FRG Economy Flashcards
What barriers to economic recovery did Germany face immediately after WWII?
(5)
- Allies banned war industries (munitions) & restricted output of war-related industries (chemicals)
- Allies took reparations in equipment + machinery (French and USSR to greater extent)
- war damage; varied geographically across zones
- Reichsmark worthless; black market + low employment as worthless wages
- 10 million GR refugees (land reallocation) + 4.5 displaced persons and soldiers
How did the Allies deal with the millions of DPs and refugees?
(2)
- introduced rationing
- housed them temporarily in ex-concentration camps (eg. Dachau)
How did economic measures lead to the separation of Germany?
(5)
- 1948, Marshall Aid; $1.4 mil given to western zones
- 20th June 1948, currency reform; Deutschemark (DM) introduced in western zones, to administer Marshall Aid
- Stalin began Berlin blockade + introduced östmark
- May 1949, FRG created
- Oct 1949, GDR created
What is a social market economy?
a free market economy with state support for the disadvantaged
–> social security + codetermination
Who was Ludwig Erhard?
- March 1948, appointed as Director of Economic Administration in Bizonia
- 1949-1963, FRG Economics Minister
- belived in a social market economy
What were the effects of currency reform?
(5)
- stabilised the economy
- ended the black market
- wages had value
- increased consumer spending –> stimulated production
- polarised western + eastern zones
What did Ludwig Erhard do?
(4)
- June 1948, introduced currency reform; DM 6.5 per 100RM + DM 60 per adult
- June 1948, abolished non-essential rationing (bread + milk powder continued)
- June 1948, abolished price controls
- fixed wages until Nov 1948; allowed businesses to establish themselves
What was the system of compensation for those who had lost everything in the war?
(3)
- 1952, Equalisation of Burdens Act passed
- complicated system to tax assets
- money raised redistributed to help poor
= left wing economic policy
Why was economic recovery not immediate after Erhard’s reforms, 1948?
(3)
- factories had to replace machinery
- had to train workers
- not all businesses could afford to pay wages after currency reform; layoffs + bankrupcies
What were the consequences of Erhard’s reforms?
(4) indirect
rise in prices not matched by wages;
- incentive to sell + confidence to buy
- (also because of shortages & need to import) balance of payments deficit
- 1948-1949, recession; 13.5% unemployment in 1949 (over 1 mil), over by 1951
What was the ‘economic miracle’?
1955, rapid improvement of the FRG economy
What external factors caused the economic miracle?
(4)
- 1950 Korean War; FRG not allowed to rearm so as other countries shifted their economies to war production, global demand for consumer goods, steel, chemicals fulfilled by FRG
- 1955, FRG joined NATO; allowed to rearm, began to produce war material too
- 3.6 mil GDR refugees; settled for low wages, already trained at expense of GDR
- OEEC, ECSC; opened European markets to west GR trade
What internal factors caused the economic miracle?
(4)
- Industrial peace; codetermination led to lack of strikes
- increased government expenditure; no army until 1955 = generous social spending
- demand for FRG consumer goods; economic recovery allowed businesses to invest in machinery = high quality goods at low prices = high global demand
- Financial stability; willingness of Bundesbank to control interest rates and money in circulation
codetermination
policy adopted in 1951; workers’ representatives on managerial boards in industry
Why did the economic miracle end?
(2)
- demand fell; goods so high quality you purchase once for long time
- 1961, erection of the Berlin Wall; halted stream of educated professionals
