Theme 3- Economic Development and Policies 1945-1989

Question 1

What did Erhard do to reform the currency and what impact did this have?

Answer 1

On 20th June 1948 a new currency, the Deutschmark was introduced and the monetary supply contracted by as much as 90%. After the currency reformed and businesses were given loans of the new Deutschmark, industrial output increased by 50%.

Question 2

What was the impact of the end of rationing and price controls from 20th June 1948?

Answer 2

People could afford goods which reemerged in shops and this stimulated the economy. As a result, the black market disappeared.

Question 3

How much was tax reduced by and why?

Answer 3

In 1950, the rate for those on an average income of DM2400 fell to 18% when it had been as high as 85%. This stimulated the economy because people had more money to spend.

Question 4

What is the social market economy?

Answer 4

Based on free enterprise but with government oversight and guaranteed rights for employees, e.g co-determination.

Question 5

How was productivity affected by these post-war reforms?

Answer 5

Absenteeism was reduced from 9.5 to less than 2 hours a week which meant that productivity increased. In 1950 alone, the growth of industrial production was 25%.

Question 6

How was unemployment affected by the reforms?

Answer 6

Unemployment fell from 10.3% in 1950 to 1.2% by 1960.

Question 7

How were salaries affected by the reforms?

Answer 7

Salaries rose 80% between 1949 and 1955 meaning people had more money to spend.

Question 8

What were the key policies from the FRG government that helped spark the economic miracle?

Answer 8

Work creation schemes to tackle unemployment such as the rapid rebuilding of German cities in 1950. Investment Aid Law 1952 provided DM3.2 billion to industrial development. Joined the EEC which cut protective tariffs, encouraging trade. Anti-Trust Law 1957 which prevented and dismantled cartels. Banking controls- in 1957 the Deutsche Bundesbank was created with authority over monetary policy which helped control inflation.

Question 9

What were the external factors that helped boost the FRG’s economy?

Answer 9

World economic recovery increased demand for German exports as did the Korean War which increased demand for exports like industrial goods and motor vehicles. The Marshall Plan gave $1.5 billion in aid between 1948 and 1952. 2 million GDR emigrants found work which increased economic production.

Question 10

How did unique factors to Germany help boost the economic miracle?

Answer 10

Limited defence spending meant the FRG was not hampered by a need to increase defence spending like other European nations. Export model of the German economy which allowed it to benefit from Korean War. Strong economic foundations like an abundance of raw materials and an educated and skilled workforce. Co-determination led to a good working relationship between management and workers meaning wage demands and strikes were low.

Question 11

What was the main cause of the economic miracle?

Answer 11

Nothing else would have been possible without strong foundations and the export model allowed Germany to benefit from increased demand for goods during economic recovery and the Korean War. Co-determination meant wage demands were low which meant the banking controls could operate successfully and greater trade from joining the EEC wouldn’t have been possible without the skilled and educated workforce and abundance of raw materials.

Question 12

How extreme was the economic miracle?

Answer 12

The FRG had an average growth rate of 8% and became the third largest trading power in the world by the mid 1950s. By 1960, full employment had been achieved, including 2 million East German emigrants.

Question 13

What are guest workers?

Answer 13

Workers invited to work in the FRG but given no rights of citizenship. This helped to increase industrial production.

Question 14

What did the government do to try and solve the 1965 recession?

Answer 14

Erhard was criticised for spending too much on railway infrastructure, rearmament and agricultural subsidies. Erhard had to cut his spending plans by 10% and he raised interest rates.

Question 15

How successful were the attempts to deal with the 1965 recession?

Answer 15

Prices had risen 4% by 1966. Erhard’s policies failed and Germany slipped into further recession. To finance the increased public spending, they would have to sell more abroad which was difficult during a global recession.

Question 16

How did Brandt’s social reforms worsen the economy?

Answer 16

Brandt’s social reforms were worsening inflation and the spending on the welfare budget increased from 25% of the GDP to 33% of the GDP. He had policies such as increased pensions, health insurance extensions and the social housing budget increased by 36%.

Question 17

How problematic were the economic problems under Brandt?

Answer 17

Not very problematic because Brandt’s social reforms were popular and he did well in the November 1972 elections. The economy was still doing better than other European countries too.

Question 18

What caused the oil crisis 1973?

Answer 18

In October 1973, the Organisation of the Petroleum Exporting Countries announced a 70% increase in the price of oil and a 5% reduction in output. This was partly due to a rise in the prices of goods they bought from the West and partly due to the West’s perceived support for Israel.

Question 19

How did the government try to deal with the oil crisis?

Answer 19

The oil crisis was dealt with with public measures such as car-free Sundays but more effective was the switch to nuclear energy, the creation of the European Monetary System, DM7-8 billion in grants and abolition of legislation that controlled mergers.

Question 20

How successful were the policies in solving the oil crisis?

Answer 20

DM17 billion more had to be spent on imports and unemployment rose from 1.2% in 1973 to 4.7% by 1975. However, the economy still recovered much more quickly than other Western European Countries and the policies were very successful.

Question 21

Which of Kohl’s policies were unpopular in the 1980s and why?

Answer 21

Kohl’s efforts at privatisation and reduced public spending in the 1980s were met with opposition from both unions and the civil service. For example budget increases were capped at 3%.

Question 22

How successful was the economy in the 1980s?

Answer 22

The economy was prosperous in the 1980s with a balance of payments surplus increasing from DM73.4 billion in 1985 to DM134 billion in 1989. Inflation had fallen to less than 1% by 1986.

Question 23

What was the ECSC?

Answer 23

The European Coal and Steel Community. The FRG was part of the ECSC and the High Authority ran the coal and steel industries of the 5 member countries. It also acted as a treaty of friendship between France and the FRG.

Question 24

What was the EEC?

Answer 24

The European Economic Community. It created a free trade zone for members and the FRG was a key member of it, being the wealthiest member country. The FRG pressed for closer European Integration and freer trade with the outside world.

Question 25

What was the European Monetary System?

Answer 25

In 1978, Schmidt supported the creation of a European Monetary System which fixed exchange rates in the EEC to the Deutschmark to keep inflation down across Europe. (Showed European integration as the currency used was the Deutschmark).

Question 26

What were the benefits of integration into the European economy?

Answer 26

The ECSC meant trade in coal increased among its members ten times. The EEC also made it easier to trade and the FRG was an exporting nation so they massively benefited from this. 25% of chemical goods and 23% of motor vehicles were supplied by the FRG to European partners by 1989.

Question 27

How did employment change in the FRG?

Answer 27

Unemployment decreased to 1.2% by 1960. For example, the number of employees in the public sector rose 250% between 1950 and 1985.

Question 28

How did working conditions change in the FRG?

Answer 28

Families often needed 2 incomes to support their affluent lifestyles. However, wage demands were generally restrained although there were a few severe strikes in the early 1970s. Prices rose 6% annually and trade unions had to put in wage demands to account for this.

Question 29

How did housing standards change in the FRG?

Answer 29

Housing standards improved and living space per person rose from 19 square metres in 1950 to 30 square metres by 1980. Some older properties lacked facilities but this was only 18% of them by 1983. Home ownership was also low, only 37.8% in 1987 with most Germans preferring to rent.

Question 30

How did disposable income change in the FRG?

Answer 30

Disposable income was high; in 1964, the average for a 4 person household was DM904. Car ownership increased from 2 million in 1950 to 12.1 million in 1965.

Question 31

How did the cost of living change in the FRG?

Answer 31

The cost of living was much lower than other European countries, even the GDR (price index of 100 for FRG in 1985 compared to 121 for GDR).

Question 32

Overall, did living standards improve or worsen?

Answer 32

Living standards massively improved as Germans had more money to spend, housing conditions improved and working conditions were good because of co-determination.