Economy FRG

Question 1

WW2 vs ww1

Answer 1

German economy again ruined
People starving
War did not end with an armistice and people believing Germany might have won - instead it ended with a March on Berlin from the east and west and occupation of the country

Question 2

Initial economic plans and state

Answer 2

Allies had dual aims ; to rebuild Germany (possibly buffer to communism) but also prevent German militarism - industries such as munitions were banned and chemical industries had output restricted
Reparations were taken in equipment and machinery from each zone ; French and Soviets particularly dismantled many remaining factories for reparations, undermining any chance of an economic recovery
War damage differed geographically and people were treated differently in each zone

Question 3

Reichsmark worthless (initial situation)?

Answer 3

Black market thrived ; bag of sugar was now 120/180 RM but it was fixed at 1RM in 1947
Hard to get workers when their wages bought hardly anything
Transport and communication links crossed zones, hampering economic recovery but each zone was run by a military high command and the way in which they ran it varied

Question 4

Dislocation? Initial problems?

Answer 4

Many Germans left ;160000 German POW in France stayed there rather than returning to Germany - far exceeded by the influx of 10 million Germans who came as refugees ahead of the soviet army or were expelled from Eastern Europe under reallocation of land and people agreed at Potsdam
These refugees became biggest assets later but they originally had to deal with homelessness and introduced rationing
Short term problem with housing - many were kept at Dachau + DISPLACED PERSONS FROM CONCENTRATION CAMPS WHO HAD TO BE HOUSED AND FED 4.5 MILLION
Long term they were an asset as they kept down wages

Question 5

How did economy catalyse creation of West Germany in 1949

Answer 5

Economic aid - 1.4 million dollars under Marshall Plan given to western zones in 1948 ; set off the creation of the new Deutschmark currency to administer the aid
This stabilised the economy and broke up the black market
Led to Soviets setting up their own currency and by end of 1949, Germany had divided into FRG and GDR

Question 6

Currency reform

Answer 6

Every adult given DM60 and exchange their old currency for new
Wages were now worth something
People worked and could spend - allowing for higher levels of factory production too

Question 7

Importance of Currency reform

Answer 7

Very important in helping economy but also led to polarisation between east and west

Question 8

Where else did reform come from?

Answer 8

Ludwig Erhard was appointed director of economic administration in March 1948 ; believed in the idea of a social market economy and worked to create one under the allies and then as economic minister till 1963
On 18th June 1948 he announced the RM would be replaced by the DM ;

Question 9

What is a social market economy

Answer 9

Free market economy with elements of social support for the poorest - “socially responsible”

Question 10

What reform did Erhard do?

Answer 10

24th June he had to power to abolish almost all except the most essential rationing and all price controls
Wages remained fixed to allow businesses to establish themselves - short term
Combination of the new currency and these measures meant food and non-food items were in shops for sale ; people stopped hoarding and started selling
People began to shop more carefully for price and quality because they were more confident that supplies would be less erratic

Question 11

Money with Erhard?

Answer 11

Currency reform only affected cash and monetary savings ; military government wanted a tax on all assets so the money could be used to compensate those who had lost everything
Bundestag eventually passed the Equalisation of Burdens Act in 1952 which sorted out compensation and redistribution, helping people start up again

Question 12

How else were wages fixed/lowered?

Answer 12

Heavy immigration - more jobs, people were prepared to work for less due to high competition too

Question 13

Was Erhard’s policies immediate in effect?

Answer 13

No
Factories and businesses had to first replace machinery and train workers etc
Unemployment rose from 442000 to 937000 in the space of 7 months and highest in 1950 with 1.5 million ; but then it began to fall
Car production increased 4.5 times greater and steel production doubled meaning Germany’s new focus was on consumer goods

Question 14

Opposition to Erhard

Answer 14

From Bundestag and Economic council for converting from a command economy to social market economy
Britain had also opposed the idea, supporting the concerned labour union leaders who feared a social market economy would lead to exploitation of the workers by business owners ; USA had backed Erhard (due to their experience through the New Deal)
Many wanted the pre-command economy with price fixing and cartels back
Erhard favoured competition between industries and cartels broken up
Socialists opposed the change because they wanted to nationalise industries and use state control, not allowing a capitalist market

Question 15

Why was Erhard’s economy perfect blend?

Answer 15

Social safety net + capitalist market was enough to win Erhard seats in Bundestag and continue his policies
Allowed business tax concessions and removed wage restrictions while encouraging the setting up of trade unions
All businesses had workers’ councils and in 1951 there was a policy of co-determination allowing for workers’ representative on managerial boards in industry

Question 16

Reasons for the economic miracle from 1955-66

Answer 16

The Korean War
New investment
Workers

Question 17

The Korean War

1950

Answer 17

Sparked a need for war supplies ; FRG was banned from producing these but its industrial goods, chemicals, steel and electrical goods were now in greater demand while other countries had shifted to war production
In 1955 FRG was able to join NATO and was then allowed to re-arm and start producing war materials as a result of the war
German factories focused on producing consumer goods meeting high demand roo

Question 18

New investment

Answer 18

Many businesses had recovered sufficiently by 1950s mid to invest in new, more efficient equipment + new factories ; produced high quality goods and kept prices low as possible to compete
Reputation of German goods improved and exports grew ; businesses could invest more and employ more workers - manufacturers of consumer goods could also buy more raw materials

Question 19

Workers

Answer 19

Influx of refugees meant there was a large pool of guest workers for businesses to draw on : May needed training but after this they became an efficient workforce. Large pool of workers meant wages were also low
3.6 million came to FRG from GDR and many of them were young, skilled and highly educated ; all actively seeking work and wanting to become part of the west consumer culture - thus helping the economy twice over
Government saved money as they were already trained by the GDR and this was used elsewhere for example the social safety net in the social market economy

Question 20

Other reasons for the economic miracle?

Answer 20

FRG had advantages of areas like the Ruhr which were rich in raw materials
Marshal plan provided context for recovery BUT England was given twice as much and there was no economic miracle there
Industrial peace - co-determination established laws which led to a dramatic fall in the number of strikes and established industrial peace for 20 years
Financial stability ; compare with the Weimar Republic ; willingness or Bundesbank to control money in circulation and interest rates - emphasis on stability and avoiding inflation
Government expenditure - limited on army so more government expenditure on social spending which helped make FRG stable (unlike Weimar)
Demand was high due to confidence and incentives such as subsidised home buying programmes

Question 21

Workforce unemployed

Answer 21

1950 - 8.1%

1960 - only 1.0%

Question 22

Balance of budgets

Answer 22

1950 more imports than exports but by 1960 there was a considerable more amount of exported than imports 5 million DM

Question 23

Possible problems with the miracle?

Answer 23

Demands fall off after consumer goods purchased first time round - they were so good and cheap, no need to buy them again
Berlin Wall in August 1961 also meant that many skilled professionals couldn’t wander freely between GDR and FRG so the economy couldn’t expand

Question 24

Between 1966 and 1989

Answer 24

FRG experienced many challenges ; real economic growth also somewhat stagnated and in 1966, Schiller encouraged the government to intervene in the economy with the Bundesbank managing the money supply and a new system of federal/regional budgeting
Rising levels of government spending on social welfare etc too meant that in 1965 the gov spent 47 million DM and by 1970 this was 116 million DM
Economy was helped due to healthy exports and no international protective tariffs so world trade was booming

Question 25

Crises included?

Answer 25

Recession of 1966/67

Oil crises of 1973 and 1978

Question 26

Recession of 1966-67

Answer 26

Hit confidence hard as they saw themselves as economic leaders in trade etc
Guest workers were on one-year renewable contracts without social benefits ; had been vital to economic growth - the number of guest workers decreased between 1966 and 1967 by 400 000 thus productivity began to fall
Public spending was also spiralling out of control ; Schiller (economic minister) reorganised their approach as Erhard was chancellor, he increased government intervention with subsidies for coal and agriculture
Reintroduced cartels to stop prices rising
1967 ECONOMIC STABILISATION LAW MEANT GOVERNMENT TO LIMIT REGIONAL SPENDING AND INTRODUCED A FIVE YEAR PLAN SYSTEM FOR ALL GOVERNMENT SPENDING
1968 - a provision was added to the basic law allowing Länder to move money around using money from more wealthy ones to help the less wealthy ; he was replaced by Helmut Schmidt in 1972 (schiller) because his policies had supposedly failed

Question 27

Oil Crises of 1973 and 1978

Answer 27

FRG relied on oil as fuel
Car ownership pushed up petrol consumption
1973 October - 4th Arab Israeli war broke out and OPEC put up prices sharply in 1973 ; the same amount of fuel 140 million, cost 32.8 billion in 1973 compared to 10.8 billion earlier
Unemployment rose sharply in 1974 made worse by the FRG’s baby boomers just hitting the employment market
Ban put on recurring guest workers and their contracts not renewed ; this helped prevent crisis from becoming even worse

Question 28

Baby boomers?

Answer 28

Between 1946 and 64 - sharp rise in number of births in many countries ; these were the baby boomers

Question 29

Why was FRG shielded from the worst of oil crises?

Answer 29

Helped by its export income and its economy also recovered rapidly n oil consumption dropped due to car free Sundays and speed limits on autobahns to save fuel
Government propaganda pushed energy saving tactics and infested seriously in atomic power to reduce dependency on oil
Government did not subsidise oil prices but just let them rise - this mad it expensive and encouraged cutbacks ; German industries switched to other fuels much faster than other countries
High income tax and public spending cuts in 1975 too

Question 30

Challenges of the 1980s

Answer 30

Gap between the richest and the poorest widened in Germ and this created friction - hostility towards guest workers for example
Much of the rest of the world was in recession, the FRG still continued to rise and stayed consistently ahead of imports but prices still began to rise slowly with inflation and unemployment also hits its highest in 1981 with 1.7 million ; this drove up spending on unemployment benefits and assistance for the long-term unemployed so they also cut public spending on benefits and housing allowances etc and this was very unpopular

Question 31

Government in 1982

Answer 31

Determined to turn the economy around by cutting spending even more fiercely saying that welfare support just created dependency ; an idea that was being taken up by many other countries experiencing recessions
Helmut Kohl said that productivity levels were failing due to this dependency and people had to be more independent for this to work ; his gov brought in more cuts on social welfare spending etc and public holidays and urged people to take early retirement (age now being 58)

Question 32

How else did the economy improve?

Answer 32

Government sold off shares in state run institutions like Lufthansa etc by partially privatising them - these policies produced a slight but growing improvement and by 1989, unemployment was at its lowest and then FRG had to brace itself for reunification

Question 33

Integration into European Economy

Answer 33

Allies included the western zones of Germany in their organisations that were set up to rebuild Europe ; Adenauer was concerned about setting up closer ties with Europe and Like Stresemann he saw political and economic integration vital for Germany’s economic success ; especially concerned to build a close relationship with France
More concerned about Europe than achieving reunification

Question 34

Timeline with Europe

Answer 34

Organisation for European Economic cooperation OEEC is set up to administer Marshall aid on 16th April 1948
1951 April - FRG joins the council of Europe and the European coal and steel community ECSC with Italy Belgium etc setting up preferential trade links between these countries too
1957 - signs treaty of Rome to become founding member of EEC (European economic community)