Economic Development And Policies FRG Flashcards
What did the Allies agree on and what action did they take for this?
- Rebuild GER economy –> reparations taken in equipment and machinery from each zone eg. FRA + USSR dismantled any remaining factories
- Keep GER out of war –> War industries were banned
What 6 problems did the economy have?
- Reichsmark was almost worthless
- Black market thrived (1kg of sugar could only be obtained here)
- Hard to get workers
- Transport and communication was difficult as it crossed the zones
- Businesses had to replace machinery and train workers
- Some businesses closed down, others laid off workers as they could not afford to pay wages –> unemployment rose from 442,000 in Jun 1948 to 937,000 in Jan 1949
Which 4 domestic measures resulted in economic improvement?
- Currency reform
- Removal of price controls
- Tax reforms
- Social market economy
What new currency was created, when and how did it help the economy?
- 20 Jun 1948 –> Deutschmark (DM)
- Stabilised economy w/ greater production
- Broke up black market
Give 3 effects of the currency reform:
- Creditors and savers lost out as monetary supply was cut by as much as 90%
- Banks were given large deposits of DM to loan to businesses, which was successful
How did the removal of price controls stimulate the economy?
Greater incentive to produce would mean goods would return to the market
Give one stat showing the tax reform and two impacts of this:
- 1950 –> Those on avg incomes of DM2400 fell to 18% compared to previous 85%
- Absenteeism reduced
- Salaries also rose
How many left the country and how many arrived?
- 160,000 German prisoners of war stayed in FRA after war rather than returning
- 10 million Germans from Soviet army or expelled from Eastern Europe under reallocation of land or people agreed at Potsdam
What was the view towards these refugees and how were they dealt with by the Allies?
- Adding to German’s troubles
- Forced to introduce rationing
When was Erhard appointed and what were his beliefs about the economy?
- Mar 1948
- Believed in social market economy (free market w/ elements of social support for poorest)
Features of social market economy:
- Businesses allowed to develop independently and set own prices
- State ensures fair competition
- State introduces measures to support most vulnerable
What 3 reforms did Erhard bring about?
- Abolish all but most essential rationing (granted by Economic council on 24 Jun)
- Wages stayed fixed until Nov 1948
- Equalisation of Burdens Act –> tax on all assets as compensation for those who had lost everything
What 5 policies were introduced as part of social market economy?
- Businesses had tax concessions
- Removal of wage restriction
- Setting up TUs
- All businesses had worker councils
- 1951 –> Co-determination allowing workers to participate in management of business
Give two facts showing sustained economic growth during 1950s:
- Rapidly declining unemployment falling to 1.2% by 1960
- Rising exports
Give 2 examples of interventionist gov policies that led to growth:
- Work creation schemes
- Investment Aid Law of 1952 –> provided gov subsidy of DM3.2 bil to facilitate industrial investment
What 7 external factors contributed to the growth between 1949 and 1960?
- Korean War
- Growing world economy
- Economic foundations
- Marshall Aid
How did the Korean War contribute to the period of growth?
- 1950 –> sparked need for war supplies, especially from FRG
- 1955 –> FRG joined NATO, which allowed them to rearm and produce these materials
How did a growing world economy contribute to the period of growth?
- Growing demand for exports due to growing economy
- Exports grew as GER goods had low prices + high-quality eg VW exporting 16000 cars a yr to UK
What were 3 features of GER’s economic foundations that aided growth?
- Good sea ports
- Abundance of raw materials
- Skilled workforce
How much Marshall Aid was given?
$1.4 mil
What 3 key factors contributed to the economic miracle?
- Korean War
- Growing global economy (continuous trade surpluses)
- Influx of refugees
How did the influx of refugees contribute to the economic miracle?
- 3.6 mil more workers in 1950s came to FRG from GDR (many were skilled), keeping wages low + providing efficient workforce
- Wanted to become part of West German consumer culture
- Allowed gov to save money that could be spent elsewhere
What were the possible problems of the economic miracle?
- Free professional numbers reduced as Berlin Wall put up in 1961
- Growth could not continue at the rapid rate it was forever
What were the 2 crises that occurred between 1966 and 1989?
- Recession of 1966-67
- Oil crises of 1973 and 78
Describe 5 problems of the recession of 1966-67:
- Unemployment increased
- Productivity fell
- Trade reduced
- Guest worker numbers fell
- Excessive public spending
What measures did Erhard take in an attempt to solve the recession?
- Raised interest rates
- Cut spending by 10%
Give two examples of how the problems of 1966-7 recession was solved and who was responsible for these?
- Karl Schiller (SPD deputy under Kiesinger)
1) Increased gov planning, intervention and control
2) 1967 Stabilisation Law –> formalising co-operation between federal gov, employers and employees in times of economic difficulties
After the coalition collapsed over the issue of revaluation, who was in charge and how did they help the recession?
- Willy Brandt (SPD) + FDP
- Devalued DM by 10%
- Although exports were now more expensive, people were willing to pay the extra amount
What did the focus of the economy switch to when Brandt came to power and give two examples of what he introduced:
- Social welfare
1) Pension for those wounded in war raised by 5%
2) School leaving age raised to 16
Describe the problems of the oil crisis of 1973 and 1978:
- Relied heavily on oil eg 1972 –> DM10.8 bil on 140 mil tonnes
- Oct 1973 –> 4th Arab Israeli War
- OPEC, which FRG mainly got oil from, put up prices sharply in this yr and 1978
- As a result, unemployment increased
How were the problems of oil crisis of 1973 and 1978 solved?
- Oil consumption fell due to:
- ‘Car-free Sundays’
- Speed limits on autobahns
- Did not subsidise oil
- Investment in atomic power
- Propaganda pushed energy saving tactics - Public spending cuts
- 1975 –> Higher income tax
What about the FRG economy also helped this?
Its export income
What challenges were faced in 1980?
- Wealth gap increased, which created friction between guest workers
- Real growth shrank as prices increased
- 1981 –> Unemployment hit 1.7 mil (highest since 1950)
- Drove up unemployment benefit spending
What two things did Kohl’s government do?
- Cut public spending, which was very unpopular
- Cut taxes
What did the government in 1982 do as a response?
- Cut spending even more fiercely to force people into finding work
- Cut public holidays
- Reduced retirement age to 58
- Sold off shares in state-run institutions
What was the effect of the response of 1982 gov?
Slight but growing improvement
When was European Coal and Steel Community (ECSC) created and what were its 2 aims?
- Due to Treaty of Paris in 1951
1) Use free market of steel and coal for greater economic integration
2) Help Europe recover economically after war
Who were the 5 members of ECSC?
- FRG
- Belgium
- Luxembourg
- Netherlands
- France
Give 2 examples of successes of ECSC:
1) Trade in coal increased ten times amongst its members
2) Acted as treaty of friendship between France and FRG
How was European Economic Community (EEC) created, what was its aim and which country joined?
- ECSC was that successful, so it was created through Treaty of Rome in 1957
- Creating free trade zone w/ common economic policies and possible goal of political union
- Italy joined on
