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Germany: Unified country, divided economy?

The Federal Republic of Germany (FRG), commonly known as West Germany, and the German Democratic Republic (GDR), also called East Germany, unified to form present-day Germany on October 3rd 1990. Since then, there have been voices claiming that it was less of a re-unification and more of a ‘feindliche Übernahme’ (hostile takeover) that would sow the seeds for an economic disharmony lasting decades.

Almost 25 years on, there remains a great deal of debate about how successful re-unification has been from an economic standpoint, but does the much talked about divide really exist?

The short and simple answer is yes. When one looks at key metrics such as household income, disposable income, gross annual salary, unemployment, and house prices, there can be no doubt that an economic divide persists, to the detriment of the former GDR.  A number of causes have been identified, including the great currency exchange of 1990, the change in prices in the former GDR, and a mass labor migration to the West during the early 1990s.

However, while there is indisputable evidence of an economic divide between the former East and West Germany, there is also evidence that the gap is being bridged. Broadly speaking, the East of the country was less affected by the economic crisis of 2008/2009, and economic modernization is occurring in some areas. Government and EU subsidies have helped the process, and the recent rise of so-called Ostalgie (a play on the German words for East and nostalgia), has seen former GDR brands re-invent and reposition themselves as desirable brands, allowing the brand owners to become major players in the unified Germany. The economies of the so-called ‘Neue Bundesländer’ are, for the most part, growing at a faster rate than their western counterparts and unemployment, which has for so long blighted the East German landscape, is steadily falling.

The job of unifying East and West Germany economically is not yet finished, but there are signs that the long-awaited Wirtschaftsunion is nearing. The German government and EU must continue to support the development of the former GDR by way of subsidies and any reduction of support could jeopardize the union. However, if things continue to develop as they are at present, those who campaigned long and hard to see a unified Germany will live to their dreams fully realized.

Want to know more about Germany’s economic divide, how it can be felt in the country and the reasons behind it? See our case study Germany: Unified country, divided economy?

Posted in Economy.

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