A miracle, but not as economists saw it...
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This week marks the 20th anniversary of the end of the division of East and West Germany. To date, the cost of this reunification has reached €1.3 trillion (£1.2 trillion), but as Stefanie Eschenbacher writes this week, for most Germans the benefits have been “priceless”.
The iconic images of Berliners breaking down the Wall live long in the memory of an event which became synonymous with the fall of Communism in Europe and the end of the Cold War. Within months Latvia, Czechoslovakia, Bulgaria and Romania all brought down their governments.
But it seems the 20th anniversary has come at an unfortunate time, given how hard Europe and in particular the former Eastern bloc has been hit by the downturn.
While Germany has officially climbed out of recession, the economies of several eastern European countries have been savaged over the past year. Latvia, for example, saw its GDP decline by 11% in the second quarter of 2009, following on from a 0.5% decline in the first quarter. Meanwhile its fiscal debt has climbed from zero going into the recession to 50%, while its unemployment rate has soared to over 18%. Troubled times indeed.
”Without exception people in these countries have greater freedom of association, expression and movement. Is this failure?”
So when analysts look back at the 20 years since the collapse of the Wall, do they conclude that capitalism has failed these countries and that West Germany, from an economic perspective, would have been better off left alone?
In terms of the first part of the question, it was only a couple of years ago that money was pouring into eastern Europe as stockmarkets were soaring. Indeed, in each of the first two quarters of 2009 Polish GDP was in positive territory, the only eurozone country to have managed such a feat.
Eastern European economies may be struggling because the cost of converting to capitalism has been high, but as Nicholas Redman, the eastern Europe expert at the Economist Intelligence Unit, says, without exception people in these countries have greater freedom of association, expression and movement. Is this failure?
In terms of the second part of the question, one German economist concludes that the reunited Germany is now much weaker than West Germany used to be. However, while problems still remain, Europe’s largest and the world’s fourth-largest economy has now officially come out of recession, while the British economy continues to lag.
A second economic miracle (the first being the rapid reconstruction and development of West Germany after the second world war) was predicted for the East after reunification. While this may not have come about as expected, the real miracle for the people has been the triumph of freedom.
