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
What were the issues of the 1966-1967 recession?
(4)
- fall in international + domestic trade
- increased unemployment
- increased government public speanding; 1965 DM 46.7 mil –> 1970 DM 115.9 mil (despite benefits cuts)
- decrease in number of guest workers = decrease in productivity; 1 year contracts with no social welfare and no benefits (Sept 1967 less than 1 mil guest workers)
How did the government deal with the 1966-1967 recession?
(6)
Schiller (Economics Minister) increased government intervention + control;
- government subsidies for agriculture + coal industries
- reintroduced cartels; stop prices from rising
- 1967 Economic Stabilisation Law; government able to limit länder spending in times of crisis
- 5 yr plan system for all gov spending
- 1968 Basic Law amended; federal gov able to redistribute money between länder
What caused the oil crises of 1973 and 1978?
- oil as FRG’s main fuel
- 1973, Fourth Arab-Israeli War; OPEC increased oil prices in 1973 and 1978 –> provided 40% of FRG’s fuel
What were the issues of 1973 Oil Crisis in FRG?
- 1974 -1975 recession
- sharp unemployment increase
- ban placed on recruiting foreign workers
How did the FRG government deal with the consequences of the 1973 Oil Crisis?
(3)
- government tried to reduce oil consumption
- public spending cuts
- 1975, higher income tax
How did the government reduce oil consumption after the 1973 Oil Crisis?
(5)
- encouraged ‘car free Sundays’
- introduced speed limits on autobahns
- government propaganda encouraged domestic energy-saving tactics
- industry + government invested in atomic power
- gov. did not subsidise oil prices
What were the consequences of 1978 Oil Crisis in the FRG?
(3)
- 1978, minor recession in west Germany due to oil prices
- over relatively quickly
- other countries also affected
What was the economic situation in the 1981 in the FRG?
(3)
- total exports continued to rise, higher than imports
- 1981, unemployment hit 1.7mil –> increased gov. spending on unemployment benefits
- 1981, gov cut public spending (benefits + housing allowance) = very unpopular, Bundestag divided
How did the government deal with the 1981 economic situation?
(5)
1982, Kohl’s CDU gov;
- cuts social spending more
- cut public holidays
- lowered retirement age to 58
- sold shares to state-run institutions (Volkswagen, Lufthansa), partially privatised them
How successfully did the government deal with the 1981 economic situation?
(3)
- slight but growing improvement
- 1989, unemployment at its lowest
- economic growth rate rose
Examples of political impact of economic measures
- 1966, Erhard brought down by FDP ministers over his budget which increased tax to deal with economic issues
Living standards in 1945
(2)
- 1/5th of all housing bombed flat
- 1/3rd of housing left was damaged
= most pressing issue (many homeless + refugee influx)
How did the government/Allies deal with the low living standards of 1945?
(4)
- Ministry of Housing set up; to oversee rebuilds
- rents frozen
- building industry given tax concessions
- housing associations set up; to build homes, some state run for social housing, others private
living conditions in 1980s
(4)
- 1985, over 80% of households had a fridge, a TV, and a washing machine (individually)
- 1980s, 90% of all West Germans were covered by state benefits + healthcare
- 1980s pension reforms = most people recieved a state pension
- 1980 life expectancy 12 years longer than in 1950
