FRG: Economy 1.3 Flashcards
What problems did the FRG inherit due to WW2?
Broken markets and raging hyperinflation (worthless currency)
Black markets (american cigs and cognac used as currency)
Occupying forces tried to control prices and wage
Soviet zone issues due to allied occupation
–> POW 160K stayed in France after war rather than returning
How did Marshal aid help the West Germans?
1948 1.4 million $ given to West zones + created the Deutschmark
- helped stabilise economy and break up black market
Currency reforms to DM
60 Deutschmarks for every 100M
What did Ludwig Erhard do for the economy?
Appointed economic administration director in March 1948
- believed in a social market economy
- 18th June 1948: announced RM would be replaced with DM
-24th June: Economic council gave Erhard power to abolish almost all but essential rationing and price controls
Due to Erhard removing all price and wage controls and changing the currency, what happened?
combination of currency and new measures meant:
- cakes vegetables butter and eggs were on sale in shops
- non-food items like stoves to stockings were also on sale
People also shopped with a more careful concern for price and quality (felt more confident that supplies would be less erratic)
What was the system of compensation for those in need?
1952 Equalisation of Burdens act
- money raised via tax and redistributed helped people start again
How did unemployment rise from 1948 to 1955? Production stats?
1948 June: 442k
1949 Jan: 937k
1950: 1.8 million
1955: 1 million and continued to fall
1959 Car production increased by 4.5 times compared to 1950 and steel production doubled
What opposition did Erhard face?
For coverting command economy to social market economy (Britain and EEC opposed idea, fearing a social market would lead to exploitation of workers)
- USA supported Erhard
-Industrialist wanted the cartels and price fixing during pre-command economy
What was Erhard’s goal in terms of recovering the economy?
he wanted to remove price fixing to create competition in key industries. Combination of capitalist market with responsible govt meant Erhard won enough supporters to continue his policies:
- Allowing business tax concessions and removing wage restrictions
- setting up of trade unions to ensure workers had adequate representation in negotiations
-1951 co-determination policy ( right of workers to take part in the management of businesses they work for)
Economic miracle of 1955-66: factors
1955 Germany economy improved extremely significantly
1. Korean war
2. new investment
3. workers (foreign)
Economic miracle of 1955-66: Korean war
1950 war in korea created a market for war supplies 9FRG was banned from producing weapons but industrial goods, steel, chemicals and electrical goods were in greater demand)
-1955 FRG joined NATO and was allowed to re-arm (started production of war materials)
Economic miracle of 1955-66: New investment
Many businesses had recovered by mid 1950s to be able to invest in new and more efficient equipment/ factories
- concentrated on high quality goods and low prices to compete
- reputation of german goods improved and exports grew
- greater exports= more growth= more workers
Economic miracle of 1955-66: Workers themselves
influx of refugees created a large pool of ‘guest workers’ (created an efficient workforce over time)
- During 1950s, around 3.6 million more workers came to FRG from GDR ( highly skilled and educated young people)
- all actively wished to work as a part of German consumer culture
- employed on short term fixed contracts
Economic miracle of 1955-66: possible problems
Growth could not keep going at a rapid rate of 1950s and early 1960s
–> appliances were so good that demand fell as people did not need to replace their products
What was the recession of 1966-67?
FRG’s first economic recession:
Trade reduced and unemployment increased
Guest workers fell from 1.3 million workers in 1966 to 991K by september 1967
Production fell
Govt had been spending too much due to social welfare policies
How did economic minister Karl Schiller tackle the 1966-67 recession?
increased govt planning, intervention and control e.g. subsidies for agriculture and coal industry
reintroduced cartels to stop rising prices
1967 Economic stabilisation law: allowed govt intervention in times of economic crisis to limit regional spending & introduced 5 year plan
1968: provision added to basic law (said federal govt could move money around between Länder (wealthy money for struggling people)
Oil crises of 1973 and 1978?
FRG came to rely on oil rather than coal during 60s and 70s:
- 1972:10.8 billion DM on 140 million tonnes of oil 9changed after 1973 due to 4th Arab-Israeli war)
OPEC increased prices sharply in 1973 & 1978
- 1973 140 million tonnes = 32.8 Billion DM // 1978 140 million tonnes- 49 Billion DM
Due to the oil crises what hit the FRG?
Economic crisis that hit during 1974-5:
- unemployment rose sharply (made worse by baby boomers who were jsut hitting market)
- foreign guest workers again found unrenewed contracts and ban on anyone recruiting them
Why was the FRG in fact not hit as hard by the oil crises?
Export income helped economy recover rapidly
- oil consumption dropped due to govt policies like ‘no-car sundays’ and speed limits
- govt propaganda pushed energy saving tactics in homes and industry
Baby Boomers: who were they?
from 1946-64, there was a sharp rise of births
- 69.4 births per 1000 women: 1954
- 86.8 births per 1000 women: 1964
What were some of the economic challenges of the 1980s?
gap between richest and poorest widened
- created friction and hostility towards guest workers
Unemployment hit 1.7 million in 1981 (highest since 1950)
- drove up amount of spending on unemployment benefits and assistance
1981 govt cut public spending including benefits and housing allowance (deeply unpopular)
What was the aim of Helmut Kohl’s govt?
Kohl said productivity levels fell due to dependency on welfare support and slack values of baby boomers
- his govt made even more social welfare spending cuts ( public holidays and reduced retirement age to 58)
-Govt sold off shares in state run institutions like Volkswagen partially privatising them. This produced a slight but growing improvement and by 1989, unemployment was at its lowest
Changes to living standards during FRG
war damage meant families were torn apart, starvation and homelessness
- 1/5th of all housing had been bombed flat & 1/3 was damaged
-Refugee influx led to even more pressure on housing
- Ministry of housing was set up to oversee building (freezing rents and tax concessions)
New houses built between 1949-1989?
1949: 222K houses in total with none having central heating
by 1966, it peaked at 605K with 79% central heating
but 1971, this fell to 553 whilst the % of central heating increased to 96%
Spending patterns of FRG people?
standard of living rose as economy improved:
- 1963: 63% of homes had fridges/ 42% had TV/ 36% had washing machine
-1985: 85% had fridges/ 82% TV/ 87% washing machine
-Pension reforms in 1980s meant most people received state pension
Food/clothing/saving patterns?
1957: 36.6% spending on food
1985: 17.4 %
1957: 12.5% clothing // 1985: 6.5%
1957: 8% in savings // 1985: 12.7%
FRG’s integration into European economy from 1949-1989
Allies had included West Germany in their plans of rebuilding Europe, like allowing them into the OEEC.
– since the start, Adenauer had wanted to build close connections with the West. He especially wanted to establish good relations with France
Franco-German Friendship treaty 1963:
1963 Jan, French PM signed the treaty at Elysée palace after 15 different meetings and a joint commemoration of war dead of both countries at Reims Cathedral in 1962.
- 1958-69: FRG exports and imports to and from other EEC countries doubled, strongly supporting the Basel agreement that linked European currencies.
What is the OEEC?
Organisation for European Economic Cooperation
- set up on April 16th 1948
administered marshall plan aid in Europe
GATT: what is it and when did the FRG join?
General agreement on Tariffs and Trade, joined in 1951 ( to establish favourable trade agreements between its members
What was the ECSC?
European coal and steel community, joined on 1951, joining France, Italy, Belgium and Netherlands.
