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

What is the social market economy?

Answer 3

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

Question 4

How was productivity affected by these post-war reforms?

Answer 4

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 5

How was unemployment affected by the reforms?

Answer 5

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

Question 6

How were salaries affected by the reforms?

Answer 6

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

Question 7

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

Answer 7

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 8

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

Answer 8

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 9

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

Answer 9

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 10

What was the main cause of the economic miracle?

Answer 10

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 11

How extreme was the economic miracle?

Answer 11

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 12

What are guest workers?

Answer 12

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

Question 13

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

Answer 13

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 14

How did Brandt’s social reforms worsen the economy?

Answer 14

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 15

How problematic were the economic problems under Brandt?

Answer 15

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 16

What caused the oil crisis 1973?

Answer 16

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 17

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

Answer 17

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 18

How successful were the policies in solving the oil crisis?

Answer 18

Lots of money had to be spent on imports and unemployment was a problem, yet the economy still recovered much more quickly than other Western European Countries and the policies were very successful.

Question 19

How successful was the economy in the 1980s?

Answer 19

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 20

What was the ECSC?

Answer 20

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 21

What was the EEC?

Answer 21

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 22

What was the European Monetary System?

Answer 22

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 23

What were the benefits of integration into the European economy?

Answer 23

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 24

How did working conditions change in the FRG?

Answer 24

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 25

How did the cost of living change in the FRG?

Answer 25

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 26

Overall, did living standards improve or worsen?

Answer 26

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