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German History : 3 The Economy - Post War Germany/ FRG - Coggle Diagram
German History : 3 The Economy - Post War Germany/ FRG
Year Zero 1945
Barely functioning communication, little fuel, food or resources
Winter of 1946/47 serious threat of famine
industrial production 33% of 1938 level
black market thrived fueled through scarcity and the use of cigarettes as currency
The economic policy of the western alllies in the 1940s
Morgenthau Plan - deindustrialization of Germany
1947 Bizonia established - GB and US zones
Truman Doctrine
March 1947
followed Marshall Plane
Emphasised US support
to benefit US eg overseas markets
counter spread of communism
Currency reform and abolition of wage and price controls
to rampant black market
June 1948 new Deutschmark
removal of price controls to stabilise economy
All announced by Erhard without Allies approval
led to 25% increase in production
Reform made incentiuves to work
'Berline blockade' - airlifting supplies Jun 1948 to May 1949
The Economic Miracle
included sharp decline in unemployment - full employment by 1960s
relying on foreign workers to fill labour shortages
exports florished with trade surplus in 1952
Established companies thrived eg Krupp, Thyssen, BMW, Mercedes and Volkswagen - gained global recognition
Unemployment rates remained low and disposable income soared
US style credit and payment plans
50s and 60s surge in car ownership (500,000 to 4mil)
rise in leisure activities like vacations
Reasons for the economic miracle
Social market ideas
'social market economy'
prevent monopolies and ensure fair competition
Germany broke with cartels
Increased gov investment
Central Bank : The Bundesbank
established in 1957
tightly controlled money circulation
managed inflation
encouraged steady investment flow
International context and support
High growth rates in West Europe, Japan ans US supported trade and investment
Rising demand from Western allies during Korean War
Marshall plan - injected needed capital into the economy
Joining European Coal and Steel Community (ECSC) in 1951 which helped shape EU
Joining European Economic Community (EEC)
Cheap, plentiful labour
1950s influx in guest workers (Gastarbeiter) from Southern Germany
Skilled workers in East Germany sought opportunities in West Germany due to idealogical differences
Recession 1965-67
Karl Schiller's neo-Keynesian economic policy 1966-72
Schiller appointed as Economic Minister in 1966 under Kiesinger
approach involved increased state intervention to stimulate economic growth and ensure full employment
criticised a 'capitalist law of the jungle' (socialists)
aimed to blend free market with necessary state planning "competition as much as possible, planning as much as necessary"
Included increased public spending
motorways and raailways
funded by new taxes like VAT and higher income tax
Law for promoting Stability and Growth in Jun 1967 - gave gov more power to intervene in the economy
collaboration between workers, employers and the state called concerted action
Inflation dropped to 1.5% and achieved full employment by 1969
Unemployment reached 3.2% but by sept 1968 dropped to 0.8% again
300,000 coal miners strike in March 1966
30,000 farmers strike in March 1967
1970s Recession
Economic disruption
Oil crisis of 1970s
x4 oil prices
caused drop in production and exports meaning economic slowdown and unemployment
oil embargo OPEC imposed
Inflation and debt
trade union demand for wage increases
added to economic strain
exacerbated gov debt and fiscal challenges
unemployment
1 million by 1975
loss in tax revenue
increased gov spending on unemployment benefits
straining state finances
Gov response to oil crisis (Schmidt)
Brandt introduced "car-free Sundays" - reduce fuel consumption
Deflationary policies
reduce gov spending and borrowing
cut in social welfare and public investment
tax increases and introduction of VAT
negotiated wage agreements with trade unions - reduced production cost and lowered prices
Tight monetary policy
Bundesbank given greater independance
Interest rates raised
Bonn - Program 1976
address root causes of inflation
promoted long term growth
included tax reform (simplify)
Promotion of energy efficiency (Energy programme)
Investment in domestic energy sources
reduce dependance on foreign oil by investing in domestic sources
emphasised nuclear energy (aimed for 50% nuclear by 2000)
Built 40 nuclear power plants
European agreements
1978 European Monetary System (EMS) helped align exchange rates
EMS meant coordination with monetary policy and exchange rates
EMS helped promote trade and investment
Review of actions
West Germany managed to maintain relative economic stability
by late 1970s inflation was 4%
Schmidts leadership contributed to West Germany's resilience during this period
West German Economy in the 1980s
Impact of Iranian Revolution
caused disruptions in global oil market
due to Germanys heavy reliance they experienced high inflation and unemployment rates
Shift towards post-industrial economy
decline in basic heavy industries eg iron, steel and coal due to globalisation (rise in China economy)
rise in service-oriented sectors eg finance, healthcare and education and were important contributors to economic growth
rapid technological advancements
could not completely compensate for loss of jobs as different skills required
So levels of unemployment remained pretty high compared to 1950s and 60s
Kohls supply side policies
stimulate economic growth through taxes, deregulation and free trade
he reduced size of gov, cut spending and privatise (eg Volkswagen and Lufthansa)
more doctrinaire neo-conservatism
but did not dismantle welfare state
did not significantly reduce social protections
Continued to invest in healthcare, education
Integration into the European economy 1949-89
ECSC in 1951 - high authority to run coal and steel industries of five memebers
The Treaty of Rome 1957 laid groundwork for EEC creating free trade zone and strengthened ties
EMS established in 1978
ensure stable exchange rates and facilitate trade
The Bretton Woods system set up in 1944 collapsed in 1974 that had pegged world currencies to the dollar
paved way for Euro introduction in 1999
Single European Act in 1986
aimed to create single european market by 1992
led to formation of EU in 1999
Benefits
Trade
removal of trade barrier
easier for companies to conduct business across boarders
reduced transaction costs
could leverage their expertise to gain reputation to gain competitive edge
helped larger market shares and expand export volumes
Economic stability
EMS
reduced currency volatility and uncertainty with trade and investment
Increased competitiveness
encouraged competition and innovation
access to larger consumer base
Technological and knowledge transfer
exchange of technologies
benefit from advancements and expertise developed in other states