WORLD

No turning back

The two Germanys forge an economic union

ANDREW PHILLIPS July 16 1990
WORLD

No turning back

The two Germanys forge an economic union

ANDREW PHILLIPS July 16 1990

No turning back

GERMANY

The two Germanys forge an economic union

Silke Rustow went to the bank last week and walked out with a souvenir blue balloon and a crisp new 100-DM bill. At midnight on June 30, the moribund East German marks in her account at the gleaming new Deutsche Bank branch on East Berlin’s Alexanderplatz had been converted into West German deutsche marks, one of the world’s strongest and most coveted currencies. For East Germans, the conversion of their “east marks” as part of a wide-ranging treaty uniting the two parts of Germany in an economic and social union was clearly a happy occasion. But while most took it with typical Prussian reserve, Rustow appeared overwhelmed. Clutching the 100-DM note (worth about $70) in one hand and her 15-month-old son, Dusty, with the other, she burst into tears and declared: “This is more important than everything else. Before it was a lot of words. But now things can’t go back—they can’t take this away.”

The overnight replacement of East Germany’s old currency by the deutsche mark was by

far the most radical economic step taken by any of the onetime socialist countries of Eastern Europe. At the same time, East Germany adopted West Germany’s capitalist economic system, ceded control of its currency to the West German Bundesbank and abolished even perfunctory border controls along its frontier with the rest of Germany. That exposed East Germany’s vulnerable economy to the full force of worldwide competition at a single stroke. And it amounted to the virtual disappearance of the German Democratic Republic (GDR) as a sovereign state after nearly 41 years as a Communist stronghold in Central Europe.

Neues Deutschland, the newspaper of East Germany’s former Communist party—now called the Party of Democratic Socialism— acknowledged as much when it headlined its coverage of the monetary union: “Farewell GDR!” West German Chancellor Helmut Kohl made the point somewhat more subtly when he told a television audience: “The citizens of the Federal Republic [West Germany] and the GDR

are now irrevocably linked. We have waited for this for 40 years.”

The impact of the economic union also accelerated the drive towards complete political unification of the two German states. On July 2, the East German coalition government declared that an allGerman election leading to formal unification of the Germanys should be held on Dec. 2. Two days later, the Bonn government agreed upon the same date, clearing the way for merger before the end of 1990. Kohl said he was confident that the international security issues raised by such a move, notably Soviet concerns over a united Germany’s membership in NATO, can be settled by then.

For East Germans, such concerns paled beside the everyday opportunities and dangers presented by the incorporation of their country into the booming West German economy. In the last few weeks before the introduction of the deutsche mark, they had gone on a spending spree with their soon-to-be-worthless east marks. Many East German stores were left virtually empty as shoppers snapped up supplies of food and clothing at the old, state-subsidized prices. But when the stores reopened on July 2, their shelves had been restocked with brand-name Western goods. Dowdy East German shoes were suddenly replaced by Reebok and Nike sneakers in a shoe store in East Berlin’s central shopping district. Chiquita bananas, Swiss chocolate and Dole pineapple crowded ill-packaged GDR food products out of the supermarkets. And in the five-storey Centrum department store on Alexanderplatz, it was difficult to find any Easternmade goods at all among the displays of Western stereos, furniture and clothing.

In Centrum’s housewares department, Margarita Käller and Ursula Jiing, office workers in their mid-50s, were contemplating the latest automatic coffee makers. They were not surprised by the prices or the quality, they said, because they had made frequent trips to West Berlin to look in the stores. Both women complained that, in the past, they had spent large sums to buy expensive East German television sets and cars that were now virtually worthless. Said Käller: “We should be 25 years younger to really get the benefits. What a waste!”

In the end, the two women decided not to buy anything: like most other East Germans, they reacted cautiously when they got hold of their first deutsche marks. The Bundesbank, West Germany’s central bank, had distributed 600 tons of paper money and 500 tons of coins, amounting to about $18 billion, to banks throughout East Germany. At the same time,

East Germany’s Staatsbank collected its virtually worthless currency—melting down the aluminum coins for recycling and burying tons of old east-mark bills in an abandoned mine.

Under rules agreed upon by both governments, savings accounts in east marks were exchanged at a rate of one-to-one for deutsche marks, up to a limit of 2,000 marks for children,

4.000 for adults and 6,000 for senior citizens. The rest were exchanged at two-for-one. But while the Bundesbank had predicted that East Germans would withdraw about 6 billion DM in the first two days of the week, they actually took out only 4.5 billion. That cheered economic analysts, who had voiced hopes that the East Germans would not embark on a wild spending spree that might fuel inflation, now running at three per cent a year in West Germany.

In fact, East Germans reacted to the monetary revolution with remarkable restraint. Only at midnight on June 30, when the two economies were merged, did they celebrate. Some

20.000 people crammed East Berlin’s central square to count down the seconds to 12 a.m. Many jammed the entrance to a bank branch that opened to exchange money at the stroke of midnight. At the same time, the last few East German border guards left at the crossing points between the two halves of Berlin, and along the east-west German border, abandoned their posts. But, by the next morning, the lineups outside banks were orderly, and the people thronging into the freshly stocked stores did more looking than buying.

In part, the caution reflected widespread fears about the future. While the stores were crowded, so were East Berlin’s recently opened unemployment centres. By last week, East German Labor Minister Regine Hildebrandt said, 150,000 people were out of work

in the GDR—less than two per cent of the workforce. But most economists expect that number to soar as East German businesses lay off workers or go bankrupt in the face of Western competition. Kurt Kasch, a Deutsche Bank director in West Berlin responsible for loans to East German companies, predicted that as many as two million of the GDR’s 8.5

million workers may be out of a job by the end of 1990. A few analysts say that the number could be much higher—up to four million.

At one unemployment centre in East Berlin, 28-year-old Frank Börner was signing up for unemployment benefits of 650 DM (about $460) a month. Along with 1,500 other employees of a Berlin electronics company,

Börner was laid off on June 29. “No one is buying our stuff anymore,” he said. But Börner said that he still welcomes the changes. “I’ll find something else,” he said. “There just wasn’t any future in the old system.” Down the hall, 41-year-old Carmen Leverman said that she had come just to see how the unemployment centre operates even though she still has a job as an accountant at a street-paving company. “It’s really just a matter of time, isn’t it?” she asked. “I mean, how are we going to compete against a Western company with new equipment? I figure I'll be out of work by September, so I might as well get ready.”

All indications are that she will not be alone. At VEB Druckguss & Formenbau, a metalcasting factory in the eastern suburbs of East Berlin, director Dietrich Ludwig was figuring out exactly how many employees he had to fire. In March, the enterprise employed almost 900 people; last week, 500 still worked there, and Ludwig said that he expected that no more than 300 will remain by September. Demand has dropped by two-thirds for many of the company’s products, including parts for the tinny Trabant cars that have become a symbol of East Germany’s economic backwardness.

Like other senior East German managers, I Ludwig was a member of the Communist party, o giving up his membership only in March. On £ the walls of his office last week was a faded u portrait of Lenin, as well as a new Mercedes calendar. When a reporter pointed out the portrait, Ludwig jumped up from his chair and took it down. “I guess I just didn’t notice it anymore,” he said with a grin. “But a lot of things will have to change around here.” For all of East Germany, much the same could be said.

ANDREW PHILLIPS in Berlin