Economic

• 1948- Deutschmark introduced
• 1951-65, annual growth=8%

  1950-55, GDP increased by 100%
• 1949-93, incomes rose by 100%
• Korean war led to FRG's exports increasing by 100%
• Until 1955, no FRG army meant minimal defence costs
• 1948-9, 5% of GDP was from Marshall Aid
• mid-1960s, inflation grew by 4%, unemployment by 4%
• 1967- Stabilisation Law passed, gave government more power to achieve economic stability (changing taxes/raising loans)
• 1973- oil crisis, oil prices rose by 70%, FRG's growth slowed (0.4% in 1975)
• 1951- European Economic Community (EEC) formed. Value of trade between countries rose by 4 times between 1958-1968
• 1978- European Monetary System formed (modelled on Deutschmark, and Bundesbank was at heart of system)
• 1973 oil crisis

  • guest workers blamed for recession
  • 1973- government banned further recruitment of foreign workers
  • 1975- individual states offered financial incentives for guest workers to return home + penalties for illegal employment of foreign workers
• Difficulties of economic recovery after WWI

  Black market

  • products in post-war Germany were scarce, many turned to black market (e.g. sugar)
  • minimised tax from transactions, leading to further scarcity of items
• Difficulties of economic recovery after WWII


  Restrictions

  • all industries related to war shut down or restricted (munitions, chemicals)
  • could not rebuilt Germany's economy easily, and also defenseless
• Difficulties of economic recovery after WWII


  Reparations

  • owed reparations, so French and Soviets disarmed factors
  • Already with so little material, undermined chance of fast economic recovery
• Difficulties of economic recovery after WWII


  Currency

  • almost worthless, people turned to black market
  • Hard to get workers when wages were nothing
• Difficulties of economic recovery after WWII


  Military High Command

  • each zone ran differently, allied council tried to solve differences
  • Differences between soviet zones and others widened
• Difficulties of economic recovery after WWII


  PoWs

  • economic devastation caused many to leave (16,000 German PoWs stayed in France)
  • Changed cultural identity, as well as brain drain on economy
• Difficulties of economic recovery after WWII


  Refugees

  • influx of 10 million refugees (some expelled from Eastern Europe after Potsdam)
  • More crime and unemployment adds to existing problems, angered native Germans. Had to introduce rationing
• Currency reform- Deutschmark (1948)

  • new currency helped to stabilise economy in Western zone
  • received funding and support from allies (1948- $1.4 million in Marshall Aid)
• 1961- Berlin wall constructed. Loss of workers moving from East
• Ludwig Erhard (economics minister) 1949-63 actions

  • Introduced the Deutschmark in 1949 to replace the Reichsmark
  • Introduced the social market economy
• Ludwig Erhard (economics minister) 1949-63 success

  • wages fixed until 1949, so businesses could establish themselves
  • removed rations and price controls for all but essentials
  • Selling more food, more people could spend money, and did so carefully (focusing on quality), so spending was less erratic
  • helped industries
  • Car production b/w 1950 and 1959- 4.5 times higher
• Equalisation of Burdens Act (1952)

  • raised money for people through taxes, allowed them to become economically active again
• Ludwig Erhard (economics minister) 1949-63 failures

  • Germans preferred the command economy of the Nazis
  • Businesses had to lay off workers
  • Some businesses failed after currency reform, could not afford to pay wages
  • BUT USA provided social safety net with financial aid
• External factors to economic recovery

  • Korean war: 1950- needed war supplies, so FRG industrial goods, chemicals, and steel highly demanded. FRG allowed to join NATO and begin producing war materials
  • New investments: recovery of businesses, so invested in new, efficient equipment. Reputation of German goods improved and exports grew
  • Workers: influx of refugees= large pool of labour for cheap wages. 3.6 million from GDR (skilled, saved gov money on training).
• Economic challenges

  • Berlin Wall (1961) stopped professionals helping to expand economy
  • Recession of 1966-7: productivity fell due to social welfare policies, gov spending more (as public spending spiralled)
  • Oil crises: relied on oil more than coal (1978- 40% fuel from OPEC), unemployment rose, foreign workers contract not renewed and ban placed on recruiting guest workers
• FRG= average annual growth rate of 4.4%
• Economic cooperation

  • Founder of ECSC (1951) and EEC (1957). Drove economic development and integration, incl. creation of monetary union
• Spending on leisure (1985)- 48%