Posts Tagged ‘Treuhandanstalt’

Reunification exuberance turns to gloom

Thursday, November 6th, 2014

Last week, we talked about the fall of the Berlin Wall on November 9, 1989 and the reunification of East and West less than one year later. We also alluded to the financial and social costs that unity would require.

Financial and social costs of reunification

Immediately following reunification, an agency was created to privatize the “people’s property”, the state-owned enterprises in the former East. This agency was called Treuhandanstalt. It soon became clear that the average productivity of the German Democratic Republic (East Germany) was equal to only one-third of that of the Federal Republic of Germany (West Germany). The profit from privatization that had been expected to come close to DM 600 billion (about €300 billion) fell short by far. In fact, the expected profit turned into an actual deficit of DM 230 billion (€115 billion). That meant that privatization could no longer pay for the needed infrastructure in the new federal states, as had been anticipated. To make matters worse, factories in the former East were so outdated that they had to be closed and/or rebuilt resulting in massive unemployment. With little initial productivity in the East, the population in the former West was forced to bear most of the financial costs of reunification. The population in the former East was forced to bear most of the social costs of reunification. Soon, reunification exuberance turned into gloom on both sides.

Aufbau Ost project.

Then there was the Aufbau Ost project. It consisted for the most part of the construction of infrastructure and telecommunication facilities in the former East, preservation of cultural assets, environmental projects, and the renovation of inner-city residential quarters in Dresden, Leipzig, Chemnitz, and Halle. The initial lack of such assets in the five new federal states resulted in an immediate exodus from east to west. According to a recent statement by German Chancellor Angela Merkel, the exodus has finally stopped. But it took 25 years before the population outflow in the new federal states is equal to the population influx.

Today, 25 years after reunification, great progress has been made in the former East, both economically and socially. The worst is over. Still, enormous challenges remain. But the people from East and West are now prepared to face them together. http://www.tatsachen-ueber-deutschland.de/en/german-unity/main-content-020/the-challenge-aufbau-ost.html

 

 

For a sneak peek at the first 20+ pages of my memoir, Walled-In: A West Berlin Girl’s Journey to Freedom, click “Download a free excerpt” on the home page of http://www.walled-in-berlin.com. Walled-In is a story of growing up in Berlin during the Cold War.

 

 

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Germanys Unite through Treuhandanstalt

Tuesday, December 31st, 2013

How did the two Germanys unite economically after the fall of the Wall? Through a Treuhandanstalt. West Germany was built on a free market system. East Germany was based on a state planned economy. In order for the two Germanys to reunite after the collapse of East Germany in 1989, a common system had to be created.

Creation of a Treuhandanstalt

In mid-1990, East Germany’s legislature created a trust agency, called Treuhandanstalt, which was to become the legal owner of all state-owned property of the former East Germany. On 3 October 1990, the date of the formal German Unification, this holding company was put in charge of privatizing and restructuring around 14,000 state-owned companies, agricultural lands and forests, public housing, property of the former Ministry for State Security (Stasi), and holdings of the former National People’s Army.

Problems facing the Treuhandanstalt

Most of the factories in East Germany had never been modernized so that their productivity was on par with that of developing countries. Following unification, East Germany products simply were no longer in demand. Only high tech enterprises, such as Jenoptik in Jena, Opel in Eisenach, the steelworks EKO, and the Baltic shipyards were considered profitable enough to be restructured. (www.kalenderblatt.de)

Treuhandanstalt is criticized

The operations of the Treuhandanstalt quickly drew criticism. The agency was accused of unnecessarily closing profitable businesses, misusing or wasting funds, and unnecessarily laying off workers (approximately two-and-a-half million employees in state-owned enterprises were laid off in the early 1990s). Affected workforces protested. Supporters of Treuhandanstalt operations argued that not placing these former state-owned enterprises into private hands would cause the loss of even more jobs and slow down economic recovery.

Treuhandanstalt is disbanded

In the end, the trust agency left debts amounting to 137 billion Euros. On this day in history, on 31 December 1994 the Treuhandanstalt was disbanded.

 

For a sneak peek at the first 20+ pages of my memoir, Walled-In: A West Berlin Girl’s Journey to Freedom, click “Download a free excerpt” on the home page of http://www.walled-in-berlin.com. Walled-In is a story of growing up in Berlin during the Cold War.

 

 

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