German Economic Unification and European Integration: Prosperity without Stability?

Abstract

The new Germany is Europe’s leading economy, the biggest trading nation in the EU, and Europe’s second most important source of foreign direct investment. Germany is thus a strongly internationalized country, even if, as a result of German unification, it is an economically divided country. Overcoming more than 40 years of different institutional, economic and political developments naturally is difficult; yet problems may be limited if the country’s unification spreads gains equally across regions and professional groups, and if there are mechanisms leading to convergence. Within a country, capital exports from capital-rich to capital-poor regions, fiscal transfers, one-time corrections in the regional wealth endowment and, of course, interregional trade, should bring about a gradual narrowing of differentials in income and wealth. If market forces and political interference cannot bring about convergence, migration could; the German economic, monetary and social union of July 1, 1990 was indeed motivated by a fear of a massive westward migration of East Germans. 388,000 East Germans left the ex-GDR in 1990, another 395,000 and 250,000 in 1991 and 1992, respectively. Since in 1991, 80,000 moved eastward in Germany; the net outflow in 1991 fell to about half the level of the previous year, to 169,000 (FEDERAL STATISTICAL OFFICE, 1994a).