Answer 13

1957

Question 14

Was membership of the EEC economically successful for Germany and why/why not?

Answer 14

• Yes, it proved a great success
• By 1968 all internal tariffs had been removed between member states
• From 1958-1968 trade among the EEC’s members quadrupled in value

Question 15

What was Germany’s economy like in the early 1970’s?

Answer 15

1974- West Germany hit its 1st serious post war recession
1971-1973: Inflation increased which wasn’t helped by the public spending of Brandt on welfare reforms
- World price of non oil commodities increased by 70% and that of food by 100%

Question 16

When were the oil crisis’?

Answer 16

1973
1979

Question 17

What was the impact of the 1st oil crisis and when was this?

Answer 17

• 1973
• At the end of 1973 OPEC decided to double its oil prices
• FRG had to pay 17 million DM more for its imports
• Unemployment rapidly increased
• Had to be a temporary ban on Sunday driving to conserve petrol
• Balance of payments surplus of $9.5 million in 1973 decreased to a deficit of $692 million by 1974
• Unions continued to demand large pay increases (1974- Union of public employees went on strike and forced a 11% pay increase)

Question 18

What measures did Schmidt take to try and reduce inflation after the 1st oil crisis?

Answer 18

1. Made moderate expenditure cuts
2. Raised VAT
3. Proposed the creation of a European Monetary System to fix exchange rates in Europe

Question 19

What measures did Schmidt take to try and reduce inflation after the 1st oil crisis?

Answer 19

1. Made moderate expenditure cuts
2. Raised VAT
3. Proposed the creation of a European Monetary System to fix exchange rates in Europe

Question 20

What was the impact of the 2nd oil crisis and when was this?

Answer 20

• 1979
• In 1979 the Shah of Iran was overthrown, producing panic among oil producing nations which led to a 150% oil price increase between 1979-1980
• Led to a further economic recession which lasted until 1982
• Unemployment rose to over 2 million
• West Germany managed to keep inflation down to 4.7% and growth rates were greater than what they were in 1913 and 1950

Question 21

What was the economy like in the 1980’s?

Answer 21

• By 1983 West Germany had overcome its problems
• Kohl abandoned the high spending policies of the Socialist governments since 1966 and kept annual budget increases to a maximum of 3%
• This permitted tax cuts over a 7 year period
• Oil prices fell in 1985 and West German exports recovered
• Inflation fell from 6.2% in 1981 to 0.6% in 1986
• Unemployment remained over 2.2 million in 1987