Working Paper
The Travails of Unification

East Germany’s Economic Transition since 1989

The former German Democratic Republic underwent a unique post-communist transition because it was absorbed into the wealthy Federal Republic of Germany and has received massive subsidies. Nonetheless, serious difficulties have persisted, including higher unemployment, rapid deindustrialization, and greater political loyalty to the successor parties of the former Communists than in the West. The reasons for these phenomena remain debated, but seem to the legacy of concealed structural weakness in the old GDR, perhaps the one-to-one conversion of East German savings into Deutschmarks, and the commitment to elevate wage levels in the East close to those prevailing in the FRG.