Germany since Unification

Also by Klaus Larres

POLITICS OF ILLUSION: Churchill, Eisenhower and the German Question,

1945–1955 (in German)
THE FEDERAL REPUBLIC OF GERMANY SINCE 1949: Politics, Society and
Economy Before and After Unification (co-editor with P. Panayi)
GERMANY AND THE UNITED STATES IN THE 20th CENTURY: A Political
History (in German, co-editor with T. Oppelland)
A HISTORY OF THE FEDERAL REPUBLIC OF GERMANY, 1949–1989 (in
German, co-author with T. Oppelland)
UNEASY ALLIES: British–German Relations and European Integration since
1945 (editor)
Germany since Unification
The Development of the Berlin Republic

Edited by

Klaus Larres
Reader in Politics
The Queen’s University of Belfast
Northern Ireland

Second Edition
Selection, editorial matter and Chapter 2 © Klaus Larres 1998, 2001
Other chapters © Palgrave Publishers Ltd 1998, 2001

All rights reserved. No reproduction, copy or transmission of

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Copyright, Designs and Patents Act 1988.
First edition, Germany since Unification: The Domestic and External
Consequences, published 1998 by Macmillan Press Ltd
Published 2001 by
PALGRAVE
Houndmills, Basingstoke, Hampshire RG21 6XS and
175 Fifth Avenue, New York, N. Y. 10010
Companies and representatives throughout the world
PALGRAVE is the new global academic imprint of
St. Martin’s Press LLC Scholarly and Reference Division and
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ISBN 978-0-333-91999-6 ISBN 978-0-230-80003-8 (eBook)

DOI 10.1057/9780230800038

This book is printed on paper suitable for recycling and

made from fully managed and sustained forest sources.
A catalogue record for this book is available
from the British Library.
Library of Congress Cataloging-in-Publication Data
Germany since unification : the development of the Berlin republic / edited
by Klaus Larres.—2nd ed.
p. cm.
Includes bibliographical references and index.

1. Germany—Politics and government—1990– 2. Germany—Economic

conditions—1990– 3. Germany—Social conditions—1990– 4.
Germany—History—Unification, 1990. I. Larres, Klaus.
JN3971.A91 G464 2000
943.089'9—dc21
00–062709

10 9 8 7 6 5 4 3 2 1
10 09 08 07 06 05 04 03 02 01
Contents
List of Tables vii
Notes on the Contributors ix
Glossary and Abbreviations xii
Introduction to the Second Edition xx
Introduction to the First Edition 1

Part I: The German Question and the Revolution of

1989–90
1 The German Question, 1945–95 9
Rolf Steininger
2 Germany in 1989: the Development of a Revolution 33
Klaus Larres

Part II: The Domestic Consequences of German Unification

3 The German Economy since 1989/90: Problems and
Prospects 63
Christopher Flockton
4 The German Party System since Unification 88
William M. Chandler
5 German Federalism in the 1990s: On the Road to a
‘Divided Polity’? 107
Charlie Jeffery
6 Racial Exclusionism in the New Germany 129
Panikos Panayi

Part III: The External Consequences of German Unification

7 The German Model and European Integration 151
Eric Owen Smith

v
vi Contents

8 Believing in the Miracle Cure: The Economic Transition

Process in Germany and East-Central Europe 174
Till Geiger
9 Germany’s Security Policy Dilemmas: NATO, the WEU
and the OSCE 203
Adrian Hyde-Price
10 ‘Present at Disintegration’: The United States and
German Unification 231
Michael Cox and Steven Hurst

Index 252
List of Tables
I.1 Results of the German General Elections, 1990, 1994
and 1998 xxxix
I.2 Results of the European Elections in Germany in 1994
and 1999 xlii
I.3 Results of the German Regional Elections in 1999–2000 xlvi
3.1 Macroeconomic evolution in the FRG, 1990–94 68
3.2 Treuhand performance, November 1994 75
4.1 A framework for analysing party change 90
4.2 Patterns of party merger 91
4.3 Coalition patterns: stability/change in the Länder 103
6.1 Racial attacks in Germany in 1991–92 139
7.1 Vertical fiscal equalisation 157
7.2 GEMSU and horizontal fiscal equalisation 158
8.1 Growth of output 177

vii
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Notes on the Contributors

Professor William M. Chandler is Professor of Political Science at

the University of California, San Diego. Previously he taught at McMaster
University in Hamilton, Ontario, Canada. His recent publications in-
clude Public Policy and Provincial Politics, with M.A. Chandler (1979);
Federalism and the Role of the State, edited with H. Bakvis (1987);
Challenges to Federalism: Policy-making in Canada and the Federal
Republic of Germany, edited with C.W. Zöllner (1989).

Professor Michael Cox is Professor of International History in the

Department of International Politics in the University of Wales, Aber-
ystwyth; he is also editor of the Review of International Studies. His
recent publications include US Foreign Foreign Policy after the Cold
War: Superpower Without a Mission? (1995); The Ideas of Leon Trotsky,
edited with H. Ticktin (1995); Rethinking the Soviet Collapse: Sovietology,
the Death of Communism and the New Russia, (ed.) (1998); The Eighty
Years’ Crisis: International Relations, 1919–1999, edited with T. Dunne
and K. Booth (1998).

Professor Christopher Flockton teaches in the Department of Lin-

guistic and International Studies at the University of Surrey in Guild-
ford, England. His recent publications include ‘The Federal German
Economy’, in D. Dyker (ed.), The European Economy, vol. 2 (1992);
‘Labour Market Problems and Labour Market Policy’, with J. Esser,
in G. Smith et al., Developments in German Politics (1992); ‘Econ-
omic Management and the Challenge of Reunification’, in G. Smith et
al., Developments in German Politics 2 (1996).

Dr Till Geiger is a Lecturer in European Studies at The Queen’s Uni-

versity of Belfast, Northern Ireland. His recent publications include
‘Like a Phoenix from the Ashes!? Western Germany’s return to the
European market, 1945–58’, European Contemporary History 3 (1994);
Regional Trade Blocs, Multilateralism and the GATT, edited with D.
Kennedy (1996); ‘National defense policies and the failure of military
integration in NATO: American military assistance and Western Euro-
pean rearmament, 1949–1954’, with L. Sebesta, in F. Heller and J.
Gillingham (eds), The United States and the Integration of Europe (1996).

ix
x Notes on the Contributors

Steven Hurst is a Lecturer in Politics at the Manchester Metropolitan

University, UK. He is the author of The Carter Administration and
Vietnam (1996); and US foreign policy between 1989 and 1992: The
Foreign Policy of the Bush Administration: In Search of the New World
Order (1999).

Dr Adrian Hyde-Price is a Senior Lecturer at the Institute for German

Studies of the University of Birmingham, England. His recent publica-
tions include European Security Beyond the Cold: Five Scenarios for
the Year 2010 (1991); ‘“Of Dragons and Snakes”: Contemporary German
Security Policy’, in G. Smith et al., Developments in German Politics
2 (1996); The International Politics of East Central Europe (1996).

Dr Charlie Jeffery is Deputy Director of the Institute for German Stud-

ies at the University of Birmingham, England. His recent publications
include German Federalism Today, edited with P. Savigear (1991); Fed-
eralism, Unification and European Integration, edited with R. Sturm (1993);
The Regional Dimension of the European Union, edited volume (1996).

Dr Klaus Larres is a Reader in Politics and a Jean Monnet Professor

for European Foreign and Security Policy at The Queen’s University
of Belfast, Northern Ireland. His recent publications include Politik
der Illusionen: Churchill, Eisenhower und die deutsche Frage 1945–
1955 (1995); The Federal Republic of Germany since 1949: Politics,
Economy and Society before and after Unification, edited with P. Panayi
(1996); Deutschland und die USA im 20. Jahrhundert: Eine Geschichte
der politischen Beziehungen, edited with T. Oppelland (1997); Geschichte
der Bundesrepublik Deutschland 1949–1989, co-authored with T.
Oppelland (1999); Uneasy Allies: British-German Relations and Euro-
pean Integration since 1945, ed. (2000).

Dr Eric Owen Smith is a Senior Lecturer in Economics at Loughbor-

ough University, England. His recent publications include Third Party
Involvement in Industrial Disputes: A Comparative Study of West Ger-
many and Britain, with B. Frick and T. Griffiths (1989); The German
Economy (1994); ‘Incentives for Growth and Development’, in S.F.
Frowen and J. Hölscher (eds), The German Currency Union of 1990 –
A Critical Assessment (1996).

Dr Panikos Panayi is a Principal Lecturer in History at De Montfort

University in Leicester, England. His recent publications include The
 Notes on the Contributors xi

enemy in our midst: Germans in Britain during the First World War
(1991); German Immigrants in Britain during the Nineteenth Century,
1815–1914 (1995); The Federal Republic of Germany since 1949:
Politics, Society and Economy before and after Unification, edited with
K. Larres (1996).

Professor Rolf Steininger is Professor of Modern History and Direc-

tor of the Institute of Contemporary History at the University of Inns-
bruck, Austria. His recent publications include The German Question.
The Stalin Note of 1952 and the Problem of Reunification (1990); Die
doppelte Eindämmung: europäische Sicherheit und deutsche Frage in
den Fünfzigern, edited (1993); Deutsche Geschichte 1945–1990:
Darstellung und Dokumente, 4 vols (1996).
Glossary and Abbreviations

ABS-Gesellschaften Employment Enterprises

AFG Job Creation Law
(Arbeitsförderungsgesetz)
AGMs General meetings of
shareholders
Ampelkoalition See traffic-light coalition
Amt für Verfassungsschutz (AVS) Office for the protection of
the constitution (MI5/FBI
equivalent)
Aufschwung Ost/West Economic upswing east/west
Auslandsdeutsche German citizens living abroad
Aussiedler Ethnic Germans
AWAC Airborne Warning and
Control System (US radar
system for early detection of
enemy forces)
Basic Law West German and then all-
German constitution
BBk Bundesbank (German Central
Bank)
BdL Bank of the German Länder
(Bank deutscher Länder)
Benelux countries Belgium, the Netherlands,
Luxembourg
BFD Union of Free Germans
(Bund Freier Deutscher)
BMF Federal Finance ministry
(Bundesministerium der
Finanzen)
BMI Federal Interior Ministry
(Bundesministerium des
Inneren)
BRD Bundesrepublik Deutschland
(= FRG)
Bundesbank (BBk) Federal Central Bank
Bundespost Federal Post Office

xii
 Glossary and Abbreviations xiii

Bundesrat Upper house of federal

Parliament
Bundesregierung Federal government
Bundestag Lower house of federal
Parliament
Bundeswehr Federal armed forces
Bündnis 90 (B90) Umbrella organisation of the
East German citizens’
movements
CAP Common agricultural policy
CDU Christian Democratic Union
CFE Conventional Forces in Europe
CFM Council of Foreign Ministers
CFSP (EU) Common Foreign and
Security Policy
CJTF Combined Joint Task Forces
(between NATO and WEU)
Comecon Council for Mutual Economic
Assistance
CSCE Conference on Security and
Cooperation in Europe
CSSR former Czechoslovakia
CSU Christian Social Union (only
in Bavaria)
DA Demokratischer Aufbruch
(Democratic Awakening)
DDR Deutsche Demokratische
Republik (= GDR)
Demokratie Jetzt Democracy Now
Demokratische Freiheit Democratic Freedom
Demokratischer Aufbruch Democratic Awakening (DA)
Deutsche Alternative (DA) German Alternative (DA)
Deutsche Bahn AG Federal railways
Deutsche Reichs Partei (DRP) German Empire Party
Deutschland Germany
Deutschlandpolitik Inner-German policy
DFOR NATO Deterrence Force for
Bosnia Herzegovina
(successor to SFOR)
DFP German Free Democratic
Party (Deutsche
xiv Glossary and Abbreviations

Freidemokratische Partei)
DFP German Forum Party
(Deutsche Forums Partei)
Die Grünen West German Green Party
DIW Deutsches Institut für
Wirtschaft
DM Deutsche Mark (West
German and then all-German
currency)
DP German Party (Deutsche
Partei)
DSU German Social Union
(Deutsche Soziale Union)
DVU German People’s Union
(Deutsche Volksunion)
EC European Community
ECB European Central Bank
ECJ European Court of Justice
ECSC European Coal and Steel
Community (Schuman Plan)
ECU European Currency Unit
EDC European Defence Community
EEC European Economic
Community
EFTA European Free Trade
Association
EMS European Monetary System
EMU European Economic and
Monetary Union
EPU European Political Union
ERM Exchange Rate Mechanism
EU European Union
Euro Common European currency
Europäische Friedensordnung European peace order
Europapolitik European politics
FAP Free Workers Party
(Freiheitliche Deutsche
Arbeiterpartei)
FAZ Frankfurter Allgemeine
Zeitung (conservative daily
paper)
 Glossary and Abbreviations xv

FDI Foreign Direct Investment

FDP Free Democratic Party, the
Liberals (Freidemokratische
Partei)
FOTL Follow on to the Lance
missile system
FRG Federal Republic of Germany
FRUS Foreign Relations of the
United States
Gastarbeiter Guestworkers
GDP Gross Domestic Product
GDR German Democratic Republic
(East Germany)
Gemeinsame Verfassungskommission Joint constitutional
commission
Gemeinschaftswerk Aufschwung Ost The common effort for
achieving an economic
upswing in the east
GEMSU German Economic, Monetary
and Social Union (July 1990)
Glasnost Openness, policy of more
open consultative government
GNP Gross National Product
Grand coalition CDU/CSU-SPD
Grundgesetz Basic Law
Ifo Institute for industrial research
(Institut für
Wirtschaftsforschung)
IFOR NATO Implementation Force
for Bosnia Herzegovina
IGC Intergovernmental Conference
of 1996 to review the
Maastricht Treaty
CJTF Combined Joint Task Forces
between NATO and WEU
INF Intermediate-Range Nuclear
Missiles
Innere Führung Inner democratic leadership
Kartellamt Monopolies Commission
Kombinat East German state monopoly
KPD German Communist Party
xvi Glossary and Abbreviations

Kreditabwicklungsfond State Credit Agency

Laissez-faire Free Market philosophy
Land (plural: Länder) German federal state
LDP East German Liberal Party
(Liberal-demokratische Partei)
LDPD East German Liberal
Democratic Party (Liberal-
demokratische Partei
Deutschlands)
Lufthansa AG Federal airways
M3 Money supply, coins and
notes in circulation (usually
including currency deposits)
Magdeburger Modell SPD-Green minority
government tolerated by the
PDS (developed in Saxony-
Anhalt in June 1994)
MBO Management buy-out
Mittellage Central location
Mittelstand Medium-sized enterprises
MRDB Monthly Report of the
German Bundesbank
NATO North Atlantic Treaty
Organisation
NDPD East German National
Democratic Party (National-
demokratische Partei
Deutschlands)
NPD National Democratic Party
(Nationaldemokratische Partei
Deutschlands)
Oder-Neisse line Border between Poland and
Germany
OECD Organisation for Economic
Cooperation and
Development
OM Ostmark (East German
currency)
OSCE Organisation for Security and
Cooperation in Europe
Ossies East Germans
 Glossary and Abbreviations xvii

Ost-CDU East German CDU

Ostpolitik Eastern policy, policy
towards the East
PDS Party of Democratic
Socialism (successor to SED)
Perestroika Restructuring, domestic
economic and political reform
policy
Pfennig Penny
Politbüro Political body consisting of
the ruling élites in former
communist countries
Postbank Federal post office bank
Postdienst Federal postal services
Presse- und Informationsamt Federal Press and Information
Office
PRO Public Record Office, London
R&D Research and Development
Rabattgesetz Law limiting the pricing
freedom of retailers
RAF Red Army Faction (West
German terrorist organisation)
Rapallo Treaty German–Russian friendship
treaty of 1922
Realpolitik The strategy of pursuing
policies oriented on ‘realistic’
power politics
Reich Empire
Reichsbahn East German railways
Reps Republican Party (die
Republikaner)
Ruhrgebiet (West) Germany’s industrial
heartland
Sachverständigenkommission Committee of experts
Sanierungsfähig Feasible economic
restructuring
SDI Strategic Defence Initiative
SDP East German Social
Democratic Party
SED Socialist Unity Party (the ruling
communist party in the GDR)
xviii Glossary and Abbreviations

SEA Single European Act

SFOR NATO Stabilization Force for
Bosnia Herzegovina
(successor to IFOR)
Sicherheitspolitik Security policy
SME Social Market Economy
SNF Short-range nuclear weapons
Sonderweg Special path
Soziale Marktwirtschaft Social Market Economy
(SME)
Sozialistische Reichs Partei (SRP) Socialist Empire Party
SPD Social Democratic Party
Standortfrage International competitiveness
of a given industrial location
Standortsicherungsgesetz Law to ensure the
competitiveness of Germany
as an industrial location
Stasi East German State Security
Police
Stromvertrag Electricity Contract
THA Treuhandanstalt
Traffic-light coalition SPD-FDP-Bündnis-90/Green
coalition (red-yellow-green)
Treuhandanstalt Public trustee institution
(THA)
UN United Nations
USSR Union of the Soviet Socialist
Republics
VAT Value Added Tax
Verflechtung Network
Volkskammer (VK) People’s assembly, East
German parliament
Volkspartei People’s Party
Waffen SS Schutzstaffel, particularly
cruel paramilitary security
organ during the ‘Third
Reich’
Wende Turning point, change
Wessies West Germans
Westbindung Attachment to the West
Westintegration Integration with the West
 Glossary and Abbreviations xix

Westpolitik Western policy, policy

towards the West
WEU Western European Union
Wirtschaftswunder West German economic
miracle
Zonenrandgebiet West German territory
bordering on the GDR
Introduction to the Second
Edition
I am pleased that the publisher expressed the wish to proceed with a
second revised and expanded edition of Germany since Unification
with the new subtitle The Development of the Berlin Republic. The
publication of the second edition appears to be particularly appropriate
in view of the change of government from the CDU/CSU-FDP coali-
tion, led by Helmut Kohl for almost 18 years, to Gerhard Schröder’s
new Red–Green coalition which came to power in October 1998
(Weidenfeld, 1999). In September 1999 the Social Democratic/Green
government, the German Bundestag and most of the important minis-
tries moved to Berlin. Despite some scepticism as to whether the relo-
cation of Germany’s seat of government to its capital Berlin will result
in the development of a different Republic, and a more strident and
less willing state to accept integration in the western world in general
and the European Union in particular, the German government has
always rejected such suspicions as groundless.
Indeed, there seems to be little reason to expect the emergence of a
more powerful and less integrated Germany. Instead, with respect to
the unified country’s still unresolved economic, financial and social
problems, there was talk of Germany as the new ‘sick man’ of Europe
in 1999. While this seems to have been an exaggeration (after all, in
1999 the German economy grew by 1.4 per cent) during its first eigh-
teen months in office the domestic performance of the Schröder/Fischer
government has been less than impressive. In areas such as social,
economic and nuclear affairs the government disappointed, and was
generally unable to embark upon a different or more successful politi-
cal course than the previous Kohl governments. In view of Germany’s
continuing economic problems, and the resignation of Finance Minis-
ter Oskar Lafontaine in March 1999, the government’s efforts increas-
ingly have been directed at cautiously reforming Germany’s economic
structure in a neo-liberal sense. After all, with Lafontaine’s departure
the traditional ‘socialist’ wing of the SPD was substantially weakened
(Lafontaine and Müller, 1998; Lafontaine, 1999) in favour of Schröder’s
much more trendy neo-liberal ‘champagne socialism’ (Herres and Waller,
1998).

xx
 Introduction to Second Edition xxi

Moreover since early 1999 the Schröder government’s agenda has

become increasingly dominated by a modernising pro-business agenda.
It envisages substantial reductions in state intervention and state spending
on the welfare state, and Germany’s social-safety net (including pen-
sions and the health service) in favour of general economic deregula-
tion and greater individual responsibility. These are of course mere
euphemisms for indicating that the individual German citizen will in
future have to pay for many services formerly provided or at least
subsidised by the German state. The Schröder government appears to
be in the process of attempting to realise all three of the major com-
mandments of monetarism (tight control of the money supply, low public
expenditure and low taxation, and the liberalisation of the labour mar-
ket) (Pulzer, 1995: 147). Indeed, Chancellor Schröder is busy im-
plementing Anglo-Saxon economic doctrines (Ross, 2000). This also
explains the Chancellor’s great interest in a social democratic ‘third
way’ promulgated above all by British Prime Minister Tony Blair’s
‘New Labour’ policies (Giddens, 1998; Hombach, 1998; Meyer, 1998;
Unger et al., 1998; Misik, 1998). Thus, in June 1999 the two politicians’
agreement on important economic and social–political positions led to
the publication of the so-called Schröder/Blair paper. This paper,
symbolising both politicians’ attempt to find a neue Mitte (a new middle),
was most controversial among some traditionalist sections of the SPD.
It was difficult to envisage that Schröder (or for that matter Blair)
would have been able to agree on such a paper with the much more
traditional–socialist French Prime Minister Jospin. In March 2000, when
speaking at a conference in Oxford Blair announced that Anglo-
German relations ‘had never been warmer than they are today’ (Larres,
2000).
However, in contrast to developments in the USA and to a more
limited extent in Britain, Schröder’s efforts on behalf of a neo-liberal
economic policy did not lead to an economic upturn and a reduction
of Germany’s mass unemployment in 1999. Despite the economic benefits
expected from the introduction of the euro on 1 January 1999, by mid
1999 the average unemployment rate in all 11 euro-zone countries was
still a depressing 10.3 per cent, which compared very badly with a
rate of 4.3 per cent in the booming USA. Indeed, in July and August
1999 Germany’s unemployment rate also stood at 10.3 per cent; the
average unemployment rate for 1999 was 10.5 per cent. Although this
meant that compared with the year before unemployment in July and
August had dropped by 100 000, just over four million Germans were
still registered as searching for work (and this figure excluded those
xxii Introduction to Second Edition

supported by state subsidised work schemes, people on short-time work

and the large number of involuntary students, pensioners, housewives
and so on not registered as unemployed and looking for work). On
average, just under 4.1 million Germans were unemployed in 1999.
The situation continued to remain much more serious in the new Länder
in the east than in the old Länder in western Germany (in the east in
1999 unemployment was 17.6 per cent compared to 8.8 per cent in the
west). The new red–green coalition’s inability to improve Germany’s
economic performance contributed decisively to the six consecutive
regional election defeats which the SPD and the Greens suffered be-
tween February and October 1999 (for details, see Chandler/Larres below).
It was only in spring 2000 that Schröder’s economic policy appeared
to show some slow results. However, the development of a generally
more favourable economic climate also deserves some credit; after all,
by early 2000 an economic upturn of on average four per cent (rang-
ing from Germany’s and Italy’s 2.5 per cent to Finland’s 4.9 per cent
and Ireland’s 7.5 per cent economic growth) and a reduction of unem-
ployment could be observed in most EU countries. In April 2000 the
rate of unemployment in the whole of Germany dropped to 9.8 per
cent. The country had 3.99 million people out of work. Compared to
the year before unemployment had decreased by 159 000; it was the
lowest unemployment figure in April for four years and it meant that
unemployment had fallen below the psychologically important four
million threshold. This slow reduction of unemployment continued in
May and Chancellor Schröder expected optimistically that by late 2000
the German economy would grow by at least 2.5 per cent and perhaps
even by up to 3.0 per cent. Inflation did not appear to be a problem.
In April 2000 the German rate of inflation even fell to 1.5 per cent
from 1.9 per cent in March. This was slightly less than the average
rate of inflation of 2.1 per cent in the euro area (this meant that infla-
tion in the euro zone was just 0.1 per cent over the target rate set by
the European Central Bank in Frankfurt). Yet, if the euroland econ-
omies grow further rising inflation may well cause headaches again.
Schröder and his Finance Minister Hans Eichel urgently need to
demonstrate that they are capable of producing the policies which will
lead to a much improved performance of the German economy. After
all, in the general election in late 2002 and in the various regional
elections in the meantime, the German voters will measure the success
or failure of the Schröder government in the Chancellor’s ability to
increase substantially Germany’s economic performance and decrease
unemployment – as he repeatedly promised during the 1998 election
 Introduction to Second Edition xxiii

campaign. Thus Schröder is under great pressure to enhance drasti-

cally his domestic political achievements if he wishes to be re-elected
in 2002. The Chancellor therefore hopes that by 2002 the number of
people unemployed in Germany will have dropped below 3.5 million.
In spring 2000, however, German voters still expressed dissatisfac-
tion with the red–green government in Berlin. The modest improve-
ment of the German economy did not seem to have impressed them.
Schröder and the SPD should also have benefitted more than they did
from one of the most serious crises in the history of the Federal Re-
public. This was the revelation of the CDU’s party-funding scandal in
November and December 1999. Former Chancellor Kohl admitted to
accepting considerable amounts of secret cash donations from wealthy
businesspeople throughout the 1990s, and possibly the 1980s, which
he deposited in secret accounts for his personal political use. The German
party financing laws, introduced by the Kohl government itself in the
mid 1980s after a previous donation scandal, specifies that the receipt
of funds above 20 000 deutschmarks need to be declared and are not
allowed to remain anonymous. Kohl channelled the anonymous money,
for example, to local and regional CDU organisations to build up a
huge system of patronage and ensure the obedience of as many CDU
politicians as possible. He may also have used the donations for other
still unknown political activities. It had never happened before in the
history of the Federal Republic that a German chancellor had become
deliberately and knowingly involved in illegal financial activities (Pflüger,
2000; Scheuch and Scheuch, 2000). Therefore, at least two questions
need to be asked.
Was Kohl only able to remain CDU party leader (and thus in the
last resort chancellor) due to his ability to generously provide con-
siderable sums of money to regional and local party organisations? It
certainly must be assumed that the secret cash donations helped Kohl
to maintain his personal influence within the CDU party at all political
levels (the so-called ‘system Kohl’). This was important in view of his
many inner-party rivals throughout his reign. However, according to
the former chancellor the money was only used to bolster the cash
starved CDU party organisations in the former GDR. Even more im-
portantly, the question arises if and what kind of political favours the
secret donors received in return. Was the Kohl government corrupt?
Were the donations, for example, linked to the sale of tank components
to Saudi Arabia as has been alleged and was the purchase of the East
German oil refinery Leuna by the then state-owned French group Elf
Aquitaine facilitated in that way? The suspicion has been expressed
xxiv Introduction to Second Edition

that the Mitterrand government in Paris was behind the latter. Perhaps
the French purchase of a bankrupt East German company which would
give Kohl credit for having saved the survival of an important regional
employer was President’s Mitterrand’s way of ensuring that the chancellor
would remain committed to embarking on the deepening of European
integration and the establishment of monetary union which both politicians
had agreed upon as the other side of the coin of German unification.
This ‘deal’ later led to the Maastricht Treaty. It would appear that
many of the relevant secret documents, which could have shed light
on these issues, were illegally shredded after the Kohl government had
lost the 1998 general election.
While Kohl does not appear to have enriched himself personally,
these are serious accusations which go to the heart of German democ-
racy and the role of the chancellor in German politics. Moreover, similar
illegal financial dealings in some of the CDU’s regional organisations
(above all in Hesse) were revealed, indicating that the corruption of
German politics had spread beyond the CDU headquarters. A parlia-
mentary commission has been established to shed light onto the entire
affair and its findings may well lead to the commencement of criminal
investigations and perhaps indictments of senior German politicians.
Above all, Kohl still adamantly refuses to name any of his donors and
this has led to speculation about the unsavoury nature of some of these
people. Instead, the former chancellor has collected eight million
deutschmarks which he has given to the CDU to compensate his party
for the high fines levied on it by the President of the national parlia-
ment for the activities of Kohl and other senior CDU politicians
(including former treasurer Walther Leisler Kiep) for the submission
of manipulated annual financial accounts throughout the 1990s (and
perhaps during the 1980s as well) to keep the anonymous and illegal
donations secret.
The CDU itself has already borne some consequences. Kohl was
asked to give up his honorary chairmanship of the party. Since early
2000, the CDU’s former hero has been increasingly shunned by most
of the party’s senior politicians. Moreover, in April 2000 Angela Merkel
replaced Wolfgang Schäuble, Kohl’s handpicked successor as party leader,
who had also become embroiled in the scandal. Merkel promised a
new beginning. After all, she was the first woman and the first poli-
tician from the former GDR to head one of Germany’s major parties.
Although Merkel served as a minister in the last Kohl government and
subsequently became the party’s general manager, Merkel has only
been in politics since 1990. She is generally regarded as an honest and
 Introduction to Second Edition xxv

straightforward politician. However, her more liberal outlook and rela-

tive inexperience has already been criticized by the CDU’s arch-
conservative Bavarian sister party, the CSU, and its formidable leader,
Bavarian Prime Minister Edmund Stoiber, who may himself wish to
become the CDU/CSU’s chancellor candidate in 2002.
Although due to the CDU’s funding scandal, the SPD and the Greens
won the regional election in Schleswig Holstein in February 2000, many
Germans are still disappointed about the achievements of the coalition
government in Berlin. This may have contributed to the SPD’s and the
Greens’ poor performance in the regional election in North Rhine
Westfalia in May 2000 (for details see Chandler/Larres below). Moreover,
the early stages of the red–green government’s three tier tax reform of
1999/2000, with its aim to modernise the German tax and pension system
for the years until 2005, has failed to meet with a positive response
from the German consumers, German industry and the parliamentary
opposition parties CDU/CSU, FPD and the PDS. The reform envis-
ages the lowering of income and corporation taxes which are to be
financed by closing tax loops. However, in the mind of many Germans
the tax reform was identified with substantially higher taxes on petrol,
gas and oil for heating purposes which were introduced in the context
of the controversial new ‘ecological tax reform’ which took effect on
1 April 1999. Moreover, social security tax (to be paid by both em-
ployees and employers) was levied on income from part-time or low
paid employment (the so-called 630-mark jobs); hitherto this income
had been entirely tax free. The imposition of the new tax led to many
people giving up their low paid jobs as their take home pay proved to
be so low that holding a 630-mark job was not financially rewarding
anymore. In particular this development led to claims that the govern-
ment’s tax reform effectively introduced new taxes on the weaker sec-
tions of society and helped to destroy jobs, instead of contributing to
the creation of new sources of employment. Although, the monthly
contribution of employees’ to their pension funds were simultaneously
reduced by 0.8 per cent, most voters failed to see the personal advan-
tages they might obtain from the red–green tax reform. The business
community, which is to benefit from much lower corporation taxes,
was also doubtful whether the entire reform programme was sufficiently
substantial to have an impact on Germany’s economic development.
Similarly, Finance Minister Eichel’s promise to reduce the federal debt
and decrease the government’s annual new borrowing requirement from
approximately 50 million deutschmarks to zero by 2005–6 was regarded
with scepticism. However, despite much opposition, in July 2000 the
xxvi Introduction to Second Edition

government managed to steer a somewhat revised, major income tax

reform for the years 2001–05 through the CDU demurated Bundesrat.
This was a considerable victory for Schröder and Eichel and a devas-
tating defeat for the new CDU leadership. (see also Flockton below).
Furthermore, the government’s support for initiatives to strengthen
Germany’s role in the financial world were not rewarded with success.
The attempted merger between the Deutsche Bank and the Dresdner
Bank to create the world’s largest bank collapsed in April 2000. The
government had been much in favour of this merger as it would have
challenged the global dominance of American banks.
The Schröder government also failed with its clumsily executed plan
to have Caio Koch-Weser, a state secretary in the Finance Ministry,
appointed as the next head of the International Monetary Fund (IMF),
which lends money to financially troubled countries while in return
insisting on the fulfilment of certain economic conditions. Despite early
indications from Washington that Koch-Weser was unacceptable, the
Schröder government persisted with his nomination and persuaded the
EU to accept Koch-Weser as the European candidate. However, after
months of wrangling he was formally rejected by the United States
which holds a blocking minority vote. It was felt by President Clinton
and Treasury Secretary Larry Summers that Koch-Weser was too open-
minded about the concerns of the developing world and would thus be
unlikely to embark on the required restructuring of the IMF in a neo-
liberal way. Yet, Schröder continued to insist on a German candidate
as head of the IMF; after all Germany had never headed this organisa-
tion and the Chancellor wished to demonstrate Germany’s increased
international financial importance. Eventually, the German Chancellor
proposed Horst Kohler, the director of the European Bank for Recon-
struction and Development in London, and managed to obtain his
endorsement as the EU’s candidate. Köhler, a member of the CDU is
internationally best known for his role in contributing to the success-
ful negotiations of European Economic and Monetary Union (EMU);
he also participated in G7 summits as a member of Helmut Kohl’s
government. Köhler was acceptable to Washington and was voted in
as head of the 182-nation IMF in late March 2000. The entire episode
did little to enhance the Schröder government’s international credi-
bility; it had indeed been handled with an extraordinary lack of skill
and diplomatic acumen.
However, with regard to the payment of compensation to Holocaust
victims of foreign nationality (including many from Eastern Europe),
the Schröder government and its main negotiator, former economics
 Introduction to Second Edition xxvii

minister Otto Graf Lambsdorff, showed much greater skill. Collective

court cases against companies such as Ford, Volkswagen, BMW, Daimler-
Chrysler, Siemens, Krupp and others had been instigated on behalf of
the victims by American lawyers in spring 1998. Despite many months
of complicated negotiations between the legal associations represent-
ing the Holocaust victims and German industry, which pays half of
the amount of compensation (the government and thus the German tax
payer funds the other half), a deal was eventually reached in mid
December 1999. However, many details still needed to be clarified. It
was agreed subsequently that Germany will pay 10 billion marks into
a fund which would then be distributed among the surviving 240 000
former slave-workers and the surviving 1 million people who were
compelled to work as forced labourers by the Nazis. The final settle-
ment was signed in Berlin in mid July 2000. The first payments, on
average DM 15 000 were, to be made later in the year. While the deal
offers the ageing generation of Holocaust victims some last minute
compensation for their great suffering during the Nazi era, the German
government expects that the agreement ensures that no further legal
demands for compensation from German companies (or foreign com-
panies based in Germany during the Nazi era) which collaborated with
Hitler can be made in countries such as the United States. Thus, de-
spite a good deal of justified criticism about the hesitation of German
industry to agree to pay half of the amount of compensation and the
unfortunate prolonged legal wrangling, it appeared that ultimately both
sides, the ageing victims as well as German business and the German
government, benefited from the settlement.
In summer 2000 the government’s envisaged reform legislation con-
centrated on the further overhaul of the German tax and pension systems,
the continued deregulation of German industry, the attempt to bring
about the end of the use of atomic energy in the Federal Republic and
on the restructuring of the Bundeswehr (on the latter, see Hyde-Price
below). Moreover, Berlin still intended to progress with the long over-
due reforms of the German transport system and the country’s rather
outmoded and unnecessarily inflexible higher education system. It was
also envisaged to loosen Germany’s labour and competition laws further
to make them less restrictive and improve the German economy’s ability
to compete internationally.
However, Chancellor Schröder’s so-called ‘green card’ proposal which
he launched in March 2000 to enable up to 20 000 foreign information
technology experts from outside the EU to come to Germany on a
temporary five-year basis met with fierce criticism. Nevertheless, the
xxviii Introduction to Second Edition

Bundestag passed it in July 2000. While most employers welcomed

the Chancellor’s initiative as they shared his view that German indus-
try was falling behind in competing in the new knowledge based glo-
bal economy due to a serious lack of computer expertise in the Federal
Republic, the CDU/CSU emphasized the importance of educating Ger-
man students instead of attracting foreigners. During the election cam-
paign in North Rhine Westfalia in April and May 2000 this heated
debate about Germany’s ability to compete in the internet economy
culminated in the nasty slogan coined by Jürgen Rütgers, the regional
CDU leader, ‘Kinder statt Inder’. He advocated the production of the
required expertise from within the Federal Republic as quickly as pos-
sible instead of allowing Indians and other foreigners to obtain special
work permits to take up employment in Germany. The European Moni-
toring Centre on Racism and Xenophobia in Vienna expressed great
concern about the slogan. Chancellor Schröder viewed the phrase as
‘indecent’ and economically counterproductive. Even without Rüttger’s
harmful slogan it can be expected that, in view of the competition of
the United States and other countries for information technology ex-
perts, the government will find it difficult to attract this expertise to
Germany.
Schröder’s green coalition partner has so far hardly been able to put
its stamp on the policy of the red–green coalition. Most of their pro-
posals have come to nothing. Suggestions such as introducing more
severe speed limits on cars to prevent accidents and save petrol and
thus preserve the environment, the speedy termination of the use of
atomic energy, as well as a greater general emphasis on environmental
legislation, have largely met with little enthusiasm in the ranks of its
senior coalition partner. However, the Greens are not prepared to ac-
cept the SPD proposal that most atomic energy plants should continue
operating for another 30 years (and thus almost until the end of their
technological lives) before they are shut down. Not surprisingly the
atomic energy industry has indicated that they could live with such a
scheme. There is also the question whether the government will need
the agreement of the Bundesrat which is dominated by the opposition
CDU/CSU, for the contemplated exit from atomic energy. Green Health
Minister Andrea Fischer’s attempt throughout 1999 to introduce a major
reform of Germany’s expensive public health system failed when the
Bundesrat vetoed it. Even many supporters of the government were
relieved as they had become disenchanted with the entire complicated
and highly controversial enterprise which would have put a much greater
financial burden on individual patients. Yet, the general confusion and
 Introduction to Second Edition xxix

lack of direction which reigns among the Greens and is complemented

by the party’s weakening position due to its poor performance in
almost all the regional elections in 1999–2000 makes life easier for
the Chancellor. Occasionally Schröder is inclined to hint at the possi-
bility of entering into a coalition with the small FDP if the Greens
become too critical of the governmental policy favoured by the SPD.
The Greens do not have this choice; for the time being a CDU/CSU–
Green government is still not imaginable.
The declining strength of the euro increasingly worried the govern-
ment during the spring of 2000. Above all, due to the still spectacu-
larly booming American economy, by late April 2000 the European
currency had lost 22 per cent of its initial value against the dollar
since its launch in January 1999. Replacing the deutschmark – which
for decades had been one of the world’s strongest currencies – with
the weak euro appeared to undermine the confidence of many Ger-
mans in the European Union and the entire European integration pro-
cess. However, the weakness of the euro may have helped the German
(and European) export industry and contributed to the gradual upturn
in the EU’s economic performance. According to The Economist ‘one
of the reasons for the euro’s weakness was ‘the markets’ reluctance to
believe that Europe has the political will for structural reform’. The
magazine was convinced that neither Germany nor any other euro-
zone country could be selected ‘as a model of structural reform of the
sort required to sustain the [European economic] recovery’ which emerged
slowly in the spring and summer of 2000. What The Economist be-
lieves needs to be achieved is that ‘magic mix of deregulation, tax
reform and a looser labour market’ which neo-liberal economic policy
in Britain and the United States managed to introduce (29 April 2000,
45–7). Indeed, the red–green government in Berlin has made only very
slow progress with the realisation of the cautious economic restructing
of Germany which Chancellor Schröder said he wished to pursue to
improve the German economy and reduce unemployment when he came
to power in October 1998 (Prantl, 2000).
However, against all expectations, the Schröder government appears
to have been much more successful in the foreign policy field than in
domestic affairs. During the German EU presidency and in the course
of the important European summit meetings in Berlin and Cologne in
the first half of 1999 the new government succeeded in instigating
moderate changes in the policy and institutional structure of the Euro-
pean Union and was able to make progress with the realisation of the
EU’s ambitious Agenda 2000 programme. It was agreed to consider
xxx Introduction to Second Edition

the reform of the EU’s common agricultural policy (CAP), its regional
policy and its complicated financial system. This was important as there
was an urgent need to prepare the EU for its eastern expansion, which
is expected to occur in approximately 2003/04, when in all probability
Poland, Hungary, the Czech Republic, Estonia and perhaps a few other
countries will be admitted to membership of the European Union. Moreover,
during the German EU presidency decisive moves towards the devel-
opment of a European foreign policy and a more integrated European
defence structure were taken (see below; and Kirchner, 2000). However,
the Schröder government did not achieve all of its aims. The Chancellor
had talked about representing ‘German interests’ and had expressed
his desire to lower Germany’s significant financial contribution to the
EU. In the end this only happened to a rather limited extent; Schröder
only obtained a largely cosmetic concession in this matter. Moreover,
France succeeded in opposing any dramatic change to CAP, Spain
managed to continue receiving large European subsidies for regional
development purposes and Britain defended its rebate to a large extent.
Furthermore, Schröder managed to prevent a paralysis of the EU by
overcoming the deep European crisis which had been provoked by the
resignation of the EU Commission led by Jacques Santer. Schröder
and his colleagues succeeded in persuading Romano Prodi to be avail-
able as the new President of the EU Commission; the Secretary Gen-
eral of NATO, Xavier Solana, agreed to become the EU’s new and
first special representative for foreign affairs with effect from October
1999. Thus, on the whole Chancellor Schröder and Foreign Minister
Joschka Fischer successfully coped with a major political test shortly
after their election victory.
The same applied to a much more challenging event in the spring of
1999. The German government’s active military participation in, and
skilful domestic management of, the Kosovo war in the former Yugoslavia
between 24 March and 10 June 1999 surprised many (Scharping, 2000).
The Schröder/Fischer government not only survived despite strong
domestic opposition to the war in many quarters in Germany (and in
particular among Green party activists and voters). It was also able to
demonstrate to the outside world unified Germany’s international reli-
ability and loyalty to the western alliance. Domestically, however, this
led to a most controversial debate about how to reform the German
conscript army, the Bundeswehr and Germany’s general defence struc-
ture. After all, it can be expected that due to Germany’s full reintegration
into the international community since 1991, NATO, as well as the
United Nations and other organisations, will expect the country to
 Introduction to Second Edition xxxi

contribute to similar emergency situations in the future; and they will

expect the German government to do so effectively and speedily. Thus,
Germany will need to cope with the financial strains resulting from
such activities (see also Hyde-Price below).
During the European summit meeting in Cologne in June 1999
Germany signed up to the development of a European Defence Organ-
isation and managed to incorporate all fifteen EU member states into
this process. Hitherto, European defence matters had largely been
dominated by France and Britain; their defence co-operation was based
on the December 1998 agreement at St Malo. At the Helsinki summit
in December 1999 Germany agreed to participate in the creation of a
European Rapid Reaction Force. This force is meant to be ready as
early as 2003 to enable the EU to fulfil its conflict management and
conflict intervention obligations as agreed in the so-called ‘Petersberg
tasks’: peace preservation, humanitarian intervention, and peace mak-
ing (Heisbourg, 2000). Yet, in view of the continuing reduction in
financial resources for the German armed forces and with regard to
the heated discussion over the future structure of the Bundeswehr, it is
obvious that the red–green government, like its predecessor, does not
feel any desire to transform the Federal Republic into the European
continent’s leading military force or into a new great power. Although,
occasionally some authors advocate such a course (Schöllgen, 1999:
201–7; Schwarz, 1994), this appears to be mere wishful thinking on
the part of a minority of conservative authors. It has very little in
common with the much more common sense policy of the red–green
coalition government in Berlin. In this, as in many other respects, the
policy of the Schröder administration is not all that different from the
main features of the Kohl government’s foreign policy.
In view of the great continuity which characterises Germany’s foreign
policy and with respect to the government’s great difficulties of improving
Germany’s economic situation, the red–green coalition’s first two years
in office have made it clear that Chancellor Schröder has not embarked
on a radical departure in German politics. Instead, his approach is of a
piecemeal and cautiously reformist nature. Thus, to a large extent the
political and economic developments in Germany since unification are
still dominated by the agenda and the legacy of the Kohl years (Clay
and Paterson, 1998). The latter is perhaps most aptly characterised with
the help of the words Stillstand and Reformstau – the terms which
aptly describe the Kohl government’s inability to overcome Germany’s
political and economic stagnation by embarking on and realizing a
substantial reform programme. The accusation of ‘muddling through’
xxxii Introduction to Second Edition

which the SPD and the Greens levied against the Kohl government
throughout the 1980s and 1990s, when they were in opposition, appears
to be a policy which has been adopted by the SPD–Green coalition
partners. The financial and economic–structural legacies of the imme-
diate unification years which the Kohl administration failed to tackle
are a burden which the Schröder/Fischer government also appears to
be unable to shake off. It is hoped that the chapters in this book will
contribute to an understanding of the nature of this legacy which will
need to be overcome if the Schröder government is to succeed with its
aim of improving Germany’s economic performance and of fully inte-
grating eastern Germany’s new Länder economically and socially into
a truly unified state.

For the second edition of this book the original contributions have
largely remained unaltered, although any typesetting and occasional
other mistakes have been corrected. Instead of asking the individual
contributors to rewrite their chapters, the publisher proposed that the
authors should be asked to update their contributions by means of a
brief account of the developments which have occurred since the pub-
lication of the first edition in January 1998. These accounts can be
found below. In addition Mick Cox and Steven Hurst have contributed
a new chapter based on recently made available new sources, which
analyses the important topic of the role of the United States in Ger-
man unification and concludes with a section on German–American
relations in the 1990s.

CHRISTOPHER FLOCKTON: THE GERMAN ECONOMY

Hesitant recovery after mid-decade recession, slow structural

reforms and a change of government

Germany suffered a mild recession in 1995–96, which was occasioned

by a 5 per cent appreciation in the external value of the Deutschmark
as well as by abnormal wage inflation following the engineering industry
settlement of 5.5 per cent. This then acted as the pacesetter for wage
settlements more generally. Net exports fell and companies responded
to cost increases by a renewed and concerted attack on labour costs,
leading to heavy labour shedding in manufacturing. The recession was
 Introduction to Second Edition xxxiii

short-lived but the slow, hesitant upturn, confirmed in 1997, was then
undermined by the emerging markets crises of 1998. The growth has
then done almost nothing to offset the historic record unemployment of
a seasonally-unadjusted 4.66 millions in January 1997. This all-German
unemployment level at the rate of 12.2 per cent exceeded the 1933 figure
for the first time, reawakening older fears of the political consequences
of mass unemployment. (Deutsche Bundesbank, Monatsberichte).
Of particular concern was the marked slowing of growth in the new
Bundesländer, leading to a further divergence with the west. In 1997,
1998 and continuing in 1999, the eastern GDP growth rates fell far
below those of the west and confirmed once more the view that the
catch-up between east and west would be a matter of decades, with
the severe political and public finance consequences this would entail.
The slowdown in the east was prompted primarily by the ending of
the very generous tax allowances (amounting to DM33 billion) for con-
struction projects in the new Länder which had led to a huge excess
supply of office and retailing space in eastern German cities as well as
to inappropriate housing developments. Construction had led the up-
turn in the east, kick-starting growth, and by 1996 represented 16 per
cent of eastern GDP compared with 14.6 per cent for manufacturing,
whereas construction represents only 6 per cent of western GDP. East-
ern manufacturing grew at rates of 18 per cent per annum from late
1992 to the end of 1995 but has since slowed very markedly to ap-
proximately 8 per cent per annum. GDP growth has been well below
that of the west in recent years at 1.6 per cent in 1997 and 1.9 per
cent in 1999 (Wirtschaft und Statistik, various issues). This very heavy
dependency on federal tax breaks and western demand demonstrates
once more how far eastern Germany is from reaching self-sustained
growth. Only large-scale second labour market measures such as the
500 000 beneficiaries at the end of 1995, have prevented registered
unemployment from rising far above the 16–18 per cent experienced
in recent years (Deutsche Bundesbank, Monatsberichte).

Fiscal difficulties and the introduction of the euro

The scale of financial transfers to the east has been the prime cause of
the heavy deficits in the federal budget and the marked rise in debt.
Net transfers of the order of DM10 billion annually have been typical
for the 1990s and future transfers of DM95 billion annually were pro-
grammed in the last Kohl government’s medium-term financial plan
through to the early years of the next decade. A recasting of regional
xxxiv Introduction to Second Edition

assistance, but no effective scaling back, has been agreed until 2004,
when further restructuring of the Länder financial equalisation mech-
anism will be needed. Of course, the scale of the deficits and debt led
to some doubts in 1996/97 whether Germany would meet the Maastricht
Treaty fiscal convergence criteria, which Germany itself had insisted
upon as tests for participation in the single currency. In the event, by
emergency expenditure freezes, the bringing forward of privatisation
sales, tax increases (such as the Solidarity surcharge and the increases
in petrol tax), Germany managed to meet these criteria, achieving a
deficit in 1997 of 2.8 per cent of GDP and a debt/GDP ratio of 62 per
cent (slightly in excess of the 60 per cent criterion).
The transition to the single currency tended to dominate macroeconomic
policy discussion during the period 1995–98, once it became clear that
Mediterranean EU members (with the exception of Greece) were mak-
ing every effort to meet the Maastricht commitments and so be eligi-
ble for entry. In Germany, there was not only considerable popular
opposition to the replacement of the DM by the euro whose price stability
was uncertain. Politicians, economists and commentators alike favoured
a narrow, core membership in the first round, from January 1999 onwards,
to include only those countries whose nominal convergence on German
conditions had already been well-established. Tensions were marked
both among the CDU–CSU/FDP coalition but also within the SPD. In
response to such concern, Kohl’s Finance Minister Theo Waigel first
proposed in December 1995 that a ‘Stability Pact’ be created to ensure
that there was no fiscal backsliding among participants once the single
currency had been created. This led to serious disagreement with the
incoming French government in May 1997, as did the question of nomi-
nation to the position of president of the European Central Bank (ECB).
Three constitutional court submissions sought without success to have
the abolition of the DM ruled unconstitutional. In late March 1998,
the Bundesbank approved, in what appeared to be a very political judge-
ment, that there should be a broad EMU membership of eleven countries
and this was confirmed by the Bundestag which voted for the euro in
early April 1998 (Handelsblatt, various). Thus, the euro was introduced
on 1 January 1999 with German participation.

Structural and labour market policies

This relatively tight macro stance dictated by the Maastricht condi-

tions rendered structural reform even more pressing, since supply-side
sources of growth would have to be stimulated and given that welfare
 Introduction to Second Edition xxxv

state reforms were also necessary. The SPD and Green opposition
favoured a looser macroeconomic policy and, together with the DGB
Trade Union Confederation, supported a labour market policy of cuts
in working time and abolition of overtime to share the available work.
Attempts at creating an ‘Alliance for Jobs’, a tripartite agreement which
sought to trade job stability for wage moderation, were twice made by
the Kohl government, the second time occurring in 1996. Even if this
failed at national level, because of the Kohl government’s pursuance
of structural reforms such as the sick pay changes, nevertheless, at the
level of the firm, such alliances became commonplace as ways of
managing labour-shedding or maintaining employment. Reforms to
collective bargaining, in the form of much more workplace negotia-
tion, have been a key feature of labour market adjustment in the re-
cent period. In eastern Germany, however, a more radical approach
has been adopted by employers, by their departure from the employers’
federations, and therefore their leaving the formal collective bargaining
machinery. Some commentators ask if eastern Germany, with its much
less regulated labour market, is the future path for the western Länder.
In its Fifty Point Plan of January 1996 and its Programme for Growth
and Jobs of April 1996, the Kohl government set out its medium-term
economic policy and particularly its structural reform agenda. It item-
ised a broad spread of changes with fairly radical reforms proposed in
the tax, pensions and health systems, changes in shop opening hours,
in sick pay provision, in employment assistance and in the employ-
ment protection offered to employees in small firms. This approach
appeared to rejuvenate the supply-side agenda, first instituted in 1982,
but which had become mired in the compromises and delays required
by coalition government and a federal system. In the event, the SPD
dominance of the Bundesrat, which has to approve almost all import-
ant federal legislation (particularly if it has financial implications), meant
that only minor reforms were passed.

Advent of a red–green coalition government

Following the decisive defeat of the CDU–CSU/FDP coalition at the

September elections in 1998, the arrival of the SPD–Green coalition
with Chancellor Gerhard Schröder and Finance Minister Oskar Lafontaine
in an uneasy alliance brought a marked shift in economic policy. The
supply-side reforms of the Kohl government in the 1990s were almost
all reversed and the new government appeared to espouse a neo-Keynesian
demand-side orientation at domestic and EU levels.
xxxvi Introduction to Second Edition

Finance Minister Lafontaine appeared determined to challenge the

orthodoxy of the previous 16 years, when he demanded lower central
bank interest rates, currency target zones for the euro, and a formal
co-ordination of financial, tax and labour market policy among the
eurozone countries, so as to stimulate employment through a more
coherent budgetary policy stance and labour market support. His es-
pousal of the notion of ‘European economic governance’, shared by
French Finance Minister Strauss-Kahn, recognized the change of policy
framework which the euro introduced, including the need to adopt fiscal
coherence among the eleven, in the face of a transfer of monetary
policy responsibility to the independent ECB. The fractious red–green
government in Bonn/Berlin managed rapidly to institute a tax reform
which favoured wage earners and their families, at the expense of the
corporate sector, and it agreed (after internal acrimony) on the institu-
tion of an energy tax whose proceeds would lead directly to an abate-
ment of social security charges on labour. It also worked to bring about
the end of nuclear power (Handelsblatt, various). On pension reform,
its ideas would only lead to higher charges and this was symptomatic
of a programme which was redistributive, rather than attacking rigidities
and costs in the productive economy and welfare systems.
After Lafontaine’s departure as finance minister in March 1999 and
his replacement by Hans Eichel, the red–green government’s economic
policy began to follow a more business friendly course. However, Eichel’s
tax reform is meant to benefit both German business and the ordinary
consumer. The tax reform envisages that, on the whole, tax payers
will have to pay 75 billion deutschmarks less tax in 2005 than in 1998.
This includes a reduction of the tax burden on Germany’s medium-
sized companies (the so-called Mittelstand) of approximately DM20
billion. Part of Eichel’s tax reform has already been realized by the
new tax laws which came into effect in April 1999. The government’s
controversial intention to levy a tax on retirement pensions, however,
has been challenged in the constitutional court. Until 2005 the Ger-
man consumer is to benefit by a further tax saving of 45 billion
deutschmarks. By means of clever manoeuvring, readiness to enter into
uneasy compromises and backroom financial deals, Finance Minister
Eichel managed to obtain the support of several CDU-led regional
governments for his tax reform. Thus, to the utter consternation and
great embarrassment of the new CDU leadership – party leader Angela
Merkel and the rather aggressive parliamentary leader Friedrich Merz
– the Schröder government’s reform programme for the years 2001–05
was successfully passed by the Bundesrat in July 2000.
 Introduction to Second Edition xxxvii

The reform will proceed in five major stages. Initially, beginning in

January 2001, income tax for lower income groups will be reduced to
19.9 per cent and to 48.5 per cent, from the current 51.0 per cent for
higher income groups (in 1999 it had already been reduced from 53
per cent). By January 2003 this will decrease to 17 and 47 per cent
and by January 2005 to 15 and 42 per cent respectively. Moreover,
from 2002 corporation tax will decrease from currently 40 per cent to
25 per cent; this means that including other commercial and trading
taxes most companies will face a total tax burden of approximately 39
per cent. After January 2002 capital gains tax on the sale of com-
panies’ cross shareholdings in other corporations will be abolished. It
is expected that this will lead to a major wave of restructuring of Ger-
many’s corporate landscape. Furthermore, some of the tax cuts avail-
able to big corporations will also be extended to Germany’s many
non-incorporated companies (the Mittelstand) and to the large number
of small businesses. On the whole, the tax reform was welcomed by
many national and international observers as a step in the right direc-
tion to reverse Germany’s reputation ‘as a high-tax, low-growth and
institutionally rigid society’ which it had obtained in the 1990s (Fi-
nancial Times, 15/16 July 2000).
The Schröder government also plans to reform Germany’s expens-
ive pension system by stabilizing the individual contributions to the
system until 2030. The government and the opposition agree that con-
tributions ought not to consist of much more than 20 per cent of an
employee’s gross monthly salary. However, there appears to be a con-
sensus that the quality of the system will need to be lowered to ensure
that the system can continue to be financed without imposing too much
of a financial burden on both employers and employees. Moreover,
both the SPD and the CDU/CSU are in favour of employees comp-
lementing their state pension by taking out private retirement insur-
ance. In the future employees may well be expected to spend up to 2.5
per cent of their gross salary on such a scheme but it is still uncertain
whether this will be a voluntary or a compulsory requirement. The
government has however indicated that there will be governmental support
available for lower income groups (up to an annual salary of DM 60 000)
to enable them to buy into additional private pension schemes. It is
clear however that while taxes will come down, the state pension schemes
and other provisions of the German welfare state, which Germans have
been long accustomed to, will be considerably reduced in the years
ahead. Paradoxically it is a red–green coalition in Germany that has
embarked on turning the country towards a much more market orientated
xxxviii Introduction to Second Edition

and individualistic economic course which, for example, in Britain was

begun as early as the 1980s when Margaret Thatcher was prime minister.

WILLIAM M. CHANDLER AND KLAUS LARRES: THE

GERMAN GENERAL ELECTION OF SEPTEMBER 1998 AND
THE EUROPEAN AND REGIONAL ELECTIONS IN GERMANY,
1999–2000

The September 1998 election constitutes a watershed event that clari-

fies the changing shape of the party system in the post-unity era (Padgett
and Saalfeld, 1999). In 1994, the Kohl government found itself run-
ning behind the opposition SPD then led by Rudolf Scharping (who
became defence minister in October 1999). However, as the campaign
unfolded the Christian Democrats recovered to jump ahead, with Kohl
going on to capture a narrow but decisive re-election victory. In 1998
the Kohl campaign never really found sufficient momentum and on
election day the chancellor was rejected by the voters. The Christian
Democrats dramatically tumbled to a level of support unknown to them
since 1949.
The SPD’s remarkable recovery (compared to its low point in 1990)
brought it back to levels of popularity enjoyed governments led by
Willy Brandt and Helmut Schmidt in the 1970s. This stunning victory
and corresponding debacle for the CDU/CSU meant that for the first
time since 1972 the Social Democrats could claim the status of strongest
party in the Bundestag. They now found themselves in the happy po-
sition of being able to choose their coalition partner. SPD gains (+4.5
per cent) occurred across the board with the most significant gains
coming directly from the CDU/CSU (⫺6.3 per cent). This happened
not merely because Gerhard Schröder proved more telegenic than Kohl
but also because voters saw him as more competent to deal with the
persisting problem of high unemployment. In terms of social bases the
SPD maintained and reinforced its traditional core but also made gains
in occupational and social sectors where traditionally it has not been
the strongest party. Gains among older voters, especially women and
among white collar employees, civil servants and the self-employed,
reflected the success of the SPD’s ‘new middle’ appeal.
As in the two preceding elections, 1998 produced sharp differences
in voting behaviour between the old and the new Länder. Eastern voters
again played a critical role in reshaping the political complexion of
German politics. Disillusionment with federal government policy towards
 Introduction to Second Edition xxxix

Table I.1 Results of the German General Elections (Bundestagswahlen) of

1990, 1994 and 1998:

1990 1994 1998

FRG West East FRG West East FRG West East

Turnout 77.8% 78.4 75.5 79.1 80.7 73.4 82.2 82.8 80.0
CDU/CSU 43.8 44.2 42.6 41.5 42.2 38.5 35.1 37.0 27.3
(319 seats) (294 seats) (245 seats)
SPD 33.5 35.9 25.0 36.4 37.6 31.8 40.9 43.3 35.1
(239 seats) (252 seats) (298 seats)
FDP 11.0 10.6 12.5 6.9 7.7 4.0 6.2 7.0 3.3
(79 seats) (47 seats) (43 seats)
Bündnis 90/
Greens 5.1 4.7 6.2 7.3 7.8 5.3 6.7 7.3 4.1
(8 seats) (49 seats) (47 seats)
PDS 2.4 0.3 9.9 4.4 0.9 17.6 5.1 1.2 21.6
(17 seats) (30 seats) (36 seats)
Others 4.2 4.3 3.5 3.5 3.9 2.7 6.0 5.2 8.6
(—) (—) (—)

Source: Statistisches Bundesamt

the east produced a disastrous drop in support (of about 11 per cent)
for the CDU in the new Länder in the east. In an important sense, a
normalisation occurred as eastern working class voters (who in 1990
and 1994 had voted disproportionately for the CDU) now turned to
the SPD allowing the SPD for the first time to claim to be the strongest
party across eastern Germany with 35.1 per cent of the vote.
Minor party developments also reflect essential aspects of party sys-
tem transformation, because the life and death of five-per cent parties
can decisively shape governing majorities in German politics. By early
1998, the fate of these smaller parties still appeared uncertain. Pri-
mary attention was directed to the question of the FDP retaining its
representation in the Bundestag. However, by surviving as a viable
party with over 6 per cent in September 1998, the FDP had mixed
feelings about losing its share of power but hoped for a chance to
revive its fortunes during a spell in opposition. The PDS moved from
survival to solidification by holding on to its four direct mandates (all
in the former East Berlin) and surpassing the 5 per cent barrier which
many had mistakenly claimed could not be done without substantial
gains in the west. The election of 1998 also confirmed the failure of
extremism: all far-right parties remained fringe players and were non-
factors in the outcome.
xl Introduction to Second Edition

Although the Greens stagnated, dropping slightly from their 1994

level to 6.7 per cent, they held their essential core electorate. More
importantly, because the Greens had committed themselves to partici-
pating in a government with the SPD, even in losing votes, they re-
mained clear winners and benefited from the SPD surge which culminated
in a red–green majority. A difficult fusion of the eastern Bündnis 90
and the western Greens had been achieved in 1993. Sixteen years after
entering the Bundestag, the Bündnis 90/Green party of protest entered
the mainstream by gaining a share of power at the federal level. The
1994 and 1998 results signalled an ageing process among both Green
activists and voters. By 1999, the fading of the Green’s youth appeal
was painfully exposed in the February 1999 regional election in Hesse,
where the Greens lost 4 per cent of their electorate (dropping from
11.2 per cent to 7.2 per cent). This was the fifth consecutive regional
election in which the Green vote dropped. They also lost 4 seats
(and 4.2 per cent of the vote) in the subsequent regional election in
Bremen in June 1999 where the SPD and the CDU gained 10 and 5
seats (9.2 per cent and 4.5 per cent) respectively with the FDP again
being unable to re-enter the regional parliament in Bremen (in fact the
party lost another 0.9 per cent and only gained 2.5 per cent of the
vote). Hower, SPD leader Henning Scherf remained in office as mayor
of Bremen and continued the grand coalition with the CDU.
The red–green exercise of power at the national level rather quickly
exposed internal tensions, and not only during the war in Kosovo be-
tween late March and mid June 1999. The priorities laid out in the
red–green governing agenda (including demand-side economic man-
agement, redistributive tax reform, rapid exit from nuclear energy, higher
energy taxes and reform of citizenship laws) evoked a mix of popular
ambivalence and strong hostility. Electoral setbacks in the Hessian
Landtag election in February 1999 provided the first direct test of popular
disillusionment with the new majority in Bonn. Although the SPD actually
obtained 39.4 per cent of the vote (1.4 per cent more than in 1995)
and gained 46 seats – two seats more than four years ago – as indi-
cated above the Greens lost substantially. The Greens only gained a
mere eight seats compared to 13 seats in 1995. This enabled the CDU,
who increased its share of the vote in Hesse by 4.2 per cent to 43.4
per cent, to form a new coalition government. Although the FDP had
lost 2.3 per cent of the vote (and two seats) and only just managed to
obtain enough votes (5.1 per cent and 6 seats) to pass the 5 per cent
hurdle, both parties had a majority of two seats to replace Hesse’s
red–green government. Thus, the CDU was the clear winner of the
 Introduction to Second Edition xli

regional election in Hesse and the party soon formed a coalition govern-
ment with the FDP under new Minister President Roland Koch. Sub-
sequently, in the course of the dramatic revelations of the party funding
scandal which rocked the Federal Republic in late 1999 and early 2000,
it was revealed that the CDU’s victory in Hesse had at least been
partially financed by means of illegally obtained donations and other
revenues. This money had helped to support the CDU’s controversial
campaign against the new nationality laws which may well have swayed
a number of voters to support the CDU. Still, this loss of power in
Hesse was a severe blow to the SPD and the Greens. For both parties
Hesse had always been a traditional bastion of support. Moreover, it
was in Hesse where the first albeit short-lived red–green coalition
government had been created in October 1985. The outcome of the
elections in Hesse also resulted in the fact that only a few months
after coming to power the Schröder government lost its majority in the
69-vote Bundesrat. This would make the passing of controversial legis-
lation (for example the new nationality laws and the reform of the tax
and pension systems) much more difficult than anticipated.
Thus, the unexpected defeat of the red–green coalition in Hesse led
to an immediate reaction by the Schröder government. The Chancellor
began to backtrack on the goals of tax reform, dual citizenship and a
quick exit from nuclear energy. After only half a year in power, this
also led to the surprise resignation of Schröder’s principal rival for
power within the SPD, finance minister Oskar Lafontaine, who held
very different views on economic policy than the Chancellor. Lafontaine
cited the lack of co-operation within the government as his main reason
for leaving politics (he also resigned his parliamentary seat and his
position as SPD chairman which was taken over by Schröder) (Lafontaine,
1999). Lafontaine was replaced as finance minister by the former Hes-
sian Minister President Hans Eichel.
Subsequently, the Schröder government also suffered in the Euro-
pean election of June 1999 (Helms, 1999) which showed a very low
turnout across the entire continent (in Germany a mere 45.2 per cent).
While the SPD vote dropped from 32.2 per cent five years ago to 30.7
per cent (and from 40 to 33 seats), and the Green vote from 10.1 per
cent to 6.4 per cent (and from 12 to seven seats), the CDU/CSU under
their new chairmen Wolfgang Schäuble/Edmund Stoiber gained a dra-
matic victory. The CDU/CSU obtained 48.7 per cent of the vote (con-
sisting of the CDU’s 39.3 per cent (up from 38.8 per cent) and the
Bavarian CSU’s 9.4 per cent) and 53 seats, an increase of six seats
(43 for the CDU and 10 for the CSU). The low priority given to European
xlii Introduction to Second Edition

Table I.2 Results of the European elections in Germany in 1994 and 1999:
total seats for the Federal Republic in the European Parliament: 99

1994 1999
FRG West East FRG West East
Turnout 60.0% 45.2%
CDU/CSU 38.8 40.3 32.9 48.7 50.7 40.6
(47 seats) (53 seats)
SPD 32.3 33.9 25.3 30.7 32.6 23.6
(40 seats) (33 seats)
FDP 4.1 4.2 3.6 3.0 2.2 0.0
(—) (—)
Bündnis 90/
Greens 10.1 11.2 5.8 6.4 7.4 2.9
(12 seats) (7 seats)
PDS 4.7 0.6 20.6 5.8 1.3 23.0
(—) (6 seats)
Others 10.2 9.8 11.8 5.4 4.7 7.7
(—) (—)

Source: Statistisches Bundesamt, Commission of the European Communities

elections in general and the final dramatic phase of the war in Kosovo
may have influenced many SPD and Green supporters not to bother
voting in the European election. However, the CDU/CSU’s impressive
victory indicated that almost nine months after Schröder’s election as
Chancellor the majority of Germans were very unhappy with the per-
formance of the red–green government.
The perception of the Schröder government’s deep unpopularity was
reinforced by the subsequent four regional elections in September 1999
and the local elections in North Rhine Westfalia (NRW) in the same
month as well as by the election in the city of Berlin in October. All
of these elections proved to be disastrous for the red–green coalition.
The poor performance of the SPD and the Greens was largely blamed
on Chancellor Schröder’s inability to impress the voters with his social
and economic policy on the national level. The Greens were particularly
affected. They did not manage (neither did the FDP) to obtain parlia-
mentary seats in either of the five regional elections in September and
October 1999.
While the PDS, the former East German communists, were not able
to receive any noticeable electoral support in the western German states,
the party remained strong in eastern Germany and particularly in the
 Introduction to Second Edition xliii

former East Berlin. However, extreme right-wing parties (like the DVU,
the Republikaner or the NPD) had relatively little success; the DVU
only did relatively well in Brandenburg where the party gained 5.3 per
cent of the vote (the right won 3.9 per cent in Thuringia and 2.7 per
cent in Berlin; it had already gained 3.3 per cent in Bremen and 2.7
per cent in Hesse earlier in the year). A noticeable development was,
however, that in all of the seven regional elections in 1999 as well as
in the local elections in NRW the voter turnout declined considerably
(the exceptions were the unaltered turnout in Hesse and the slightly
increased turnout in Saxony).
In the election in Brandenburg the controversial but locally much
admired SPD Prime Minister (Ministerpräsident) Manfred Stolpe, who
is alleged to have collaborated with the Stasi during GDR times, man-
aged to remain in office. However, he lost his absolute majority and
entered into a SPD–CDU grand coalition government with the PDS
and the right-wing DVU, the only parliamentary opposition parties (the
latter received 5 seats, the PDS 22 seats). However, Stolpe’s share of
the vote dropped by almost 15 per cent (from 54.1 per cent to 39.3
per cent) and the CDU was able to increase its vote by almost 8 per
cent (from 18.7 in 1994 to 26.5 per cent). The PDS also increased its
vote considerably, it gained 23.3 per cent as compared to 18.7 per
cent five years ago. Once again, neither the FDP nor the Greens man-
aged to obtain parliamentary seats in Brandenburg.
In the Saarland, Lafontaine’s successor as regional Prime Minister,
Reinhard Klimmt, was less lucky. The SPD’s vote dropped by 5 per
cent and neither the Green party nor the FDP managed to get over the
5 per cent hurdle. The CDU, however, increased its vote by almost 7
per cent from 38.6 per cent to 45.5 per cent and its leader Peter Müller
became new regional Prime Minister with a very slim absolute major-
ity. After he had lost the election and thus his post as Prime Minister
of the Saarland, Klimmt was asked by Chancellor Schröder to become
national transport minister; his acceptance and thus his refusal to be-
come leader of the opposition in the regional parliament in Saarbrücken
was much criticised.
In the third election in September 1999 in the eastern German state
of Thuringia with its capital Erfurt the locally much admired CDU
Prime Minister Bernhard Vogel (prior to 1990 he had been a long-
serving Prime Minister of Rhineland Palatinate) had no difficulty re-
maining in power. This time, however, he enjoyed an absolute majority
and therefore did not need to continue the grand coalition with the
SPD. The SPD’s regional and national unpopularity was made clear
xliv Introduction to Second Edition

by Vogel’s ability to increase the CDU vote from 42.6 per cent to 51
per cent. Consequently, the SPD’s share of the vote dropped to 18.5
per cent (from 29.6 per cent in 1994) and the Green vote declined
from 4.5 per cent to a mere 1.9 per cent. The FDP languished at 1.1
per cent of the vote, a drop of almost 2 percentage points.
The local elections in North Rhine Westfalia, which took place on
the same day as the election in Thuringia, proved to be an even greater
disaster for both the SPD and the Greens. Moreover, NRW is the Fed-
eral Republic’s industrial heartland and the state’s many industrial cit-
ies have been traditionally dominated by the Social Democrats. While
the CDU managed to increase its share of the vote by 10 per cent
(from 40.3 per cent to 50.3 per cent), the SPD vote fell by more than
8 percentage points (from 42.3 per cent to 33.9 per cent). The Green
vote dropped by almost 3 per cent (from 10.2 per cent to 7.3 per cent).
The FDP’s share of the vote increased but by only 0.5 per cent to 4.8
per cent. While the low turnout of only 55 per cent (a drop from 81.7
per cent in 1994) might explain some of the SPD’s losses, it was clear
that the voters used the local elections in NRW to express their great
dissatisfaction with the work of the red–green governments in both
Düsseldorf and Berlin.
In view of the electoral trend throughout 1999, the election in the
eastern state of Saxony in October produced no great surprises. As
expected, former West German politician Kurt Biedenkopf was con-
firmed as Prime Minister with his seat of government in the regional
capital Dresden. Although his share of the vote fell slightly by 1.2 per
cent, the CDU result of 56.9 per cent was still most impressive.
Biedenkopf had successfully defended his absolute majority. The SPD
vote, however, dropped to a very meagre 10.7 per cent. This was a
loss of almost 6 per cent and the party’s worst electoral result in any
regional election since the end of the Second World War. While the
Greens and the FDP once again remained much below the 5 per cent
hurdle, the PDS increased its share of the vote by almost 6 per cent to
22.2 per cent.
A month later the election in Berlin on 10 October 1999 confirmed
the general trend. However, the SPD managed to halt its rapid loss of
unpopularity though it could not yet reverse its declining vote. The
SPD’s share of the vote in the national capital only dropped by 1.2
per cent (from 23.6 per cent in 1995 to 22.4 per cent). But CDU can-
didate Eberhard Diepgen had no difficulty remaining in power as mayor
of Berlin and head of a CDU–SPD grand coalition government. Diepgen
even increased his party’s vote by 3.4 per cent (from 37.4 per cent to
 Introduction to Second Edition xlv

40.8 per cent). While the FDP vote remained largely unchanged (2.2
per cent compared to 2.5 per cent four years ago), the Green party
suffered a heavy loss in this traditionally left–liberal city. The Green
vote fell from 13.2 per cent to 9.9 per cent. On the whole, the still
continuing unpopularity of the Schröder/Fischer government had more
devastating consequences for the Greens than for the SPD.
Then, in November 1999, the CDU party funding scandal with former
Chancellor Kohl at its centre came to light. Chancellor Schröder greatly
benefited from this situation. Yet, a scandal surrounding the poten-
tially illegal but certainly immoral use of corporate jets for the private
and complimentary use by SPD politicians in Düsseldorf, the capital
of North Rhine Westfalia, prevented the Berlin government from be-
ing able to fully exploit the considerably more serious Kohl scandal as
much as they otherwise would have been able to do.
However, the SPD won the regional election in Schleswig Holstein
in late February 2000 and SPD Prime Minister Heide Simonis was
able to remain in office as head of the red–green coalition government.
The SPD even managed to increase its share of the vote by 3.4 per
cent (from 39.8 per cent in 1996 to 43.2 per cent). Still, the vigorous
election campaign of the CDU candidate Volker Rühe, the former de-
fence minister, who was largely seen as untainted by the funding scandal,
ensured that the CDU vote only fell by 2.0 per cent (from 37.2 per
cent to 35.2 per cent). This constituted a considerable relative success
for Rühe. Moreover, the liberal FDP managed to increase its share
from 5.7 per cent to 7.6 per cent of the vote. The Greens, however,
suffered yet another devastating defeat; their vote fell by almost 2 per
cent (from 8.1 per cent to 6.2 per cent).
On 14 May 2000 the regional election in North Rhine Westfalia
confirmed the SPD and Prime Minister Wolfgang Clement in power as
head of a red–green coalition government. However, both the SPD
and the Greens lost almost approximately 3 per cent of the vote each
obtaining 42.8 per cent and 7.1 per cent respectively. This was a so-
bering result for the ruling coalition. Clement’s homemade scandal
involving the use of corporate jets by SPD politicians may have had a
negative impact. However, in view of the CDU funding scandal in-
volving former Chancellor Kohl, which still dominated the political
landscape, and the controversial racist utterances by CDU candidate
Ruttgers about ‘Kinder statt Inder’ in the context of Chancellor Schröder’s
green card proposal (for details, see Larres above) the SPD might have
expected a much better election result. Yet, the disappointing economic
performance of the regional as well as the national red–green government
xlvi Introduction to Second Edition

Table I.3 Results of the German Regional Elections (Landtagswahlen) in

1999–2000

Turn- SPD CDU FDP Greens PDS DVU/

out Rep./NPD

Hesse 66.4
7/2/99 (19/2/95) (66.3) 39.4 (38.0) 43.4 (39.2) 5.1 (7.4) 7.2 (11.2) – (–) 2.7 (–)
Bremen 60.1
6/6/99 (14/5/95) (68.6) 42.6 (33.4) 37.1 (32.6) 2.5 (3.4) 8.9 (13.1) 2.9 (–) 3.3 (2.5)
Brandenburg 54.4
5/9/99 (11/9/94) (56.3) 39.3 (54.1) 26.6 (18.7) 1.9 (2.2) 1.9 (2.9) 23.3 (18.7) 5.3 (1.1)
Saarland 68.7
5/9/99 (16/10/94) (83.5) 44.4 (49.4) 45.5 (38.6) 2.6 (2.1) 3.2 (5.5) 0.8 (–) 1.3 (1.4)
Thuringia 59.9
12/9/99 (16/10/94) (74.8) 18.5 (29.6) 51.0 (42.6) 1.1 (3.2) 1.9 (4.5) 21.4 (16.6) 3.9 (1.3)
Saxony 61.1
19/9/99 (11/9/94) (58.4) 10.7 (16.6) 56.9 (58.1) 1.1 (1.7) 2.6 (4.1) 22.2 (16.5) 2.9 (1.3)
Berlin 65.9
10/10/99 (22/10/95) (68.6) 22.4 (23.6) 40.8 (37.4) 2.2 (2.5) 9.9 (13.2) 17.7 (14.6) 2.7 (2.7)
Schleswig Holstein 69.5
27/2/00 (24/3/96) (71.8) 43.2 (39.8) 35.2 (37.2) 7.6 (5.7) 6.2 (8.1) – (–) 2.7 (4.3)
NRW 56.7
14/5/00 (14/5/1995) (64.0) 42.8 (46.0) 37.0 (37.7) 9.8 (4.0) 7.1 (10.0) 1.1 (–) 1.1 (0.8)

Sources: Statistische Landesämter, Statistisches Bundesamt, Fischer Weltalmanach

over the last few years influenced voters decisively to either stay at
home (with 56.7 per cent the turnout was exceptionally low) or to
vote for the opposition. Moreover, the SPD has been governing North
Rhine Westfalia since 1958. This is a rather long period of time in
office which is bound to be unhealthy for the development of any party.
The real winner of the election in North Rhine Westfalia was the FDP.
Under its leader Jürgen Möllemann the party managed to increase its
share of the vote by almost 10 per cent and was thus again able to
obtain seats in the regional parliament in Düsseldorf. The FDP had
not been able to overcome the 5 per cent hurdle in 1995. Like in other
western German states, with only 1.1 per cent of the vote the PDS
failed to perform well.
The election result in North Rhine Westfalia was perhaps a reflec-
tion of the relatively speedy recovery of the CDU from the funding
scandal under its new national leader Angela Merkel. While on ac-
count of this scandal the CDU was largely paralysed during the first
four months of the year 2000, in May 2000 the CDU once again be-
gan to perform more effectively as the major opposition party in Ber-
lin. In all likelihood this means that until the general election in late
2002 Chancellor Schröder will be faced with an ever better organised
and a more effective opposition. It can be expected that his political
 Introduction to Second Edition xlvii

life will become increasingly difficult; at the point of writing it was by

no means clear whether or not Schröder will manage to remain in
office for a second term.
On the whole it can be said that the collapse of the GDR in late
1989, followed by unification a year later, provided a shock to the
entire German political system, but revolutionary transformations were
confined to the citizens of the eastern Länder. For party politics, uni-
fication introduced a substantial new electorate without any firm ties
to the established parties. The political fallout is still in process and
by the year 2000 it became clear that this change had brought some
significant adaptations in party competition. In Bundestag elections a
five party system has emerged (SPD, CDU/CSU, FDP, Greens, PDS).
Within the Länder two distinct patterns have crystallised. In the new
Länder a relatively balanced three-way competition among CDU, SPD
and PDS can be observed. Other minor parties like the FDP and the
Greens retain only marginal presence and, usually, are no longer fac-
tors in government formation in eastern Germany. In the old Federal
Republic, however, we find a persisting pattern of two large parties
with one or two small parties playing critical coalition roles. Here the
PDS has made no significant inroads and practically plays no impor-
tant role. The change of leadership and the retirement of the popular
leaders Gregor Gysi and Lothar Bisky will hardly be able to give the
PDS a more prominent role in the old Länder. While the influence of
the Green party as a major political force in the Länder appears to be
weakening, the election in North Rhine Westfalia points to the fact
that the FDP may well have benefited from a process of rejuvenation
in opposition. Only the election to the Bundestag in 2002, however,
will demonstrate whether this will be reflected on the national level.

PANIKOS PANAYI: RACIAL EXCLUSIONISM IN GERMANY

The ‘racial crisis’ of the early 1990s had resolved itself by the middle
of the decade due to two main factors. First, the decline of the eu-
phoric nationalism and the inevitable xenophobia attached to it in the
immediate aftermath of reunification. Second, the decrease in the numbers
of visible immigrants and refugees as a result of the change in asylum
law regulations in 1992. However, illegal immigrants continue to move
into Germany across the Polish border. Consequently, the potent mani-
festations of xenophobia which characterised the years between 1991
and 1993 have lessened but not disappeared. Racial attacks continue
xlviii Introduction to Second Edition

to take place but large-scale riots now seem a thing of the past. Similarly,
while the NPD, the DVU and the Republikaner together with count-
less other smaller neo-Nazi groupings continue to exist, by 1998/99
they had declined to the low levels of support of the 1970s and 1980s.
In the September 1998 federal election the DVU only obtained 1.2 per
cent of the vote while the Republikaner attracted a mere 1.8 per cent.
The decline of extreme racism does not mean it has disappeared:
rather, it has simply returned to the level which characterised the Fed-
eral Republic before the unification crisis. Foreigners continue to face
social and economic discrimination while the changes in the National-
ity Laws of 1991 and 1993 have not solved the problem of excluding
immigrants and their offspring from the rights enjoyed by German citizens.
However, the numbers of foreigners who become naturalised German
citizens have increased.
In one sense the Federal Republic has become rather like the USA
in terms of attitudes towards race. There is a fairly advanced western
half in which minorities can succeed economically, which contrasts
with the eastern part of the country where relatively few foreigners
live. As a liberal nation state, Germany still differs little from other
western European democracies in the late twentieth century, practising
peaceful racial exclusionism, especially through its immigration and
nationality laws.
Nevertheless, at the start of 1999 new dramatic developments occurred
as the new SPD–Green Coalition decided to introduce a new national-
ity law allowing dual citizenship for people living in Germany with
foreign nationality. The government proposed not to insist anymore on
the requirement that the holder of a German passport could not be in
possession of another passport at the same time. The necessity to give
up the passports of their native country in order to obtain German
citizenship had put off many of the 7.3 million foreigners (almost 10
per cent of the population), including 2 million Turks more or less
permanently living in Germany, from considering applying for German
citizenship. However, in response to the new government’s initiative,
the opposition CDU launched a much publicised and most controver-
sial but surprisingly popular petition against the envisaged new na-
tionality law. It was alleged that ‘dual nationality’ would lead to split
loyalties; people with two or more nationalities would not consider
themselves German and therefore would not be prepared to integrate
themselves fully into German society. Moreover, under the impact of
the lost regional elections in Hesse (see above) Schröder soon changed
his mind and, despite much opposition within the ranks of the SPD’s
 Introduction to Second Edition xlix

Green coalition partner, announced an uneasy compromise. After all,

the loss of the government’s majority in the Bundesrat meant that
Chancellor Schröder needed the agreement of the opposition for the
successful reform of Germany’s outdated citizenship laws. The new
law was eventually passed in spring 1999 and took effect on 1 January
2000. It specifies that children born in Germany of foreign residents
will automatically be considered German citizens; in addition they will
be able to enjoy the citizenship of their parents’ country of origin if
the state in question does not object. However, this will only be con-
sidered a temporary solution. At the age of 18 these children will have
to decide which nationality they wish to have for the rest of their
lives. Consequently, they will have to give up one of their two pass-
ports and one of their two nationalities by the time they reach adult-
hood. If they have not taken this decision by the age of 23, their German
citizenship will cease. The German state still will not tolerate that a
person is a German national as well as a citizen of another country.

TILL GEIGER: THE ECONOMIC TRANSITION PROCESS IN

GERMANY AND EAST-CENTRAL EUROPE

By the mid 1990s the euphoria following the collapse of communism

in East Germany and East-Central Europe had largely evaporated and
given way to growing cynicism about the emerging social structures
in the new democracies. This development led to a renewed question-
ing of the key decisions taken by policy-makers after the fall of the
Berlin Wall. The continued scepticism about the progress of transition
begs the question why policy-makers opted for a leap to democracy
and a market economy rather than staged transition over time. In 1989
there was the widespread presumption that the introduction of the capi-
talist system in East-Central Europe would lead to prosperity within
the foreseeable future. It was assumed that the fall of state socialism
and the (re-)turn to liberal democracy represented a complete break
with the past. However, this explanation overlooked the reality of an
outmoded industrial structure and uncompetitiveness of the transition
economies. At the same time, policy-makers confronted a historically
unique situation for which no contingency plans existed. Therefore,
policy-makers reinterpreted the discursive structures, which had shaped
the cold war world, to formulate a response to the momentous chain
of events triggered by the fall of the Berlin wall.
The sudden collapse of communism in Eastern Europe occurred much
l Introduction to Second Edition

more rapidly than most analysts had thought possible. In the late 1980s,
few observers had dared to predict the imminent demise of state social-
ism partly because the west had invested heavily in Gorbachev’s lead-
ership, the reform process and disarmament. The catacyclism of the
events of 1989 catapulted the leading figures of the Eastern European
opposition into power all over East-Central Europe. These new policy-
makers faced the daunting tasks of establishing a liberal democracy
and a market economy largely unprepared. Under pressure from the
velvet revolutionaries on the streets the fledgling democratic govern-
ments tried to expedite the transition process by implementing econ-
omic reforms while establishing new democratic structures. The new
political leaders found it difficult to meet the demonstrators’ demands
for instantaneous prosperity, continued social security and political free-
dom. Caught unaware, western policy-makers implored the new East-
ern European elite to adopt capitalism and liberal democracy but at
the same time offered only very limited financial and economic assist-
ance to the emerging democracies in East-Central Europe. In the case
of the GDR demonstrators undermined the attempts by the Modrow
government and the opposition to reform the East German state.
The pressure from the streets forced the new governments to take
incisive decisions rapidly without developing an overall strategy for
political and economic transition. As a consequence some initial decisions
induced undesired outcomes. For example, privatisation of the state
sector has been slow and bedevilled by problems throughout Eastern
Europe. The Czech government recently announced that it would
renationalise some firms in order to prevent their collapse and further
increases in unemployment. In the unified Germany, the restoration of
old property rights has prevented the early repair of the capital and
housing stock. At the same time, the restructuring of the economy has
led to massive increases in unemployment in the former state socialist
countries. The growing inequalities are testing the solidarity among
the citizens of fledgling democracies as well as in the new Bundesländer.
A decade after the fall of the Berlin wall many eastern Germans (Ossies)
continue to feel that they are second class citizens, excluded from German
society. Given the continued problems of transition, it may well be the
best prospect for continued peace in Europe to renegotiate the insti-
tutional arrangements governing intergovernmental (economic, politi-
cal and security) co-operation in Europe. In such a process, western
countries ought to accept the fledgling democracies in East-Central Europe
as full and equal partners rather than supplicants.
 Introduction to Second Edition li

To some extent, western policy-makers perceived themselves as vic-

tors in the cold war, but at the same time clung to existing institutional
arrangements in response to the uncertainty regarding the outcome of
the transition process in the Soviet Union and East-Central Europe.
Despite the rhetoric of a ‘common European house’, western policy-
makers have been rather reluctant to incorporate the new democracies
into the (western/European/Atlantic) community of states. The Euro-
pean Union has been extremely reluctant to grant the emerging East-
Central European market economies preferential access to the single
European market. On balance, western European governments seem at
times more concerned to protect their own national interest than to
show solidarity with the fledgling democracies of East-Central Europe.
At the same time, the tenth anniversary of the fall of the Berlin wall
led to renewed calls for a ‘Marshall Plan’ for Russia and East-Central
Europe; in particular this was the case in the aftermath of the 1999
war in Kosovo. Given the continued problems of transition in the former
state socialist countries, a comprehensive western aid programme might
greatly assist the development of the political and economic infrastructure
needed for the long-term stability of the new European democracies.
The eastern enlargement of the EU, now expected to occur in 2003/
04, will be of immense importance for the economic, and also politi-
cal, stabilisation of East-Central Europe.

ADRIAN HYDE-PRICE: GERMANY’S SECURITY POLICY

DILEMMAS

The late 1990s have seen a steady recalibration of German security

policy as the Federal Republic adjusts to the new demands and re-
sponsibilities it faces. Germany remains essentially a Zivilmacht (Maull,
1997), although it has shed most of the political and constitutional
restraints (many of them self-imposed) which characterised the semi-
sovereign West Germany of the cold war years. The Berlin Republic
thus promises to be a ‘normalised’ Zivilmacht, more comparable to
other civilian powers like Sweden or Holland, rather than to tradi-
tional nation-states like France or the UK. The key change in German
security policy and strategic culture in the 1990s has been in respect
to the use of military force. The key catalyst for this change has been
Bosnia and then the 1999 war in Kosovo.
lii Introduction to Second Edition

The deployment of Bundeswehr troops abroad

Throughout the early 1990s, the conservative–liberal government of

Kohl – and most notably the gifted CDU Defence Minister, Volker
Rühe – sought to build a broad public and political consensus for the
deployment of Bundeswehr troops for UN-mandated peace-support
operations abroad. This involved sending German troops to Somalia;
German participation in AWAC flights over Bosnia; and a German
contingent in IFOR/SFOR. A particularly significant step was the May
1997 Bundeswehr operation in Albania. German troops were sent to
Albania to assist in the evacuation of embassy staff and other civ-
ilians. This was the first ever unilateral deployment of the Bundeswehr
in an out-of-area operation and took place without a formal UN man-
date. It thus constituted a significant landmark in terms of the ‘nor-
malisation’ of German security policy. Of significance too was the public
reaction to this event, which was broadly supportive. This widening
public acceptance of new Bundeswehr missions reflects an important
political shift among opinion formers on the centre-left. In the early
and mid 1990s, out-of-area deployment of German troops had been
opposed by many Greens and some Social Democrats. However, in
the face of mounting evidence of atrocities and ethnic cleansing in
Bosnia, Foreign Minister Joschka Fischer posed the question, ‘What is
to be done?’ His answer was clear: in the face of widespread violation
of basic human rights, it was the moral and political duty of the Greens
to support a multilateral military intervention, including the use of German
troops (Markovits and Reich, 1998: 242). As Fischer noted, ‘it took a
foreign army to free Auschwitz’ (quoted in The Economist, 24 Octo-
ber 1998, 60). Fischer’s intervention in the debate was crucial and
helped shift broader sections of German public opinion in favour of an
expanded mission for the Bundeswehr. Yet this broad consensus has
its limits: public support for the use of Bundeswehr troops in peace
keeping and peace-support operations involves two conditions: the
operation must have a clear mandate under international law (primarily
expressed through a UN Security Council or OSCE resolution) and
must be multilateral (the Albania operation was an exceptional event).
In this sense again, the Berlin Republic has become a ‘normal’ civil-
ian power. Another interesting development in German security policy
is the increasing use of what has been called ‘minilateralism’.
 Introduction to Second Edition liii

Minilateralism (NATO, WEU, OSCE) and trilateralism

Traditionally, the Federal Republic has focused its foreign and secur-
ity policy on multilateral frameworks (primarily NATO and the EU/
WEU, but also the OSCE), underpinned by strategic partnerships (with
the USA, France and Russia). However, the 1990s have witnessed the
emergence of smaller diplomatic groupings which fall into an ‘insti-
tutional grey zone’ between unilateralism and multilateralism. The
prime example of this is the Contact Group, consisting of Germany,
France, Britain, Russia and the USA (Italy joined later). It was estab-
lished in April 1994 to co-ordinate the response of the international
community to events in the Balkans and represents a reaction to the
perceived failure of the EU (and CFSP), the UN and OSCE.
Germany has also become involved in a series of triangular diplo-
matic initiatives: the ‘Weimar triangle’ (with Poland and France); Danish–
German–Polish co-operation in building a trilateral military corps; and
the triangle with Russia and France. These trilateral and minilateral
initiatives are likely to become a more important aspect of the Berlin
Republic’s evolving foreign and security policy. As Reinhardt Rummel
has noted, Germany will follow a ‘double strategy’, first seeking to
‘launch activity via the EU, but if this leads to no tangible success in
a decent timespan, it will co-operate with a smaller group or with partners
from outside the Union’ (Rummel 1996, 60). The formation of a red–
green coalition government in October 1998 had significant implica-
tions for the evolution of German security policy. The result of the
elections constituted both a decisive political change and a significant
generational change. The key individuals involved in the formation of
German security policy are Chancellor Gerhard Schröder, Foreign Minister
Joschka Fischer and Defence Minister Rudolph Scharping. Despite the
previously radical stance of both SPD and Greens on security policy,
the coalition has promised continuity in German foreign and security
policy and reaffirmed Germany’s international commitments to its partners
and allies. Despite this emphasis on continuity, three new themes have
become apparent.

The Schröder Government’s new security policy

The first is to do with the old bug-bear of German security policy,

nuclear weapons. The SPD–Green Coalition Accord of October 1998
included a commitment to work for a ‘No-First-Use’ of nuclear weapons
by NATO. When Joschka Fischer raised the issue in a series of newspaper
liv Introduction to Second Edition

interviews, US Defence Secretary William Cohen responded by insist-

ing that the US would resist any attempt to depart from NATO’s ex-
isting policy. Defence Minister Scharping, on a visit to the USA at the
time, was quoted by his US colleague as promising that Germany had
no intention of questioning core elements of NATO’s strategy. None-
theless, Scharping himself underlined that the new government cher-
ished ‘the vision of a nuclear-weapons free world’, and stressed that
nuclear weapons should only play a political role. Joschka Fischer
subsequently raised the issue at a NATO meeting in Brussels. Although
there is little chance that NATO will abandon its first use policy, this
incident demonstrates three things: continuing German sensitivity on
the issue of nuclear weapons; the potential for open disagreements within
the red–green coalition; and the likelihood that the new German govern-
ment will resist US efforts to redefine and expand NATO’s role within
the wider international system.
The second new theme concerns the use of military force. The new
SPD–Green government has accepted that military force is sometimes
necessary in order to prevent genocide and aggression. However, the
employment of military power will remain a sensitive political issue
for the Berlin Republic (Hoffmann and Longhurst, 1999). Joschka Fischer
stressed that the military is a blunt instrument and has little utility
unless it is part of a clear political strategy. This was the lesson he
drew from the four-day US–UK bombing campaign against Iraq in
December 1998: whether or not the campaign was a ‘military’ success,
it failed to resolve any of the underlying problems and was not part of
a coherent political strategy. For the Berlin Republic, therefore, the
use of military power for political purposes will only be accepted if
diplomatic efforts to find a political settlement have been exhausted.
At the same time, the new government has placed heavy emphasis on
further arms reductions and controls, particularly in the framework of
the CFE (Conventional Forces in Europe) Treaty.
The third theme of the new SPD–Green government follows from
the second: the emphasis on conflict prevention, preventive diplomacy
and the peaceful resolution of disputes. This has always been a strong
element of German security policy and diplomatic practice, and is one
of the features which defines Germany as a civilian power. Under the
new government, it has received renewed emphasis. This is evident in
two regards. First, the commitment to offer Bundeswehr troops for UN-
Standby Forces which was included in the Coalition Accord. Second,
Joschka Fischer’s commitment to work for an upgrading of the role of
the OSCE in European security. For example, in his speech to the
 Introduction to Second Edition lv

OSCE Ministerial Council in Oslo on 3 December 1998, Fischer under-

lined the desire of the German government to see the OSCE play an
even stronger role in Europe, and called for the creation of an OSCE
Training Centre which would prepare members of OSCE Missions with
the necessary skills of conflict prevention and resolution.

Plans ventilated throughout 1999 to reduce the number of soldiers serving

in the Bundeswehr (currently approximately 340 000) by more than
100 000 and thus effectively to less than half of the number of the
West German troops prior to 1990 found the cautious approval of Defence
Minister Scharping. In late May 2000 the conclusions of the strategic
review of the commission of 21 experts, chaired by former federal
president Richard von Weizsäcker, on the future of the Bundeswehr
were published. The report proposed a radical restructuring of the German
forces. It was suggested that the Bundeswehr should be reduced to
240 000 soldiers and turned into a largely professional force capable
of intervening in international emergency situations in the euro–atlantic
area. The commission also proposed that 130 000 soldiers instead of
the hitherto contemplated 50 000 should serve as intervention forces.
Yet, as the weekly Die Zeit emphasized, due to the necessity of rotat-
ing troops and maintaining a security margin in case of the simul-
taneous emergence of a second crisis, only 10 per cent of this number
would actually be available as active intervention forces at any time.
Following a decision by the European Court in the Hague in January
2000 that not to allow women to handle arms in the Bundeswehr (as
forbidden under article 12a of the Basic Law) was discriminatory, the
report also recommended that women ought to have the same rights as
their male colleagues within the armed forces. The Weizsäcker com-
mission also advised that the command hierarchy of the Bundeswehr
should be reorganised.
Furthermore, the review on the restructuring of the Bundeswehr con-
cluded that in the years to come only 30 000 soldiers instead of cur-
rently 130 000 should be conscripts. Thus, it was contemplated to dilute
(though not end) male and perhaps soon female conscription. In the
post-cold war world, not large armies with heavy armour and a great
number of tanks are required, but small units of flexible and high quality
rapid reaction forces which can be used to respond effectively to glo-
bal (or at least euro–atlantic) emergency situations. However, there
are also financial reasons for the Schröder government’s interest in
lvi Introduction to Second Edition

overhauling the structure of the country’s armed forces. The Weizsäcker

report, however, recommended that the 10-month period young men
will have to serve in the Bundeswehr should be maintained. This cor-
responds with the view of the ministry of defence.
The government’s interest in maintaining a conscript army lies in
the bad experiences with a professional army during the time of the
Weimar Republic. The regular intake of conscripts and the concept of
the ‘citizen in uniform’ as developed in the 1960s and 1970s was very
helpful in ensuring that a close link between the army and society at
large was maintained; the separate development of the army as ‘a state
within a state’ did not occur. Yet, after the cold war large reserve
forces such as provided by a conscript army are not needed anymore.
Moreover, if merely 30 000 conscripts are drafted annually as suggested
this means that only approximately eight per cent of Germany’s young
men would have to serve in the Bundeswehr (or to do community service
as conscientious objectors). This would lead to great injustice between
the young people who will have joined and the majority who will not
have to join the armed forces. Critics pointed out that the suggested
reform might be cheaper but it would be unwise to undermine the
Bundeswehr as a conscript force. The proposed reduction of the German
forces’ civilian employees from 130 000 to 80 000 was meant to save
up to DM3 billion annually.
While there was much criticism in SPD and CDU circles about the
proposed reduction of the strength of the German forces and the dilution
of male conscription which, it was claimed, would endanger the
Bundeswehr’s stability and effectiveness, only the Greens expressed
themselves wholeheartedly in favour of the reforms. They believed,
however, that the envisaged restructuring should go even further and
that the Bundeswehr ought to be reduced to no more than 200 000 troops.
The proposals of May 2000 certainly indicate that the Berlin Re-
public does not intend to develop large military forces and become a
European superpower as feared by Mrs Thatcher and others in 1990.
On the contrary, increasing dissatisfaction about the combat readiness,
the morale of the German soldiers and the antiquated technical and
hardware equipment of the Bundeswehr is increasingly being voiced
from within German political and military circles and, perhaps more
importantly, by spokespersons for NATO and the American govern-
ment. It was argued in mid 2000 that an emergency such as the war in
Kosovo was increasingly less likely to be met successfully by Ger-
many and most other EU countries. Yet, Finance Minister Eichel’s
drive to cut expenditure on the military, as well as elsewhere, for budg-
 Introduction to Second Edition lvii

etary reasons appears to enjoy the undiminished support of Chancellor

Schröder.

Outlook

German security policy since unification has witnessed some signifi-

cant shifts. In particular, Germany is now politically willing and con-
stitutionally able to participate in multilateral peace support operations.
The Berlin Republic will be a ‘normal’ Zivilmacht, committed to multi-
lateral co-operation where possible and ‘minilateralism’ when necessary.
As before, the central aim of German foreign and security policy re-
mains the building of a stable peace order in Europe, primarily by
extending the transatlantic security community steadily eastwards. With
Joschka Fischer in charge of the Federal Republic’s Auswärtige Amt,
Germany has a foreign minister of considerable intellect, vision and
charisma. Thus united Germany enters the third millennium as a mature
and stable democracy, aware of its responsibilities as Europe’s central
power, and committed to strengthening both European integration and
international co-operation. Whatever mistakes the Berlin Republic might
make in its foreign and security policy in the future, no-one should
doubt the historic transformation that has occurred in Germany’s role
in Europe: after the horrors of total war and the Holocaust, modern
Germany has emerged as a central bastion of the Kantian ‘Pacific Union’
which has developed among the democracies of the transatlantic security
community.

MICHAEL COX AND STEVEN HURST: THE USA, GERMAN

UNIFICATION AND AMERICAN–GERMAN RELATIONS IN
THE 1990S

The United States was essential for the realisation and the successful
management of the process of German unification. After an initial period
of caution, the Bush administration seized the initiative in superpower
relations by pressing Mikhail Gorbachev to make good his pledge to
accept self-determination for Eastern Europe, including the two Germanys.
President Bush’s confidence in the stability of West German democ-
racy then enabled him swiftly to embrace the possibility of German
unification in the aftermath of the collapse of communist regimes in
Eastern Europe in late 1989. The US also felt the need to support and
manage the unification process in order to ensure that a united Germany
lviii Introduction to Second Edition

would remain firmly within the structures of NATO. The chief obsta-
cle to the achievement of Bush’s twin goals was the opposition of the
USSR. The initial opposition of Thatcher’s Britain and Mitterrand’s
France was much less important. Together with the Kohl government
in Bonn, Washington therefore devised a number of initiatives designed
to secure Moscow’s acceptance of German unification inside NATO.
Chief among these were the so-called ‘2+4’ process for negotiating
the details of unification and reform of NATO structures and missions.
After several months of negotiations these initiatives, plus a number
of economic and financial ‘sweeteners’ offered to Moscow by Bonn,
eventually secured Russian acceptance of German unification inside
NATO. The diplomacy of the Bush administration was vital to the
success of German unification and laid the basis for strong German–
American relations in the post-cold war world.

It is hoped that the articles contained in the second edition of this

book as well as the new introduction will contribute to the interest in
the nature of the German state since unification. Although the con-
tributors to this book differ in their interpretation of many aspects of
German domestic and foreign policy, there is little controversy regard-
ing the view that with German unification neither an economic or po-
litical superpower nor a particularly dangerous or unreliable state has
come into being. Instead, together with France, Britain and Italy united
Germany is merely one of the top four players in the European con-
cert of states and in the process of European integration.
The united German state has perhaps become a more ‘normal’ state
(Nagengast, 1999; also Ross, 1999). The relocation of Germany’s seat
of government from Bonn to Berlin in 1999 has not changed this. The
Schröder government, like the governments which preceded it from
Adenauer to Kohl, continues to view Germany’s national interest to be
its close integration with the European Union and the maintenance of
good relations with the USA but also with other important powers,
such as Russia (Larres, 1999). It does not appear that the move of the
seat of government to Berlin will alter these fundamental tenets of
German policy as they have developed since the establishment of the
FRG in 1949.
 Introduction to Second Edition lix

Still, in the summer of 2000 there were clear signs of a decisive largely
export-driven improvement in Germany’s economic performance. This
has resulted in a somewhat more confident outlook among government
ministers and the German people regarding the internal employment
situation and the international competitiveness of their country. These
positive developments, however, were seriously tarnished by deeply
disconcerting indications of ever more widespread anti-foreigner and
anti-Semitic sentiments in many parts of Germany. It is a particularly
virulent problem among young men in eastern Germany. It has led to
calls for a ban of the right-wing NPD, which appears to be active in
recruiting young neo-Nazis, and for greater efforts in educating young
people in the former GDR about the criminal nature of the Hitler re-
gime. Yet, so far the authorities appear to be rather helpless about
how to react to this serious crisis, which is not only greatly damaging
to Germany’s internal health and stability, but also to the united country’s
international reputation.
lx Introduction to Second Edition

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Introduction to the First Edition

The breaching of the Berlin Wall, the collapse of the GDR, the unifi-
cation of West and East Germany and the end of the Cold War domi-
nated world events in 1989–90. Since then united Germany has begun
to cope with the political, economic, social and external challenges
unification has posed to its institutions and way of life in both the
western and eastern part of the once divided country. While the coun-
try has successfully tackled some of the problems unification has pre-
sented, like the threat to the stability of the state from right-wing groups
and parties, other issues, as for example the high rate of unemploy-
ment and the Stasi legacy, still remain unresolved.
The nine contributors to the book, all experts in their field, analyse
the way united Germany has tackled the many expected as well as
entirely unforeseen problems caused by unification and highlight the
gradually emerging short- and long-term patterns in Germany’s gradual
adjustment to new realities. The country has not only become more
populous and territorially bigger but is also burdened with many under-
estimated problems, particularly economic and social ones. The emer-
gence of a new economic, political and perhaps military superstate, as
feared by many in 1990, has however not materialised. Instead Ger-
many today is only just coping with the domestic and external chal-
lenges of unification. The economic and social integration of the former
East Germany into the Federal Republic however has still not been
completed and may yet take another decade or two.
The first seven years after unification constitute an appropriate period
of time to evaluate the progress the united country has made towards
digesting the financial, economic, social and external challenges unifi-
cation has posed. Although it is much too early to arrive at a definitive
assessment of this continuing process, a certain historical distance has
already developed since unification in 1990 and its immediate aftermath.
As the individual contributions in the book will show, the attempt to
arrive at a first assessment of the situation in united Germany during
the first seven years of the growing together of the old Federal Repub-
lic and the former GDR is a challenging but also very interesting task.

The book has been divided into three parts. The first part deals with
the historical dimension of contemporary German history and with the

1
2 Germany since Unification

events of 1989–90. The first contribution, by Rolf Steininger, gives an

overview of the German question throughout the post-World War II
era. The author looks at the attempt to create a unified but neutral
Germany in the 1950s, reviews the consequences of Ostpolitik in the
1970s and 1980s, and analyses the process of German unification and
the changed mood in post-unification Germany.
In the following article Klaus Larres analyses the German revolu-
tion of 1989–90. He particularly concentrates on the direct and indi-
rect causes of these events and the role the East German people played
in bringing down the government of a well-fortified police state. He
concludes that internal and particularly external stimuli were impor-
tant for the revolutionary uprising of 1989 but that most credit must
be given to the courage and determination of the East German people.
Part II looks at the domestic consequences of German unification.
Christopher Flockton analyses the problems and prospects of the Ger-
man economy since 1989–90. He concludes that it will probably take
15 or 20 years for the former GDR to catch up economically with the
western part of the united state. The catastrophic fall in output and the
fundamental restructuring of the eastern German economy since econ-
omic and monetary unification in July 1990 had dire short- and mid-
dle-term consequences. At the time many people warned of a so-called
‘Mezzogiorno effect’ but these voices were ignored for largely politi-
cal reasons. Flockton looks at the terms and conditions of economic
and monetary union, the role of the subsequent privatisations overseen
by the Treuhandanstalt and other strategies by the Bonn government
to restructure the eastern German economy. Flockton comes to the
conclusion that greater economic dynamism is not only required in the
former GDR but also in western Germany if the country is to cope
with the challenges of unification, high unemployment and the global
competition from the south-east Asian economies.
In the chapter that follows William Chandler writes about the devel-
opment of the German party system since 1990. He analyses the organ-
isational adaptation of the party system in the former GDR to the new
circumstances and looks at the development within the right- and left-
wing sectors of German party politics during the first six years since
unification. He ends his article with an analysis of coalitional politics
since the all-German election of December 1990. Chandler comes to
the conclusion that despite a certain dealignment tendency so far no
fundamental restructuring of the German party system and its electoral
support has taken place. The old West German party system shows a
surprising endurance.
 Introduction 3

The next contribution, by Charlie Jeffery, looks at German federal-

ism in the 1990s. The author analyses the structure of cooperative fed-
eralism in the old Federal Republic and then concentrates on the
challenges of unification and European integration for German feder-
alism and the role of the German Länder. He comes to a pessimistic
conclusion. The economic and political east–west divide which unifi-
cation has been unable to overcome so far has undermined the ability
of the Länder to act collectively against the power of the federal auth-
orities. It has also made it more difficult for the Länder to assume a
greater role in European politics independent of the federal state. Jeffery
concludes that Germany seems indeed to be on the road to a divided
polity.
The final chapter of Part II by Panikos Panayi deals with the role of
racism and neo-nationalism in united Germany. Panayi concludes that
every modern state tends to exclude the ethnic groups and individuals
who do not conform to its citizenship rules. Germany is no exception.
He looks at German attitudes towards immigrants in historical per-
spective, analysing the sudden rise in racist attacks in the first few
years after unification and the role of the extreme Right in united
Germany. He concludes that the great influx of refugees and ethnic
Germans immediately after unification was curbed by the controver-
sial change of Article 16 of the Basic Law (the right to asylum) which
came into effect in July 1993 and led to a more restricted asylum policy.
This caused a reduction in the number of immigrants coming to Ger-
many which in turn resulted in fewer physical attacks on immigrants.
It also appeased many right-wing voters with Chancellor Kohl’s CDU/
CSU and reintegrated them into the party just in time for the general
election of October 1994.
Part III concentrates on the external consequences of unification.
Eric Owen Smith looks at the German model and its impact on Euro-
pean integration and concludes that many elements of German eco-
nomic and financial practices have already been incorporated within
the EU structures. He proves this by looking at the EU’s monetary
and fiscal policy as well as Germany’s and the EU’s social and anti-
trust policies. In this context Owen Smith also analyses in detail the
terms and consequences of German economic, monetary and social union
in mid-1990. The author concludes that without at least a partial adop-
tion of Germany’s social and fiscal policies it will be very difficult to
make stable and viable progress with European integration. EMU will
only be possible if many features of the German model are accepted at
the European level.
4 Germany since Unification

The contribution by Till Geiger concentrates on the economic tran-

sition process in Germany and east-central Europe. The end of the
Cold War and its ideological conflict started the overdue re-evaluation
of the discursive interpretations of the institutional arrangements which
emerged in the post-World War II era. However, many myths and assump-
tions of the Cold War still influence the transformation to the post-
Cold War world in east-central Europe. Geiger analyses and exposes
these myths and offers a different way forward. He concludes that only
more flexible institutional arrangements and an open dialogue of all
European states can find new ways towards a new European order.
Further and wider economic integration may well offer the best solu-
tion to obtaining political and economic stability in Germany and east-
central Europe.
The final chapter of the book, by Adrian Hyde-Price, deals with
Germany’s security policy dilemmas since unification. The author looks
at German security policy in the light of the changes since 1990 but
also as far as Germany’s history and geopolitical situation is concerned.
Hyde-Price attempts to assess the major trends and dynamics of Ger-
man security policy since 1990. He seeks to identify the implications
of this policy on the European Union and on world politics in general.
The author sees Germany’s security policy revolving around three capitals
(Washington, Moscow, Paris) and three international organisations
(NATO, WEU, OSCE). Hyde-Price concludes that united Germany’s
security policy situation must be understood as a series of policy di-
lemmas, not as clear choices and strategies. He is convinced that these
dilemmas cannot be resolved, they can only be managed. In the foresee-
able future it will be one of united Germany’s major tasks to manage
its security dilemmas so well that it is able to contribute to overcoming
the continuing divides on the European continent and therefore add to
Europe’s stability.
On the whole, the book offers the reader an attempt at evaluating
Germany’s performance to date. Taken together, the nine chapters en-
able the reader to obtain a comprehensive picture of the most impor-
tant domestic and external consequences of unification without
overlooking the historical dimension.

The initial idea for the book was born at a conference on German
Unification at The Queen’s University of Belfast. Although subsequently
the structure of the enterprise changed considerably, I wish to thank
the Queen’s University as well as the Department of Politics and its
head Professor Robert Eccleshall for their generous support. I am of
 Introduction 5

course also very grateful to the individual authors for their willingness
to contribute to this volume. As almost all of the contributors used
different wordprocessing packages, I depended on the valuable com-
puter assistance rendered by Eileen McGuire. Much needed moral and
also some very helpful editorial support was given by my wife Patricia
McCourt Larres and a very special thanks must therefore go to her.

Klaus Larres
Belfast, August 1996
 Part I
The German Question and
the Revolution of 1989–90
1 The German Question, 1945–95
Rolf Steininger

THE PERIOD OF OCCUPATION (1945–49)

The future of Germany was the most important of all European ques-
tions after the war. Germany posed an infinitely complex problem. What
had seemed common to Anglo-Soviet interests during the war – the
need to contain Germany and to devise the best means of preventing
the revival of a strong, aggressive Germany – became rapidly over-
shadowed by what divided them: all the Cold War issues. In Germany
and among the western allies divergent interpretations of the Potsdam
agreement – which the Soviets regarded as ‘holy writ’ – were put down
to Soviet deception. Whatever faith British Foreign Office officials had
had in Soviet good will, they had abandoned almost entirely by early
1946. British Foreign Secretary Ernest Bevin sent Prime Minister Clement
Attlee a note on 10 April 1946 in which he gave his view of Moscow’s
intentions: ‘The Russians’, he wrote,
have decided upon an aggressive policy based upon militant Com-
munism and Russian chauvinism . . . and seem determined to stick
at nothing, short of war, to obtain [their] objectives. At the present
time [Russia’s] aggressive policy is clearly directed to challenging
this country everywhere. 1
This conclusion had a great effect on the German policy of the Brit-
ish government. Up to that time the British had thought of the German
problem solely in terms of Germany itself and their purpose had been
to devise the best means of preventing the revival of a strong, aggres-
sive Germany. At times, the emphasis had been on re-education but
more often on controls and security measures (Steininger, 1996). This
desire to prevent a German revival clearly could not be discarded, since
it was a goal which they still had in common with the Russians. But,
as Bevin wrote in a top secret Cabinet paper on 3 May 1946:
It can no longer be regarded as our sole purpose, or indeed, perhaps
our primary one. For the danger of Russia has become certainly as
great as, and possibly even greater than that of a revived Germany.
The worst situation of all would be a revived Germany in league
with or dominated by Russia. 2

9
10 Rolf Steininger

This, of course, greatly complicated an already complex problem. It

involved avoiding measures which would permanently alienate the
Germans and drive them into the arms of the Soviet Union. It also
meant not giving the impression that the USSR always got its way in
four-power discussions about Germany. It involved the British being
no less constructive in their approach to the problems in their Occupa-
tion Zone in Germany than the Soviets loudly proclaimed themselves
to be in theirs. It meant maintaining a sufficiently high standard of
living in western Germany to prevent the communists from exploiting
the economic hardships suffered by the population. And, above all, it
involved accepting the partitioning of Germany at the Elbe and the
integration of the western part into an anti-Soviet bloc to act as a
bulwark against Communism. If a decision were to be made in favour
of partition, then it was ‘most important to ensure that responsibility
for the break was put squarely on the Russians’.3 At the same time, it
was realised that full US support would be essential and that some
Americans were not ready for this. However, their leading representa-
tives in Germany, especially General Lucius D. Clay, would oppose it
vehemently (Smith, 1990).
The British were certainly right in their estimation of the attitude of
the Americans in Germany; yet, they often misjudged the view of the
officials in the State Department in Washington. Fearing collaboration
between Russia and a new Reich, Freeman Matthew, Director of the
Office of European Affairs, informed Dean Acheson, Acting Secretary
of State, in early April 1946: ‘It is high time we made some top level
decisions with regard to Germany.’ And George F. Kennan, who had
assumed a year before that the Russians had a well-worked-out repa-
rations plan designed to achieve political goals in Germany and west-
ern Europe, now warned of a ‘Soviet political program’ for taking
over all Germany. Therefore, Kennan advocated that partition be car-
ried ‘to its logical conclusion’ with the development of a West Ger-
man State. US Ambassador Smith in Moscow supported Kennan’s view
in April:
I have held for many months that our immediate objectives should
be integration of the western zones of Germany into a political unit
oriented towards western Europe and western democracy. (Yergin,
1977: 226–7)
The question was whether the Russians really had a ‘political pro-
gramme’ for taking over Germany and whether Russian policy was
based on a desire for security or expansion. When Secretary of State
 The German Question, 1945–95 11

James Byrnes posed this question to his French colleague Georges Bidault
in April 1946 in Paris, he had in mind a device to test Russian inten-
tions: the famous twenty-five-year four-power treaty guaranteeing German
demilitarisation. At the July 1946 Council of Foreign Ministers’ meet-
ing in Paris, Soviet foreign minister Molotov emphatically refused to
support this proposal – even when the US were prepared to extend it
to forty years. Therefore, Byrnes as well as Bevin became convinced
that the Russians were bent on further westward expansion and, for
this reason, wanted to encourage economic paralysis and political dis-
integration in Germany (Yergin, 1977: 230). At the end of the confer-
ence, after Bevin had put forward his ultimatum to separate the British
zone economically from the other three zones, Byrnes offered to oper-
ate the American zone together with any or all of the other occupying
powers as a single unit. When a few weeks later this offer was put on
the agenda of the Allied Control Council the Russians wanted to know
what the French position was. As the French made clear their inten-
tion not to accept Byrnes’ proposal, the Russians apparently dropped
it too. Perhaps they let the French kill what they wanted to kill any-
way (Kessel, 1989: 101 ff.).
Thus, there was no four-power treaty and no economic unity let
alone political unity for Germany; but soon (from January 1947) an
economic unit that became known by the name of ‘Bizonia’. But the
creation of this Bizone was more than just the economic fusion of the
British and American zones; in fact it was the turning-point in post-
war Germany. It marked the end of four-power cooperation, and the
beginning of Anglo-American collaboration in Germany. It was now
looked upon as a safeguard against the much-feared American retreat
into isolationism. With all this, Bizonia was the beginning of the end
of German unity. There could be no political unity if there was no
economic unity. In the words of a Foreign Office official (A.A.E. Franklin)
in July 1946:
If Germany is to be divided economically, political division will
almost certainly follow, though it need not necessarily do so
immediately.4
The partition of Germany along the Elbe was well under way in 1946.
The British were the first who – as early as February 1946 – started
talking about that strategy as one way of solving the German question
and of keeping communism to the east of the Elbe (Steininger, 1988;
Steininger, 1992). The Americans did not accept this immediately, but
when the idea of keeping Germany united failed they followed suit. It
12 Rolf Steininger

is well known what happened next: the open outbreak of the Cold
War, the announcement of the Truman Doctrine and the Marshall Plan,
and two more futile conferences about Germany in Moscow and Lon-
don in 1947. In the wake of the communist coup in Czechoslovakia,
Bevin became finally convinced that Russia represented a ‘threat to
western civilisation’.5 A western Six Power Conference (US, UK, France,
Benelux) was held in London between February and June 1948. Here
the formal decision was taken to set up a West German State.

ATTEMPTS TO CREATE A UNIFIED BUT NEUTRAL

GERMANY (1952–55)

The first West German government (a coalition between the Christian

Democrats [CDU/CSU], the Free Democrats [FDP] and the Deutsche
Partei [DP]) was established in September 1949 with Konrad Adenauer
as chancellor. His prime political objective was the integration of the
new Federal Republic of Germany into western Europe, including re-
armament but not unification (Köhler, 1994). The SPD on the other
hand feared that this policy would irrevocably slam the door on unifi-
cation (Lösche and Walter, 1992). This controversy reached its first
climax in 1952 when on 10 March the Soviet government took the
initiative and presented a new note to the western governments (the
following is based on Steininger, 1990).
The Russians offered a united Germany (without the territories east
of the Oder-Neisse line) including a small national army for its self-
defence.6 There were no political or economic strings attached. The
only precondition was that a unified Germany should not become a
member of any kind of military alliance which involved the USA. Many
Germans thought this proposal should be investigated at all costs and
the details examined. But in his first public comment on 16 March
1952, Chancellor Adenauer simply said: ‘There is nothing new in this
note.’ It was, he suggested, merely intended to isolate the Federal
Republic by neutralizing the country and preventing its integration with
western Europe. Adenauer firmly believed that it was up to West Ger-
many to prove its loyalty to the West by rejecting Stalin’s offer flatly
and expediting the conclusion of the contractual agreements for the
rearmament and simultaneous integration of the Bonn Republic with
the West which were close to completion (Herbst et al., 1990).
Adenauer was, however, constrained by the fact that an outright re-
jection would give the appearance of forsaking West Germany’s own
 The German Question, 1945–95 13

national interests in the interests of western Europe or, as Jakob Kai-

ser, the minister for all-German affairs, put it in a Cabinet meeting, of
being ‘more American that the Americans’. Coalition elements which
were less wedded to European integration as an end in itself, more
sensitive to charges of ‘Quislingism’ and more susceptible to national-
ist slogans opposed the rejection of Stalin’s proposal and urged fur-
ther exploration of the Russian offer before any final commitment to
the West. This group recommended a slowing down rather than speed-
ing up of the treaty negotiations regarding the FRG’s integration with
the West. ‘Thus far’, the US High Commissioner John McCloy re-
ported to Washington on 29 March 1952, this coalition group was ‘not
– repeat not – very strong, comprising chiefly a few soft-headed na-
tionalists like [vice-chancellor Franz] Blücher, and some left-wing
CDU [members of parliament] including Kaiser [whom McCloy re-
garded as “starry-eyed”] and [Heinrich von] Brentano’, the leader of
the CDU parliamentary group (Schwartz, 1991).
At this stage Britain and France were more afraid of a rearmed and
reunited Germany than of Stalin’s Russia. Particularly, Russian–German
collaboration was regarded as the ultimate nightmare among western
policymakers. The ‘Rapallo-Komplex’ was still very much alive (Larres,
1996). ‘Indeed’, as Lord Salisbury, Under-Secretary of State, wrote to
Prime Minister Churchill a year later, in August 1953, ‘the main pur-
pose of the EDC [European Defence Community] and Bonn arrange-
ments was to prevent, so far as humanly possible, a Soviet–German
alignment’. 7 The western powers all acted on the basis of what would
best serve their long-term interests: to prevent the development of a
neutral as well as of a too powerful Germany (Steininger, 1989). The
French Quai d’Orsay was convinced that the Soviet proposals were a
serious but very dangereous attempt to settle the German question.
The British Foreign Secretary Anthony Eden also noted at this point:
‘[this] has been my view all along, i. e. that the Soviets are sincere in
these proposals.’ In the State Department, attitudes varied. Some peo-
ple worried that if occupation troops were to be withdrawn, the Soviet
troops would halt at the Oder-Neisse rivers, in other words just be-
yond the border, while the western troops would have to retreat to
uncertain bridgeheads in France, or even to return to the United States.
On the other hand, ‘unity plus national army plus peace’ seemed hard
to beat, as the American Embassy in Moscow observed.
When the Soviets in their second note of 9 April accepted in princi-
ple for the first time ever the idea of holding free all-German elections
under the supervision of the four Allied powers, the opposition in West
14 Rolf Steininger

Germany vigorously demanded that Adenauer investigate all avenues

– including four-power talks – for unification. The atmosphere in West
Germany and France became ‘volatile and even hysterical’, as Ivone
Kirkpatrick, the British High Commissioner in West Germany, reported
to London. US Secretary of State Acheson decided – as a tactical move
– that talks with the Russians should take place, though admittedly at
the level of high commissioners and not foreign secretaries. After all,
he thought that ‘many Germans tend to feel we are forcing them down
a path of our choosing’. He cabled his High Commissioner McCloy:
if the Soviets are really prepared to open up the Eastern Zone, we
should force their hand. We cannot allow our plans to be thwarted
merely by speculation that Soviets may be ready actually to pay a
high price.
Adenauer needed one day and ‘half the night’ to make up his mind.
Then he said ‘no’ to Acheson’s proposal. He doubted that the Cabinet
would authorise him to sign the contractual agreements with the West
if there existed the prospect of talks with Moscow which might lead
to German unification on a neutral basis.
Thus, no talks with the Soviet Union were entered into. Instead, in
May 1952, Adenauer signed the treaties for the Federal Republic’s
rearmament and integration with the West, thus firmly anchoring his
state in the western camp. The western powers had won the ‘battle of
the notes’, as Eden put it (Eden, 1960: 45).

Although the treaties were signed, but not yet ratified – in fact they
were never ratified by all the countries concerned – there was still a
German question: ‘We must face the fact there will always be a “Ger-
man question” and a “Prussian danger” ’, Churchill wrote in a secret
memorandum in July 1953.8 After Stalin’s death in March 1953 it was
British Prime Minister Churchill who wanted to go to Moscow, if nec-
essary, on a ‘solitary pilgrimage’ to try to settle the German question
and to defuse the Cold War (Larres, 1995: 67 ff.). In a cable to US
President Eisenhower the British prime minister wrote:
I have the feeling that we might both of us together or separately be
called to account if no attempt was made to turn over a leaf so that
a new page would be started with something more coherent on it
than a series of casual and dangerous incidents at the many points
of contact between the two divisions of the world. (Boyle, 1990: 31)9
His mind was not closed to the possibility of a united and neutralised
 The German Question, 1945–95 15

Germany as part of a settlement with the Russians. He was of the

opinion that a united, independent Germany would not become an ally
of Soviet Russia or abandon its moral association with the free powers
of Europe and America. To him three facts stood out:
1. The character of the German people rises superior to the ser-
vile conditions of the Communist world.
2. They have a potent object lesson in the fate of the eastern
zone and millions of witnesses will exist for many years to testify
to the horrors of Communist rule, even exercised by Germans over
Germans.
3. The hatred which Hitler focused against Bolshevism is strong in
German hearts. The eyes of Germany are turned against Soviet Russia
in fear, hate and intellectual antagonism. (Larres, 1995: 187–8)10
This was Churchill’s last gambit (Glees, 1985), but it was nipped in
the bud. The ageing prime minister had a stroke in late June 1953.
Moreover, his own officials in the British Foreign Office were against
him, the Americans and the French were opposed to his ideas and,
above all, Adenauer was aghast at Churchill’s intentions (Larres, 1995:
147 ff.; Larres, 1997); and, as Churchill had put it, ‘our honour would
prevent us letting Adenauer down’. 11
Adenauer did not want this kind of Germany. What then did he
want? Perhaps a top-secret document in the Public Record Office in
London gives the answer. Entitled ‘German Unity’ it was written on
16 December 1955 by Ivone Kirkpatrick, then Permanent Under-Secretary
of State in the Foreign Office, and runs as follows:
1. The German Ambassador told me yesterday that he wished to
make a particularly confidential communication to me on this sub-
ject. I would recollect that I had told him on my return from Ge-
neva that I had come to the conclusion that we might eventually
have to be more elastic than the Americans were prepared to be and
that we might have to move to a position in which we declared that
provided Germany was unified by means of free elections and pro-
vided the unified German Government had freedom in domestic and
foreign affairs, we should sign any reasonable security treaty with
the Russians.
2. The Ambassador told me that he had discussed this possibility
very confidentially with the Chancellor. Dr Adenauer wished me to
know that he would deprecate reaching this position. The bald reason
was that Dr Adenauer had no confidence in the German people. He
16 Rolf Steininger

was terrified that when he disappeared from the scene a future Ger-
man Government might do a deal with Russia at the German ex-
pense. Consequently he felt that the integration of Western Germany
with the West was more important than the unification of Germany.
He wished us to know that he would bend all his energies towards
achieving this in the time which was left to him, and he hoped that
we would do all in our power to sustain him in this task.
3. In making this communication to me the Ambassador natu-
rally emphasized that the Chancellor wished me to know his mind,
but that it would of course be quite disastrous to his political posi-
tion if the views which he had expressed to me with such frankness
ever became known in Germany.
Foreign Secretary Harold Macmillan noted: ‘I think he is right.’
(Foschepoth, 1990: 289–90). 12
In August 1961 the building of the Berlin Wall finally sealed the
partition of Germany. President Kennedy privately was sceptical re-
garding the possibility and even the desirability of German unification.
As Frank Cash, an official in the German Office of the State Depart-
ment, later recalled: the Kennedy White House decided very early that
the phrase ‘German unification’ should ‘no longer be included in drafts
for use by the President’. As a result, the State Department was com-
pelled to adopt such ‘circumlocutions as “self-determination for the
German people” or “freedom of choice for the German people”’ (Catudal,
1980: 61; Mayer, 1996; Arenth, 1997).

OSTPOLITIK AND ITS CONSEQUENCES (1969–1980S)

It was Willy Brandt, foreign minister and vice chancellor from 1966–69,
and then chancellor between 1969 and 1974, who initiated West Ger-
many’s Ostpolitik in the late 1960s. This policy remained a major pil-
lar of West German foreign policy throughout the 1970s and 1980s.
Brandt and his Social Democratic Party (SPD) realised that the estab-
lishment of closer contacts between the two German states required an
improvement of relations with eastern Europe and Bonn’s territorial
recognition of the status quo of Europe’s postwar borders. Egon Bahr,
Willy Brandt’s chief adviser (Lutz, 1992), had already suggested in
1963 a strategy of ‘change through rapprochement’, a policy which in
Bahr’s opinion would enhance relations between the two German govern-
ments and the German people (Griffith, 1978; Whetten, 1971; Bark
and Gress, 1989; Garton Ash, 1993).
 The German Question, 1945–95 17

When elected chancellor in 1969, Brandt intensified his Ostpolitik

(Baring, 1982; Larres, 1996: 301–19). The chancellor’s eastern policy
hinged, however, on a major axiom: continuation of the Federal Re-
public’s Westpolitik, i.e. West Germany’s commitment to a firm an-
choring in the Atlantic alliance. Importantly, Bonn’s objective to improve
relations with the East was facilitated by a global détente process. After
the 1962 Cuban missile crisis, the United States and the Soviet Union
had recognised the necessity of defusing tensions. Consequently, they
commenced a détente process which eventually led to the signing of
the Salt I treaty in 1972 (Brandt, 1989: 168 ff., 185 ff.; Kissinger,
1994: 733 ff.; Garthoff, 1994: 123 ff.; Nelson, 1995).
Brandt’s vigorous pursuit of Ostpolitik contributed to the signing of
a host of bilateral treaties between the Federal Republic of Germany
and the eastern European nations with breath-taking speed (Ehmke,
1994: 125 ff.; Bender, 1989: 158 ff.). Rapprochement between West
and East Germany necessitated improved relations with the Soviet Union.
Negotiations between Bonn and Moscow culminated in the signing of
a treaty in December 1970. This accord stipulated the mutual renun-
ciation of force, the acceptance by West Germany of the Oder-Neisse
line, the border between Poland and East Germany, and the existing
border between the FRG and the German Democratic Republic – all
on the condition that a permanent settlement of the border questions
was reserved for an eventual peace treaty for the whole of Germany.
To underscore West Germany’s commitment to unification of the two
German states, the Brandt government informed the Soviet Union in
writing that this treaty would not preclude West Germany’s attempt to
work toward German unity (Borowsky, 1983: 19–22; Koch, 1992:
408–29; Gromyko, 1989: 197–201). In December 1970, Bonn signed a
treaty with Poland which restated West Germany’s pledge to recog-
nise the postwar border between Poland and Germany. Both countries
also renounced the use of force and agreed to establish diplomatic
relations. Chancellor Brandt, who went to Poland to sign this treaty,
received worldwide attention when he knelt in front of Warsaw’s Ghetto
memorial recognising Germany’s terrible crime against humanity dur-
ing World War II (Borowsky, 1983: 22–4; Koch, 1992: 428–9).
Ratification of these treaties, as well as the signing of an agreement
between the two German states, hinged on a four-power agreement on
West Berlin. In September 1971, the four former allied powers signed
the quadripartite agreement, which guaranteed unimpeded access be-
tween West Berlin and West Germany. Whereas the western allies re-
affirmed West Berlin’s special status, the Soviet Union permitted West
18 Rolf Steininger

Berlin to maintain its ties with West Germany. Subsequent agreements

between the Federal Republic of Germany and the German Democratic
Republic largely referred to the regulation of the transit traffic of per-
sons and goods, telephone services, as well as cultural and commer-
cial cooperation between the two states (Keithly, 1986; Bender, 1989:
233 ff.; Koch, 1992, 429–35).
Brandt’s major objective in opening relations with eastern Europe
was to pursue Deutschlandpolitik. This was Bonn’s attempt to improve
relations with East Germany which he hoped would enhance the lot of
the East Germans who had been cut off from the West since the con-
struction of the Berlin Wall in 1961. The chancellor justified his rap-
prochement with the GDR by emphasising that there were ‘two German
states, but only one German nation’. Brandt and his East German counter-
part Willi Stoph met twice in 1970, first in Erfurt, then in Kassel (Brandt,
1989: 225–9). However, progress towards an understanding between
the two German governments could not be made unless Bonn recog-
nised the GDR as a sovereign state. Difficult and protracted negotia-
tions finally resulted in the signing of the Basic Treaty in December
1972, according to which West Germany agreed to recognise the GDR
de facto and accept the exchange of permanent representatives (though
not ambassadors) between the two states. Again, as was the case after
the completion of the German-Soviet treaty of 1970, Bonn made it
clear in a separate letter that the Basic Treaty would not preclude Bonn’s
attempt to pursue unification. Brandt’s motto – ‘two German states,
one German nation’ – left the door open for possible unification though,
at the time, it seemed to be as remote as ever (Borowsky, 1983: 25–6,
35–44; Bender, 1989: 247–9).
In West Germany, the Christian Democrats (CDU) adamantly de-
nounced the signing of the treaties with the Soviet Union and Poland
as well as Brandt’s recognition of the East German republic. They
argued that those treaties violated the commitment to unification as
stated in the Basic Law, the West German constitution. However, in
1972 the CDU’s attempt to unseat the Brandt coalition government
consisting of the Social Democrats and the Free Democrats (SPD-FDP)
failed, and Ostpolitik and Deutschlandpolitik would soon become an
integral part of the foreign policy programme of all West German political
parties (Clemens, 1989; Siekmeier and Larres, 1996).
Instead of maintaining the illusion of unification the SPD-FDP coa-
lition government intended to improve the human contacts between
the people in both parts of Germany. This, they believed, could be
achieved by fully recognising the GDR as a sovereign state and seeking
 The German Question, 1945–95 19

cooperation with the SED regime on practical matters. They were at

least partially successful. In the 1970s, the GDR government relaxed
its stringent policies and permitted a limited number of its citizens to
visit the FRG in case of a family emergency (Larres, 1995b; Craig,
1994).
In 1973, the FRG also negotiated a treaty with Czechoslovakia ac-
cording to which Bonn agreed to nullify the Munich agreement of
September 1938 and recognise the territorial status quo between the
two states. The two nations also agreed to establish diplomatic rela-
tions with each other. Subsequently, the FRG established diplomatic
relations with Hungary and Bulgaria (Borowsky, 1983: 126–9).
Bonn’s détente policy with eastern Europe, especially the Basic Treaty,
was a necessary prerequisite for the 1975 Helsinki agreement. This
treaty, signed by the heads of 33 European nations and those of the
United States and Canada, recognised the post-war status quo in Eu-
rope, and thus the division of Europe and Germany (Heraclides, 1993;
Bloed, 1994).
During the FRG’s negotiations with the East, the United States
emphasised the importance of West Germany in American foreign policy
while chancellor Helmut Schmidt, who had succeeded Brandt in 1974,
reiterated Europe’s and West Germany’s close partnership with Wash-
ington (Dittgen, 1997). Moreover, Schmidt was determined to strengthen
the security of the Atlantic partnership by demanding the deployment
of intermediate-range nuclear missiles (INF) in western Europe to off-
set the Soviet missile build-up in eastern Europe. Schmidt’s party, the
Social Democrats, eventually opposed their own chancellor on the INF
deployment issue (Jäger, 1987: 193ff., 225–6; Dittgen, 1991). The in-
ternal disagreement within the SPD and differences on economic issues
between the SPD and the Free Democrats with whom the SPD had
formed a coalition government since 1969, caused the collapse of the
centre-left government in 1982 and resulted in a Wende, a change of
government in Bonn (Balfour, 1992: 218–19; Turner, 1992: 174–95;
Bölling, 1982).
The Christian Democrats, who earlier had strongly opposed the détente
policy of the SPD-led government, formed a coalition with the Free
Democrats (FDP) under Helmut Kohl. Although a shift from a centre-
left to a centre-right coalition government had taken place in 1982,
Hans-Dietrich Genscher, foreign minister since 1974, remained in post
and pursued with vigour the Ostpolitik of the two previous administra-
tions in both of which he had served. It was Genscher, in particular,
who asked the western allies to take Gorbachev and his reforms seriously
20 Rolf Steininger

and who called for stronger economic and technological cooperation

between East and West (Genscher, 1995: 489 ff.). Chancellor Kohl
and a large segment of his CDU were convinced of the practical ne-
cessity of continuing Ostpolitik. His party and he also occasionally
reiterated their wish to see Germany united again. But more impor-
tantly, Deutschlandpolitik had improved relations with the GDR and
had dramatically enhanced direct contacts between millions of West
Germans and their East German counterparts (Turner, 1992: 187–8,
208 ff.; Balfour, 1992: 221 ff.). Realising that continued opposition to
Ostpolitik and Deutschlandpolitik would be politically unwise, the Kohl
government began to improve relations with the Soviet Union and its
satellite states. In 1987, it even hosted East German party chief Erich
Honecker, thus elevating the international status of the GDR and pro-
viding it with a greater degree of legitimacy (Turner, 1989: 214–17;
McCauley, 1992: 214; Clemens, 1992).

GERMAN UNIFICATION

In 1987 unification of the two Germanys seemed to be as remote as

ever. Confident of the permanence of the division of Germany, par-
ticularly since the 1975 Helsinki agreement, the Honecker regime had
dismantled the automatic machine guns mounted on the German–German
border. It also permitted a greater number of its citizens to travel to
West Germany. Whereas 1.2 million citizens below retirement age were
able to visit the West in 1987, three million could do so in 1988. Not
too long before the collapse of the Berlin Wall, Honecker even pre-
dicted that the Wall would still exist in fifty or a hundred years (Garton
Ash, 1993: 356).
Both East and West regarded the division of Germany as a prerequisite
for stability in Europe. As late as 1989, analysts such as George F.
Kennan argued against German unity (Kennan, 1995: 171–2). More-
over, the Social Democrats and the West German Greens viewed the
division of Germany as permanent. The SPD had established close
contacts with the SED and even signed a joint declaration with the
East German Communist Party in 1987 (Lehmbruch, 1993: 23).
However, reforms in the Soviet Union initiated by Gorbachev con-
tributed to demands for political and economic changes in eastern Europe,
particularly in Poland and Hungary. In the GDR, an increasing number of
dissidents and East German citizens became more outspoken in their criti-
cism of the repressive SED regime (Gorbachev, 1995: 700 ff., 928 ff.).
 The German Question, 1945–95 21

Though Honecker released between 2000 and 3000 dissidents, politi-

cal activists and undesirable citizens to West Germany annually for
hard cash of between $30 000 and $50 000 per person, opposition to
the Honecker regime mounted during the latter part of the 1980s (Weber,
1988: 98–104; Gransow and Jarausch, 1991: 52 ff.). The SED, how-
ever, rejected the introduction of reforms, either political or economic.
Reacting to the spread of glasnost, it even banned Sputnik, a Soviet
magazine published in German, from distribution in the GDR. In an
action regarded as reprehensible by many East German citizens, the
Party openly commended Communist China for having used brutal force
to suppress the mass demonstration in Tiananmen Square in Beijing in
1989. The SED seemed oblivious to dramatic changes taking place in
the Soviet Union and in the neighbouring eastern European countries,
as well as to the improvement of relations between Moscow and West
Germany (Gorbachev, 1995: 930–6; Glaeßner, 1992: 215; Lehmbruch,
1993; Fulbrook, 1995: 201 ff.).
In June 1989, during Mikhail Gorbachev’s official state visit to the
Federal Republic of Germany, the two governments emphasised the
central importance of German–Soviet relations and signed a host of
bilateral agreements. Influenced by Gorbachev’s perestroika and glasnost
and the Soviet leader’s determination to reduce the military confronta-
tion in Europe, NATO agreed to support greater cooperation with the
East and introduced a new security strategy which took into account
the radical changes of the Cold War framework in Europe (Gorbachev,
1995: 706–10).
While Gorbachev’s reforms contributed to the erosion of the com-
munist regimes in eastern Europe, peaceful revolutions in most of these
countries, including the GDR, eventually caused their collapse. In the
case of East Germany, Deutschlandpolitik initiated by the centre-left
Brandt administration and continued by the Schmidt-Genscher govern-
ment, and after 1982, by the centre-right Kohl-Genscher administra-
tions, contributed to the improvement of relations between the two
German states.
This led to a dramatic increase of personal contacts by millions of
Germans on both sides. Moreover, these closer contacts between the
two Germanys and their populations prevented the East German state
from developing its own national identity. The vast majority of East
Germans saw in the West German democratic state and its economic
wealth the model they wished to imitate (Anderson et al., 1993: 2–4;
Lehmbruch, 1993: 22).
22 Rolf Steininger

Amidst the massive flight of East Germans to West Germany in the

summer and autumn of 1989, triggered by the opening of the Hungar-
ian border to Austria on 2 May 1989, the GDR celebrated its fortieth
anniversary on 7 October 1989. Gorbachev, in his speech commemo-
rating the anniversary, alluded to the vulnerability of the East German
Communist regime when he cautioned GDR leaders that ‘life punishes
those who come too late’. Only two days later, almost 100 000 people
in Leipzig staged a demonstration requesting major reforms. Large-
scale demonstrations followed in other cities, the largest being held in
East Berlin with almost a million people participating. On 18 October,
SED party chief Erich Honecker was forced to resign. On 9 Novem-
ber, the SED decided to open the border crossings to West Berlin and
West Germany, which triggered the collapse of the Berlin Wall. While
the demonstrators, before the disintegration of the Wall, expressed their
desire for democratic reforms by chanting ‘we are the people’, they
would soon clamour for unification by shouting ‘we are one people’
(Gorbachev, 1995: 711–12, 933–6; Garton Ash, 1993: 344–7).
Less than three weeks after the sudden and unexpected collapse of
the Berlin Wall on 9 November 1989, Chancellor Helmut Kohl pre-
sented a ten-point proposal to the Bundestag suggesting the creation
of ‘confederate structures’ with the goal of creating a ‘federal state
order’ which would end the division of Germany. Kohl, realising the
East Germans’ desire for unity, became the driving force toward Ger-
man unification (Szabo, 1992: 38 ff.; Genscher, 1995: 669 ff.).
However, the possibility of German unification raised the spectre of
the resurrection of a ‘Greater Reich’ or the creation of a ‘Fourth Reich’.
Initially, the Soviet Union rejected unification, and British and French
politicians and officials expressed their reservations. Of all the coun-
tries, Poland was particularly nervous about the prospect of German
unity, especially since Chancellor Kohl was reluctant to acknowledge
the Oder-Neisse line as the final border between Germany and Poland.
With the exception of the Polish people, public opinion in the West –
though not generally among the leading intellectuals (Glaeßner, 1992:
222 ff.) – generally supported unification. Still, Europeans were concerned
that Germany once again was about to become the predominant power
in Europe. Also, the British and French feared the economic consequences
of unification and both countries were apprehensive about a revival of
fascism, the British more so than the French (James and Stone, 1992:
221 ff.; Verheyen and Soe, 1993: 35 ff.; Thatcher, 1995: 792 ff.).
To reduce Poland’s anxiety over the restoration of a powerful uni-
fied Germany, West German President Richard von Weizsäcker demanded
 The German Question, 1945–95 23

the recognition of the Oder-Neisse line by the Federal Republic of

Germany, a demand which Chancellor Kohl initially attempted to post-
pone for political reasons. After immense pressure by Poland, the Kohl
administration, just two weeks before the all-German elections on 2
December 1990, agreed to sign a treaty with Warsaw guaranteeing
permanent recognition of the Oder-Neisse rivers as the final border
between Poland and the recently united Germany (Garton Ash, 1993:
353–6; Neckermann, 1991: 34–5, 40).
Germany’s closest ally, the United States, strongly supported unity
without much hesitation. President George Bush and Chancellor Kohl,
as well as foreign ministers Genscher and James Baker cooperated closely
to realise German unification against the initial opposition from Brit-
ain, France and, of course, the USSR (Zelikow and Rice, 1995; Bortfeldt,
1997). Among the American public, only 16 per cent believed that a
unified Germany would attempt to dominate the world, 73 per cent thought
it would not (Merkl, 1993: 5–6, 315–18; Treverton, 1992: 180–3).
Without Soviet approval, German unity could not have been accom-
plished. Obviously, opposition to any German aggrandisement was
prevalent among Soviet citizens and members of the Communist Party,
many of whom still remembered the brutal consequences of the Nazi
aggression during World War II. However, President Gorbachev, who
initially had not hesitated to voice his strong reservations, agreed to
unification in principle in January 1990 (McCauley, 1992: 180;
Gorbachev, 1995: 714).

The public in both German states supported unity in general although

the East Germans were much more enthusiastic than their western counter-
parts. However, there was also widespread scepticism in both parts of
Germany. In East Germany, citizens’ movements founded in the late
1980s such as the ‘New Forum’ and ‘Democracy Now’, rejected uni-
fication. Instead, they preferred a ‘third way’ between capitalism and
communism. The citizens’ groups were in a minority, however. The
vast majority of the East Germans, who by late 1989 chanted ‘Ger-
many united Fatherland’, had opted for West German democracy and
prosperity rather than the ‘humane socialism’ offered by the citizens’
movements (Merkl, 1993: 77 ff.; Neckermann, 1991: 12–13, 29–30;
Fulbrook, 1995: 201 ff.).
In West Germany, a small number of intellectuals, such as Jürgen
Habermas and Günter Grass opposed unification (Gransow and Jarausch,
1991: 125–8, 148–52). Also, the West German Greens initially per-
ceived the GDR as a separate state, a ‘society beyond capitalism and
24 Rolf Steininger

state socialism’. However, the Greens, confronted by the rapidly evolving

unification process and the results of the March 1990 elections in East
Germany, shifted their attitude from opposition to support of unity.
The West German Social Democrats also found it difficult to react to
the rapidly unfolding events. In fact the party became badly split on
the unification issue. Oskar Lafontaine, whom the SPD had selected as
their candidate for chancellor, was initially reserved toward German
unity and wanted to slow down the unification process. He warned the
West Germans of the consequences of hasty unification. He foresaw
increased inflation, high unemployment, higher taxes, and generally
enormous costs for the West German state and its citizens (Lafontaine,
1990: 174 ff.). On the other hand, then SPD chairman Hans-Jochen
Vogel and elder statesman Willy Brandt supported rapid unification,
the latter proclaiming already in November 1989 ‘what belongs to-
gether will grow together again’. (Brandt, 1989: 501–12; Merkl, 1993:
119 ff.; Gransow and Jarausch, 1991: 143–4).
Though Lafontaine, who eventually began to support unification during
the 1990 election campaign, was ultimately correct in his pessimistic
predictions, Chancellor Kohl recognised the yearning of the vast ma-
jority of East Germans (and to a lesser degree of many West Ger-
mans) for immediate unification. They certainly rejected a ‘third road’
as recommended by East German intellectuals. Moreover, they did not
want to wait five years to obtain a share in the West German prosper-
ity. The East Germans desired immediate unification. Their determina-
tion to unite with the West was reflected in the March 1990 elections
in the GDR. Forty-eight per cent of the citizens voted for the pro-
unity ‘Alliance for Germany’ consisting of the Christian Democrats
and the German Social Union, both modelled on their West German
counterparts. The SPD received barely 22 per cent and the ‘Alliance
90’ consisting of the citizens’ movements which rejected unification,
received a mere 2.9 per cent of the vote (Merkl, 1993: 131–4; Gransow
and Jarausch, 1991: 148).
Some critics have alleged that the East German desire for unifica-
tion was primarily motivated by ‘deutschmark nationalism’, the wish
of the majority of East Germans to participate in the prosperity of the
western world. Though prosperity and West German consumerism were
important motives, the East Germans had no desire after forty years of
communism to experiment with any form of socialism, nor did they
trust reform movements inside the GDR. Instead, they opted for unifi-
cation with West Germany which at the time provided them with a
much more attractive model (Lehmbruch, 1993).
 The German Question, 1945–95 25

The March elections, in which the Christian Democrats and their

political allies won a stunning victory, accelerated the unification process.
In May, the newly established democratic East German government
and its West German counterpart signed a treaty on the economic and
social union between the two countries which came into effect on 2
July 1990. It permitted the East Germans to exchange their valueless
East German marks for West German marks on the basis of largely a
one-to-one rate. The suggestion by Lafontaine that integration should
be a gradual process was unrealistic in view of the near collapse of
the East German economy and the desire of the East German citizens
for immediate unification. The Kohl administration hoped that econ-
omic union and the favourable currency exchange would alleviate the
mounting economic problems in the East. However, as soon became
evident, the short-term beneficiary of the economic fusion was West
Germany, rather than the East as intended. Its economic production
increased due to the soaring demand of western goods in eastern Ger-
many, whereas the East German economy experienced almost a total
collapse during the first year after the economic union had been initi-
ated (see Chapters 5 and 7).
Actual unification and attainment of full German sovereignty, how-
ever, required official consent by the Soviet Union and the three west-
ern powers. During Kohl’s visit to the Soviet Union in July 1990, the
chancellor proposed to limit the German armed forces to 370 000.
President Gorbachev in turn granted unified Germany full sovereignty
and permitted Germany to stay in the NATO alliance. In September,
the two countries reached agreements on the conditions for withdrawal
of Soviet troops from East Germany by the end of 1994. Chancellor
Kohl promised to finance the gradual removal of Soviet troops to the
tune of eight billion dollars. Finally in November 1990, during
Gorbachev’s state visit to the already unified Germany, the two govern-
ments signed far-reaching agreements concerning cooperation in the
economic, scientific, political and cultural spheres. They also pledged
never to engage in armed aggression against each other or against other
states (Gorbachev, 1995: 708–27).
Earlier, the four allied powers and the two German states had agreed
to negotiate an agreement detailing provisions for German unity. After
a series of meetings, the ‘Two-Plus-Four’ powers signed a treaty in
Moscow on 12 September 1990 which guaranteed full sovereignty to
unified Germany. This treaty was a prerequisite for the actual unifica-
tion of the two German states on 3 October 1990 (Gorbachev, 1995:
708–27; Ludlow, 1991). At the end of November 1990, thirty-two
26 Rolf Steininger

European nations and the United States and Canada reconfirmed Ger-
man unity and the termination of the division of Europe at the CSCE
Conference in Paris (Gorbachev, 1995: 740–41). All-German elections,
scheduled for 2 December, returned the existing centre-right Kohl-
Genscher government. Unification of the two German states had been
accomplished in just over a year.

AFTER UNIFICATION

The initial euphoria generated by German unification soon gave way

to anxiety and bitterness in both parts of the recently unified country
(see in detail Parts II and III). In spring 1991, almost three million
eastern Germans, one-third of the former GDR’s work force, were either
unemployed or on reduced working hours. Growing dissatisfaction among
the workers spilled over into the streets when tens of thousands of
citizens demonstrated in Leipzig and other eastern German cities. This
time their protest was directed against the Kohl government which
had promised the Germans in the East a share in the prosperity of
West Germany. The people protested against rising unemployment and
the fact that their wages were generally only 40 per cent of those in
the western part of Germany.
In the West, Kohl, during the election campaign in autumn 1990,
had pledged that unification could be accomplished without raising taxes.
Only a few months after unification, the chancellor was forced to sub-
mit wide-ranging tax proposals to the Bundestag. New taxes were lev-
ied with effect from July 1991. Ever since, the price of unification has
continued to rise rapidly, and by one estimate could already have reached
200 billion dollars. General dissatisfaction about government policies
and broken promises has caused a decline in the popularity of both
Kohl and his party. Still, the Kohl government was able to win the
1994 general election, albeit with a much reduced majority (Larres,
1995); subsequently the German Bundestag re-elected Kohl as chan-
cellor by a majority of only one vote. Not so much Kohl’s achieve-
ments as chancellor since unification but the opposition SPD’s inability
to offer an attractive alternative to the government have ensured the
survival of the Kohl government.
Once Germany’s unity was accomplished, its allies expected the new
Germany to shoulder greater responsibilities. Despite the fact that the
German constitution was widely interpreted as prohibiting military
activities outside the NATO area, the allies criticised Germany’s re-
 The German Question, 1945–95 27

fusal to send troops in support of the Gulf war in 1991. However,

Kohl did not have the necessary majority in the Bundestag to change
the constitution and enable the united country to become militarily
active out of area. There was, however, no political will to get in-
volved militarily either. Instead united Germany continued the West
German tradition of supporting the western alliance financially (Gutjahr,
1994; Janning, 1996).
Another major problem almost immediately faced by united Ger-
many was the location of its government. Although with unification
Berlin had become the capital of the united country, it was necessary
to determine whether the seat of the government was to remain in
Bonn or should move to Berlin. After heated debates in parliament
and throughout Germany, the Bundestag voted on 20 June 1991 by a
narrow majority of 17 to move both the Bundestag and the govern-
ment to Berlin. The Bundesrat, the upper house, decided to stay tem-
porarily in Bonn; however, in all likelihood it also will move to Berlin
in the near future. Among those arguing on behalf of Berlin as the
seat of government were Chancellor Kohl and Wolfgang Schäuble, the
then minister of the interior, Willy Brandt and then foreign minister
Hans-Dietrich Genscher. Those supporting the retention of Bonn as
the seat of government were the president of the Bundestag Rita Süssmuth
and labour minister Norbert Blüm from the CDU as well as Johannes
Rau, SPD minister-president of North-Rhine Westphalia.

So far unification has not produced a fusion of the two Germanys; no

real feeling of togetherness has emerged. The initial optimism expressed
by politicians who predicted a smooth merger has given way to a more
pessimistic outlook. An opinion poll taken in the summer of 1991 dra-
matically revealed the alienation between the two Germanys caused
by the 45-year division. Large majorities on both sides were of the
opinion that ‘only since unification has it become evident how differ-
ent eastern and western Germans are’. Drastic differences were also
reflected in the sentiment voiced by 84 per cent of eastern Germans
who regarded themselves as second-class citizens. Even Chancellor Kohl
admitted:
As far as inner unity goes, the economic and social challenges will
admittedly take longer and cost more than most, including myself,
had originally assumed.
He added: ‘What I hoped to achieve in three to five years will perhaps
need twice that time.’ Even that timetable appears optimistic (Saxony’s
28 Rolf Steininger

minister-president Kurt Biedenkopf speaks of ‘10 to 15 years’). To a

surprising degree, the fallen Wall continues to divide the Germans –
the 64 million in the West from the 16 million in the East. Before the
Wall came down politicians talked of two states but one nation. More
than half a decade after unification it is one state but still two socie-
ties. Biedenkopf was brutally honest when he told western Germans
what unification would cost them – around 1400 billion DM (c. 600
billion pounds sterling) – and how they should pay: up front.
It’s not solidarity or the warmth of togetherness that makes you want
to divide your income with someone else over a longer period of
time. It’s basic interest. West Germany’s basic interest is getting rid
of this burden as soon as possible.
Unfortunately, the unexpected social divide has contributed to business’
scepticism about investing in the east. Many companies have discov-
ered that production in Poland or the Czech Republic, just a few miles
further east, is considerably cheaper than setting up factories in east-
ern Germany. The insecurity and fears surrounding a transition that
has included the systematic dismantling of everything from day-care
centres to state-provided burials have also had a devastating social effect
on the former GDR citizens: since 1989, the eastern birthrate has dropped
by half. The number of marriages was down 38 per cent in 1993. In a
society in which women formerly made up half of the work force,
seven in ten women were jobless, most of them against their will.
Bärbel Bohley, a political activist who played a prominent role in the
1989 revolt, put it this way in 1993:
There’s a terrible lethargy here now. People sit back and say ‘Do it
for us.’ We have freedom now, and that is worth something. But we
look at the Wessies and they seem so tall. They rule us, and we
take it.
The process of ‘growing together’ is still arduous and still requires
patience on both sides. With contrasting political and socio-economic
structures in place for forty-five years, a speedy merger cannot be ex-
pected. The prosperous Germans in the western part need to exercise
tolerance towards their brethren in the east who have lived under an
authoritarian communist regime for almost half a century. Likewise,
the eastern Germans have to adapt to an open, pluralistic and multicultural
society which necessitates tolerance and recognition of minorities and
non-Germans. Genuine union and an amalgamation of the two parts of
Germany still seem to be years away. Serious efforts to overcome the
 The German Question, 1945–95 29

differences will be required by both the government and the German

people in East and West. The situation in post-unification Germany is
unique, there are hardly any precedents in history. Perhaps it can be
compared with the situation in the United States at the end of the
Civil War. Reconstructing the American nation took a long time – but
eventually it was achieved to a considerable degree.

NOTES

1. Public Record Office, London (hereafter: PRO) FO 800/501/SK/46/15,

10 April 1946.
2. PRO: CAB 129/9, Cabinet Paper No. 46, 1946: ‘Policy towards Germany’.
3. Ibid.
4. PRO: FO 371/55700/C 8314, 23 July 1946.
5. PRO: CAB 129/25, Cabinet Paper, 3 March 1948.
6. However, the US Embassy in Moscow did not exclude an eventual Soviet
attempt at revision of this boundary. After all, it was believed that this
would provide the Kremlin with ‘the ultimate carrot to lead the German
donkey over the hump’.
7. PRO: FO 371/103 673, 17 August 1953.
8. PRO: PREM 11/449, 6 July 1953.
9. See also Foreign Relations of the United States (FRUS) 1952–54: 1115–16.
10. See also PRO: PREM 11/449, 6 July 1953.
11. PRO: PREM 11/449, 31 May 1953.
12. The entire quote can also be found in PRO: FO 371/118254/WG 1071/G
1374, 16 December 1955.

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2 Germany in 1989: the
Development of a Revolution
Klaus Larres

Initially the East German people and civil rights movements like New
Forum and Democracy Now were the driving forces behind the events
which led to the breaching of the Berlin Wall on 9 November 1989,
the collapse of the GDR and its merger with West Germany on 3 October
1990. Even when the West German government took over as the main
initiator of constitutional changes after the election of a free and demo-
cratic government in the GDR in March 1990, it was the people of
East Germany who ensured that unification was entered into earlier
rather than later. The wave of civil disobedience which shook the GDR
between mid-1989 and late summer 1990 was certainly not merely a
‘protest movement of the intelligentsia’ (Reich, 1992a: 11; Reich, 1992b:
316, 319–20; Horn, 1993: 60). Rather, the protests can be character-
ised as widespread spontaneous uprisings of the GDR people with an
evolutionary origin (Opp, 1993: 13–14, 21–5). The continuation of the
mass demonstrations as well as the flood of people who were still
fleeing the GDR for West Germany by the spring of 1990 put pressure
on the government in Bonn and the four allied powers (USA, Soviet
Union, Britain, France) to offer monetary and social union as early as
2 July 1990. Pressure by the East German people was also the main
reason why the domestic process and the two-plus-four negotiations
between the two German states and the four World War II allies for
political unification were completed much more speedily than initially
thought feasible. 1
While the first German revolution for over a century2 was brought
to a successful end in October 1990, most of the major revolutionary
events occurred in 1989. The mass demonstrations on the streets of
East German cities, the flight of thousands of people to the west via
Hungary and other eastern European countries, and, most importantly,
the opening of the Berlin Wall and the downfall of the Honecker gov-
ernment all happened in 1989. In particular, the last two events helped
to ensure that an irreversible process developed. After the opening of
the Wall there was no way back to the status quo ante. It would how-
ever be wrong to claim that the continuation of the revolutionary

33
34 Klaus Larres

developments in 1990 took a predetermined course towards eventual

unification after the breaching of the Wall. In early 1990 there was,
for example, still serious talk in many quarters within the GDR, the
FRG and abroad of a democratic ‘third way’ for East Germany – of
maintaining the GDR as an independent and alternative state to the
FRG (Zelikow and Rice, 1995: 102 ff.; Padgett, 1996: 244–5; Thatcher,
1993: 792–6, 813–14). However, the successes of 1989 gave the vast
majority of the East German people the motivation and stamina to
continue with their own agenda: the attainment of the fruits of western
capitalism and democratic freedoms which seemed to be best achieved
by unification with West Germany. The first serious calls for unifica-
tion could be heard on the streets of Leipzig as early as 19 November
1989. Thus, 1989 was of overall importance for the successful erup-
tion and continuation of the revolutionary process.
This chapter will therefore concentrate mainly on the evolution of
the German revolution in 1989 and the preceding years and not so
much on the continuation of the process towards unification in 1990.
It will analyse why it was that the year 1989 (and not any other year)
saw the open outbreak of revolutionary unrest which had been lying
dormant for some time. It will come to the conclusion that both inter-
nal and, initially above all, external reasons played a decisive role in
turning 1989 into a truly dramatic year but that most credit for this
development belongs to the East German people themselves.

WAS THERE A REVOLUTION IN GERMANY?

On the whole, it seems to be quite justified to view the events of

1989–90 as a revolutionary process. However, more than half a dec-
ade since unification this remains controversial in the literature as well
as among most of the former demonstrators and civil rights groups
(Thaysen, 1992: 72–3). Many attempts have been made to define pre-
cisely what kind of uprising took place on the streets of Leipzig, Dresden,
East Berlin and elsewhere. However, whether the East German revolu-
tion is classified as a conservative, a compensatory or abrogated
(Glaeßner, 1992: 4), an interrupted, a learning (Horn, 1993: 62, 66), a
negotiated (Thaysen, 1992: 87), a peaceful (Grosser, 1992: 22) or a
bourgeois and very German revolution which only took place at week-
ends and after working hours (Fulbrook, 1995: 250) does not seem to
be of vital importance for deciding whether or not the uprising of
1989–90 qualifies to be regarded as a ‘proper’ revolution. Although
 Germany in 1989 35

the events of 1989–90 can at least partially be characterised as an

‘importing and replacing rather than an overturning process’, they also
led to a ‘real collapse’ (Thaysen, 1992: 86).
Despite all ‘revolutionary deficiencies’ and the initial survival of
quite a few of the old communist networks, on the whole it seems to
have been a radical enough breakdown of an entire state to make way
for fundamental changes. ‘If a revolution is defined as the overthrow
of a ruling group and the transformation of the political system by a
protest movement backed by the people, what had happened might be
called a revolution indeed’ (Grosser, 1992: 22; Glaeßner, 1992: 4).
Despite Hannah Arendt’s definition of violence as an inherent factor
of both war and revolution, the absence of violence does not disqualify
the use of the term revolution to describe what happened in the GDR
(Arendt, 1973; Glaeßner, 1992: 3–4; Opp, 1993: 25–6). Still, although
a fundamental political and social transformation took place, it was
also certainly an ‘adopted revolution’ which lacked a certain ‘original-
ity and independence’ (Horn, 1992: 66–8). The East German revolu-
tion borrowed much inspiration and stimulation from the preceding
developments in Poland, Hungary and, of course, from Gorbachev’s
Soviet Union. Despite all internal difficulties and dissatisfaction, it is
doubtful whether there ever would have been a revolution in the GDR
without the external stimuli.
Moreover, the mostly peaceful European revolutions of 1989–90
reflected the highpoint of a development which had begun as early as
the mid-1970s. It had been the 1975 Helsinki agreements of the Con-
ference on Security and Cooperation in Europe (CSCE) which for the
first time had given eastern European political dissent an internation-
ally recognised moral and legal basis (Heraclides, 1993: 172–5). En-
tirely contrary to the initial expectations in east and west, the Helsinki
agreements demonstrated in the long run ‘the explosiveness of the idea
of human and civil rights and of the right of self-determination as
formulated in basket III of the CSCE’ (Thaysen, 1992: 79; Fulbrook,
1995: 87 ff., 115–25). The Final Act of the Helsinki Conference, to
which the East Berlin government was a signatory, and also perhaps
US President Jimmy Carter’s subsequent human rights ‘crusade’, en-
couraged dissidents in the Soviet satellite countries including the GDR
as well as in the USSR itself to assume gradually an ever more open
political role. The Helsinki accords provided a ‘rallying point’ (Heraclides,
1993: 27–40, 173–4) whose explosive potential would only be realised
a decade and a half later.
36 Klaus Larres

THE UNDERLYING CAUSES OF DISCONTENT IN THE GDR

In the GDR the Helsinki spirit led to the founding of various loosely
organised groups demanding the reform of the existing system. Par-
ticularly since the early 1980s issues such as the pollution of the envir-
onment, human rights and the military policy of the Warsaw Pact were
increasingly addressed by these opposition forces. Often the reform
groups met in the form of discussion circles under the umbrella of the
Protestant church (Thaysen, 1992: 79). As some of them represented
the rough equivalent to the West German peace movement, the SED,
the ruling East German communist party, itself had clandestinely en-
couraged the formation of several of these groups protesting against
President Reagan’s SDI initiative and NATO’s double-track missile
deployment decision. The East German security service (Stasi) proved
however unable to keep the East German peace movement fully under
control (Grosser, 1992: 12 ff.). Mostly young people as well as estab-
lished intellectuals participated in the movement; blue collar workers
and the proverbial ‘man in the street’ could hardly be found here (Horn,
1993: 60). In general these reform groups were in favour of a ‘third
way’ between capitalist West Germany and too rigid, dictatorial and
claustrophic East Germany. Their aim was the development of an im-
proved socialist East German state which would observe democratic
principles and human rights while being less exploitive and more hu-
mane than the West German state model. To these reformers German
unification was not an issue at all (Horn, 1992: 64). By August 1989
the Stasi estimated the existence of several hundred active groups with
a very unequal number of members. However, total membership was
regarded as too few (merely an estimated 2500 in a population of 16
million) to cause any serious trouble (Grosser, 1992: 13; Mitter and
Wolle, 1990: 46–8: Glaeßner, 1992: 13). Still, particularly in the 1980s,
the Stasi had begun to prepare football stadia and other mass arenas to
act as huge internment camps if need be. Moreover, in the late 1980s
more and more groups left the ‘church’s shadow’ and came out in the
open and soon experienced persecution similar to the ‘Initiative for
Peace and Human Rights’ which had been founded without any con-
nection to the church as early as 1985–6 (Horn, 1992: 57; Fulbrook,
1995: 220 ff.).
Willy Brandt’s Ostpolitik which had led to the 1972 Basic Treaty
between the two German states and which largely recognised the GDR
as an independent state probably contributed to a gradual rise in dis-
content among the East German people. By means of family reunions
 Germany in 1989 37

an increasing number of GDR citizens were now able to travel to West

Berlin and the Federal Republic and see with their own eyes the difference
in living standards and general freedom of expression between east
and west. After the building of the Wall on 13 August 1961 had stabilised
Cold War tension between the two superpowers, the strategy ‘change
through rapprochement’, as developed by Brandt’s adviser Egon Bahr
in the mid-1960s, was partially successful in the 1970s and 1980s. It
was a policy of westernising the GDR by cooperating closely with the
regime, of supporting the country economically and avoiding all ges-
tures and policies which might be seen by East Berlin as provocative
(as this could in turn have detrimental consequences for the East Ger-
man population and the continuation of the German–German détente)
(Geiss, 1996: 152–6; McNeill, 1996: 262–5; Larres, 1996: 301–19).
Until late 1989, Ostpolitik was pursued by all major West German
parties, the Social Democrats, the Conservatives and the Liberals
(Clemens, 1989). However, the lessening of political tension between
Bonn and East Berlin which developed in the wake of Ostpolitik ‘fos-
tered the impression that a stable, almost normal situation had been
attained’ (Grosser, 1992: 5; Asmus, 1990: 63), thereby deluding both
the western public as well as western governments (both conservative
and socialist ones) about the GDR’s apparent internal stability. This
very widespread picture of the GDR was shattered only with the breaching
of the Wall in November 1989.
Throughout the 1980s most commentators in the West entirely over-
looked the precarious state of the GDR economy. However, the dire
economic situation contributed decisively to the rise and eventual ex-
plosion of discontent in East Germany. In the 1970s the GDR economy
did not manage to keep up with international production trends. It proved
unable to turn from extensive to intensive growth thus becoming in-
creasingly less competitive and losing out against the capitalist econ-
omies. Moreover, the GDR economy was not able to motivate its workers,
engineers and managers sufficiently to develop new products and in-
novative production processes. Therefore, it proved impossible to in-
crease labour and capital productivity. The GDR regime was confronted
with a serious dilemma: ‘Without higher labour productivity one could
not increase real wages. Without product and process innovation, competi-
tiveness in international trade had to decline’ (Grosser, 1992: 11–12).
The Honecker government’s short-term solution for overcoming this
vicious circle consisted of subsidising basic consumer goods, housing,
foodstuffs and wages as well as exports to the West at an ever increas-
ing rate and ignoring the dangerous long-term consequences of this
38 Klaus Larres

policy. Moreover, nothing was done to counter the increasingly dan-

gerous level of environmental pollution in the GDR. In certain indus-
trial areas and in cities such as Leipzig this was a much overlooked
problem; discontent here was particularly widespread (Lehmbruch, 1993:
20). While high spending on external and internal security continued,
investment in capital stock and the infrastructure was utterly neglected
and consequently deteriorated rapidly in the 1980s. Gradually the economy
stopped growing and from 1985 the budget deficit and accompanying
hidden inflation became a seriously worrying factor because the Politbüro
had decided to increase wages slowly and maintain the low prices for
most basic commodities to fend off public dissatisfaction. Furthermore,
the East German economy was much over-centralised and too bureau-
cratic, and its flexibility was severely impaired by the state’s rigid
economic planning in five-year cycles (Lehmbruch, 1993: 20).
By 1987 most economic experts within (but not necessarily outside)
the GDR realised that the economy was in crisis. While the people
were used to product shortages, particularly of quality goods, in the
late 1980s these were noticed much more as wages had continued to
rise and people now had more disposable income but there were not
sufficient products available for purchase (Grosser, 1992: 11–12).
Moreover, from 1987, since East German leader Erich Honecker’s much
celebrated state visit to Chancellor Kohl in Bonn, the number of East
Germans who received permission to visit West Germany rose sharply
(McAdams, 1993: 167; Grosser, 1992: 5). The GDR’s severe economic
crisis contributed to the increasing realisation among the East German
people of how well the other German state was doing. For years this
impression had been created by West German television programmes
which most GDR citizens could receive but now an ever-increasing
number of people were able to obtain first-hand impressions themselves.
While compared with other eastern European economies the GDR was
still doing fine, in comparison with the Federal Republic’s economic
performance and accompanying benefits for the individual consumer,
East Germany was losing ground at an ever more rapid pace (Lehmbruch,
1993: 20–1; Roberts, 1991: 374–5; Anderson et al., 1993: 3–4).
Politically the Honecker regime also seemed to be increasingly out
of step with the changes in the communist world since Gorbachev’s
rise to power in 1985. While rapid economic and social modernisation
accompanied by real gains in human rights and personal freedoms was
attempted in the USSR and some other Warsaw Pact countries like
Poland and Hungary, the East Berlin regime stalled all of Gorbachev’s
attempts to export perestroika and glasnost into the GDR. Honecker’s
 Germany in 1989 39

thinking had been particularly influenced by the Polish crisis of 1980

when only the imposition of martial law prevented the trade union
Solidarity from gaining power. This would undoubtedly have led to
the disintegration of the socialist system in Poland. The Politbüro in
East Berlin was convinced that the introduction of ‘premature’ reforms
and the legalisation of the various reform movements would only re-
sult in destabilising the GDR’s ‘real socialism’. However, in practical
terms, martial law did not help to re-establish the communist party’s
leading role and authority; on the contrary it undermined the legiti-
macy of communism in Poland as elsewhere in the communist world
even further and did not stop Lech Walesa’s Solidarity from gaining
power in 1989. Despite Gorbachev’s new policies, the GDR’s increas-
ing economic problems and the formation of ever more outspoken re-
form groups in East Germany, to Honecker the continuation of his
political course seemed to be well justified and the only way of guar-
anteeing the stability of the system (Grosser, 1992: 6). A member of
Honecker’s Politbüro asked reporters rhetorically: if ‘your neighbour
renewed the wallpaper in his flat, would you feel obliged to do the
same?’ (quoted in Zelikow and Rice, 1995: 37).
Within the Soviet Union Gorbachev and other reform-minded mem-
bers of the Politbüro however had realised that the reform of, above
all, the increasingly outdated economic system of the USSR and its
satellite states was long overdue. The insight that there had to be a
new drive for economic efficiency and economic growth and also towards
a less confrontational new foreign policy (as outlined by Gorbachev in
a speech to the British parliament in December 1984) helped Gorbachev
to be elected secretary general of the CPSU in March 1985 (Gorbachev,
1995: 248, 253–62). In 1986 Gorbachev began to speak of ‘radical
reforms’ not limited to the economy. Soon he mentioned the necessity
of the ‘democratisation’ of the political system and the terms perestroika
and glasnost became associated with the total economic and political
restructuring of the Soviet system (Grosser, 1992: 6–7).
During the same year Gorbachev and his advisers came to the con-
clusion that the satellite countries were no longer economically and
politically viable; they had become serious liabilities and also proved
to be an ever increasing burden on Moscow’s finances. Moreover, the
reform group around Gorbachev soon realised that the West no longer
constituted a direct security threat to the USSR. The various summits
and disarmament agreements entered into with US President Reagan
since the Reykjavik conference in 1986 had decisively contributed to
this insight (Oberdorfer, 1992: 155 ff.). Consequently, a Soviet military
40 Klaus Larres

presence in a politically autocratic and economically backward eastern

Europe did not help to enhance Soviet security and even proved counter-
productive as far as Moscow’s new ‘liberal’ international prestige
was concerned. And Gorbachev was always careful to boost this im-
age with new initiatives like, for example, allowing Nobel Peace win-
ner Andrei Sacharov to return to Moscow from his exile in Gorki
(Bögeholz, 1995: 617).
In a speech in November 1987 Gorbachev declared that ‘national
and social differences’ in the socialist world were ‘good and useful’
(Zelikow and Rice, 1995: 16). Four months later, in February 1988,
Gorbachev told a plenum of the Central Committee that every country
was free to ‘choose freely its social and political system’ (McCauley,
1992: 164). The period of time which was most important for the in-
tellectual development of Gorbachev’s new policy seems to have been
the months from late 1987 to mid-1988 when in the course of a party
conference of the communist party he speeded up the course of dom-
estic reform (perestroika). His speech to the General Assembly of the
United Nations in December 1988 can be regarded with hindsight as
‘the culmination of a reevaluation of Soviet foreign policy and formu-
lation of a new policy for Europe’ (Zelikow and Rice, 1995: 16–17, 36).
In his UN speech he announced the Soviet Union’s unilateral with-
drawal of 50 000 soldiers from eastern Europe. At the same time he
repeated his earlier proclamations about every socialist country’s right
to find its own national political path without interference from Mos-
cow. Every country could go its own way (this became soon known as
the Sinatra Doctrine). And Gorbachev meant what he said. The Brezhnev
Doctrine had been renounced for good (Kaiser, 1991: 182–3; Valdez,
1993). The Kremlin had finally decided that it would not again invade
a satellite country to maintain a dictatorial system. It reflected the logic
of this strategy that in the course of the Malta summit conference with
US President Bush in December 1989, Gorbachev spoke of his belief
that the changes in eastern Europe ‘should be welcomed since they
[were] related to the desire of the people to give their societies a demo-
cratic, human face and to open up to the outside world’ (McCauley,
1992: 164). In Malta, Bush and Gorbachev announced the end of the
Cold War.
It had certainly not been Gorbachev’s intention to undermine the
socialist system as such; on the contrary his reforms which attempted
to increase consent and reduce the application of force within the com-
munist world were the means of saving this system. He had probably
hoped that ‘little Gorbachevs would spring up everywhere’ and that
 Germany in 1989 41

the socialist system within each eastern European country could be

stabilised from within ‘by increasing economic efficiency and by gain-
ing more support from the people’. He must have envisaged that Soviet-
style perestroika and glasnost would also be adopted in the Warsaw
Pact countries, thus preserving the leading role of the communist party
and the socialist ownership of the most important means of production
(Zelikow and Rice, 1995: 5–6; McCauley, 1992: 165–7).
Neither had Gorbachev any intention of disturbing the status quo of
the complicated German question. When Chancellor Kohl visited Moscow
in October 1988 he was told that the Soviet Union genuinely wished
to improve its relations with West Germany which, since the begin-
ning of Kohl’s chancellorship in late 1982, had been characterised by
mutual distrust and mud-slinging. In 1988, however, Gorbachev saw
no need to discuss German unification. Neither did Kohl: this belonged
‘in the realm of fantasy’ he told reporters (Zelikow and Rice, 1995:
62). There did not seem to be any need to put it on the international
agenda. Gorbachev believed that the German problem would be solved
by history in the long run (Kaiser, 1991: 183; Adomeit, 1994: 197–
203). A year earlier, in July 1987, he had told visiting West German
president Richard von Weizsäcker that German unification might come
about in a hundred, maybe even in fifty years. As late as December
1989 Gorbachev announced to the CPSU’s Central Committee that he
would ‘see to it that no harm comes to the GDR’ (Garton Ash, 1993:
356, 349). The Soviet president certainly intended to keep Germany
divided and maintain communism’s leading role in the GDR as well
as in the other eastern European states.
However, by early 1989 Gorbachev became increasingly worried that
his strategy of saving the Soviet Union’s empire by reforming it was
becoming seriously undermined by the aged and unrepentant hard-line
leaders in Bucharest, Sofia and above all in East Berlin. They clearly
hoped that Gorbachev himself would be unseated in the Kremlin in
order to return to the good old days of Brezhnev’s corrupt rule. Honecker
resented and repudiated all Soviet attempts to convince him of the
necessity to embark upon immediate economic and political reforms.
The East German leader therefore did not hesitate to have the letter by
Soviet citizen Nina Andrejewa, which heavily criticised Gorbachev’s
reform course and first appeared in a Russian paper, translated and
published in the SED daily Neues Deutschland (Bögeholz, 1995: 639).
In November 1988 Honecker also forbade the distribution of the Soviet
magazine Sputnik in the GDR as this publication strongly supported
Gorbachev’s policy, and also banned five Soviet films from being shown
42 Klaus Larres

in the GDR (Bögeholz, 1995: 647). These were unprecedented, almost

hostile measures: so far only the distribution of western media prod-
ucts had been forbidden in the GDR. During his visits to Moscow in
September 1988 and in late June 1989 Honecker continued to insist
that Gorbachev’s reforms were only applicable to the USSR but not to
the allegedly much more stable, modern and consumer friendly GDR
(Bögeholz, 1995: 645, 655).
All these events further contributed to the rise of discontent and
frustration among the East German people. As a result, for the first
time since 1977 vicious hour-long street battles had occurred in East
Berlin between young people and the East German police and Stasi in
June 1987. The youths had assembled near the Brandenburg Gate to
listen to the music of rock bands playing in the western part of the
city near the Berlin Wall and had voiced their frustration with shouts
for the dismantling of the Wall, the introduction of freedom and de-
mocracy and repeated calls for ‘Gorbachev, Gorbachev’ (Bögeholz, 1995:
623–5). The first illegal demonstrations which would find a mass fol-
lowing in the summer of 1989 took place in August and September
1987 (Bögeholz, 1995: 627–9). Only a few months later, in November
1987, the Stasi ransacked the flats of members of the various reform
groups in several East German cities. This was followed by the arrest
of several people, the confiscation of photocopiers and illegal publica-
tions as well as the closing down of the Environment Library and the
Zion Church in East Berlin (Bögeholz, 1995: 631–3).
Finally, in January 1988, the Honecker regime managed to discredit
itself totally in the eyes of the East German people. In the course of a
demonstration in East Berlin commemorating the sixty-ninth anniver-
sary of the murder of the socialist heroes Rosa Luxemburg and Karl
Liebknecht, the Stasi used brute force to arrest some of the demon-
strators and remove a poster with the Rosa Luxemburg slogan ‘free-
dom is always the freedom of the people who think differently’. In the
wake of this event the whole GDR was shaken by a wave of arrests
and expulsions to West Germany of members of the various reform
groups. This in turn led to huge solidarity rallies, church services and
other public activities in support of the arrested and expelled. Con-
fronted with this outcry, the regime had no choice but to release many
of the arrested and allow some of the expelled to return (Bögeholz,
1995: 637; on the GDR’s ‘exit’ policy see Hirschman, 1993: 183–5).
Then, a year later, in January 1989, Honecker buried the very few
remaining hopes that the GDR might embark upon some kind of re-
form policy after all. He announced that the Wall would continue dividing
 Germany in 1989 43

east and west as long as the conditions for its creation had not changed
and expressed his belief that it might well still be in existence in a
hundred years (Bögeholz, 1995: 651). Moreover, the extensive prepa-
rations for the fortieth anniversary of the founding of the GDR in October
1949 and the regime’s accompanying proclamations regarding the al-
leged achievements of socialism in East Germany were viewed as cynical
lies by many. This made people even more aware of the huge discrep-
ancies between the official claims and real life (Opp, 1993: 20). By
early 1989 and in stark contrast to the progressive changes in the So-
viet Union, it appeared to the majority of the East German population
that the GDR increasingly resembled a huge prison camp and was to-
tally isolated from the hopeful developments in the USSR and some
other eastern European countries.

THE BEGINNING OF THE END: THE GDR BETWEEN MAY

AND NOVEMBER 1989

The increasingly widespread and largely spontaneous opposition to the

Honecker regime manifested itself by means of huge demonstrations,
the establishment of protest groups, the writing and distribution of let-
ters and petitions, and not least by emigration (Opp, 1993: 13). Inter-
nal weaknesses like the lack of long overdue economic and political
reforms had certainly led to an ever increasing level of discontent within
the GDR (Horn, 1992). However, external factors in the form of
perestroika, glasnost and the lure of West German capitalism were
probably even more important.
While it is helpful to differentiate between two very different ‘pro-
test syndromes’ which can be characterised as the search for political
participation and the search for economic opportunities (see Lehmbruch,
1993: 21 ff.), often people’s motivation was fluid and changed from
day to day. Most of the disenchanted may well have been in both
camps at the same time. Protesters who concentrated on political par-
ticipation were often members of such groups as New Forum, Democ-
racy Now, Democratic Awakening and others. They emphasised the
importance of human rights, environmental protection, new electoral
laws and the maintenance of the socialist character of the GDR. Other
demonstrators, the performance and opportunity oriented people, were
particularly interested in western consumer goods, a well-functioning
economy and generally in obtaining opportunities to do well economi-
cally (Lehmbruch, 1993, 21–4). There is, however, no disputing the
44 Klaus Larres

fact that it was above all the ‘Gorbachev factor’ which gave ordinary
GDR citizens the courage to protest against the system they had toler-
ated for forty years (Thaysen, 1992: 72).
A case in point were the March 1989 elections to the Congress of
People’s Deputies in the USSR. Although the outcome of the polling
was still heavily weighted in favour of the CPSU, in many constituen-
cies voters could choose among several candidates for the first time
ever (Grosser, 1992: 13). This was precisely the practical reform to-
wards a better socialist world the people in the GDR wished to see as
well. The year 1989 would prove that Gorbachev was right when he
reputedly told Honecker in early October that ‘history punishes those
who fall behind’.3 While it is disputable whether a sudden turn to-
wards a reform course in 1989 would have guaranteed the further ex-
istence of the GDR for any length of time, the regime’s inability to
grasp what was happening in the country, its stubborn insistence on an
outdated political course and not least the momentous blunders the
politicians in East Berlin committed certainly hastened its demise.
On 2 May 1989 the Hungarian government, which had embarked on
a carefully chosen course of ‘preemptive reform from above’ for some
time (Garton Ash, 1993: 344), accepted the appearance of the first
hole in the iron curtain by dismantling its frontier fences with Austria.
This was the ‘beginning of the end of the GDR . . . although this fact
was by no means self-evident at the time’ (McAdams, 1993: 193).
Initially the government in Budapest had not withdrawn its heavily
armed border guards. Nevertheless, an increasing number of GDR citi-
zens used the holiday season to assemble near the Hungarian–Austrian
border to be present should an opportunity arise to flee to the west via
Hungary (Grosser, 1992: 9; Bögeholz, 1995: 653). Two days later, events
unfolded in an entirely different part of the world which would have
an indirect impact on the developments in the GDR. On 4 May the
first demonstrations in Tiananmen Square in Beijing took place and
the doomed battle for democracy in China began.
In the GDR itself the election campaign for the local elections on
7 May was used by many people to criticise the regime for the sys-
tem’s economic and political shortcomings to a hitherto unthinkable
extent. Moreover, encouraged by the new electoral laws in the USSR,
the demonstrators demanded to have a choice among several candi-
dates in the GDR’s 227 constituencies. However, when election day
arrived it became clear that not only this demand had been rejected
but the elections themselves were manipulated as usual. According to
the official result as announced by Egon Krenz, the chairman of the
 Germany in 1989 45

election commission, there was a turnout of 98.75 per cent and 98.85
per cent of those had supported the list of the National Front headed
by the communist SED. Although this was down from the usual 99.8
per cent of support for the regime, there could hardly be any doubt
that this result did not reflect reality (Schabowski, 1991:
172–7). Despite the presence of Stasi observers in all constituencies,
several civil rights groups had managed to monitor the polling and
denounced the result as a total forgery. Unprecedented protests, dis-
cussions and demonstrations against the manipulation of the elections
took place but the SED did not concede any of the demanded reform
measures (Opp, 1993: 19–20). Instead in early June the regime’s stub-
born insistence on its orthodox political course was once again em-
phasised. The East German parliament, the Volkskammer, supported
China’s ruthless and bloody crushing of the anti-government demon-
strators in Tiananmen Square. This view was confirmed by Politbüro
member Günter Schabowski when he visited China at the end of June
as well as a short time later by Egon Krenz’s journey to China (Pond,
1993: 111–12).
While the GDR showed solidarity with a regime which had not hesi-
tated to kill its own citizens, thus giving a clear warning signal to the
East German demonstrators, in Poland the first free elections were held
in the same month and secured an overwhelming victory for Solidar-
ity. In August eastern Europe’s first non-communist prime minister,
Tadeusz Mazowiecki, was thus able to take over power in Warsaw.
Moscow did not intervene but tolerated Solidarity’s dominance of the
new Polish government (it insisted however that the interior and de-
fence portfolios would remain in the hands of communist ministers).
At this point at the latest, the East Germans realised that the Soviet
Union was not prepared to intervene militarily to prop up the old re-
gimes in eastern Europe. Moreover, during his state visit to West Ger-
many in mid-June 1989 Gorbachev declared once again that it was
‘the right of all peoples and states to determine freely their destiny’
and that every state was entitled ‘to choose freely its own political
and social system as well as unqualified adherence to the norms and
principles of international law, especially respect for the right of peo-
ples to self-determination’. This represented a clear rejection of the
GDR’s political course. After all, Gorbachev had hinted at the possi-
bility of free elections in East Germany. He had also spoken of the
end of the post-war era and mentioned that the Wall could be disman-
tled if the circumstances which had created it were to disappear. He
seemed to imply that the Wall was superfluous as the East–West conflict
46 Klaus Larres

which had dominated the post-war era was over (Kaiser, 1990: 183;
Bögeholz, 1995: 664–6).
In early July 1989, during a meeting of the leaders of the Warsaw
Pact countries in Bucharest, Gorbachev was faced with strong criti-
cism for not intervening against the reformist regimes in Poland and
Hungary. However, Gorbachev did not give in; instead he repeated his
repeal of the Brezhnev Doctrine and he even may have begun secretly
to organise the overthrow of Honecker, Husak, Ceauşescu and Zhivkov
– the four eastern European leaders who were not prepared to adopt a
more reform-oriented course (Gedmin, 1992; McCauley, 1992: 170–6).
Gorbachev may well have believed that if the orthodox leaders in East
Berlin, Prague, Bucharest and Sofia remained in charge ‘they would
not only be a threat to him, trying to form a coalition with his ortho-
dox opponents within the Soviet Union, but they would go on ruining
their countries until a revolution destroyed not only them but social-
ism as well’ (Grosser, 1992: 8). Honecker had to leave the meeting in
Bucharest early as he suffered a physical breakdown and was to un-
dergo a cancer operation in the subsequent weeks. Thus, the ageing
Honecker was out of action for almost three months – at a time when
the situation in the GDR became increasingly critical. Only on 25
September was he able to resume his duties after having successfully
weathered a ‘gall bladder operation’ as was officially announced.
In early August 1989 the Monday demonstrations commenced in
Leipzig. They were convened every Monday after the regular evening
service in the Nikolai Church which itself went back to the ‘Swords
into Ploughshares’ movement of 1982 (Fulbrook, 1995: 249–51). In
late August 1989 a new Social Democratic Party (SPD) was founded;
soon the civil rights organisations New Forum and Democracy Now
were officially established. Despite evidence to the contrary a consid-
erable number of people continued to hope that public pressure and
large demonstrations could convince the regime to adopt a more reform-
oriented course. Yet, an ever increasing number of citizens had given
up. They had resigned themselves to the fact that the only possibility
to change their life was to leave the GDR as soon as possible. Most of
them were young, skilled workers and professionals who the regime
could hardly afford to lose. ‘Particularly among young East Germans
the courage of desperation grew rapidly’ (Thaysen, 1992: 79).
More and more people travelled to Hungary allegedly to spend their
summer holidays there.4 However, most of them either camped near
the border or – particularly from 15 July – were occupying the West
German embassy in Budapest to demand exit to the west. Soon hundreds
 Germany in 1989 47

of GDR citizens also occupied the West German embassies in Prague

and Warsaw. After all, on 19 August more than 600 GDR citizens had
been allowed to cross the Austro-Hungarian border in the course of a
pan-European ‘picnic’. Hungary was obviously not prepared to force
the ever increasing number of people assembling at the border to Aus-
tria back to East Germany. Although legally, due to the 1969 trade
agreement with East Berlin, the Hungarian government was obliged to
return the refugees to the GDR, the majority of the new Hungarian
government decided to open the iron curtain. Prime Minister Nemeth
and Foreign Minister Horn paid a secret visit to Bonn on 25 August to
inform Chancellor Kohl of their decision. They may well have received
the promise of West German financial and economic support in return;
this is however rejected by the participants of the meeting (Zelikow
and Rice, 1995: 66–7). Honecker’s deputy Günter Mittag was told about
the Hungarian government’s decision on 31 August in the course of a
meeting in East Berlin. The GDR leadership protested strongly but
was only given the chance to visit the camps outside the Austro-Hungarian
border. However, the GDR delegation was not able to persuade its
citizens to return; instead Honecker’s emissaries were thrown out of
the camps.
On 10 September the Hungarian government renounced unilaterally
the travel agreement with the GDR and announced that from midnight
on 11 September GDR citizens could leave Hungary and travel to any
country they wished (the border with Czechoslovakia was opened in
early October). Within three days more than 15 000 people arrived in
the Federal Republic and many more were to follow – more than 340 000
GDR citizens resettled permanently in the FRG by the end of the year
(Bergsdorf, 1992: 90). This was the beginning of the end of the East
German state. As this exodus and the emigrees’ emotional arrival in
the Federal Republic could be watched by the deeply moved East German
population on West German television it encouraged the reform move-
ment at home and it split the SED nomenklatura who at this stage was
clearly in a state of panic. Within the SED the battle for Honecker’s
succession had begun though nobody dared to take sides too early.
Above all, the Politbüro was running out of ideas on how to cope with
the situation. Within the GDR the Stasi and the police attempted to
contain the multiplying discussion circles and the spontaneous demon-
strations with ever increasing force and brutality. But to no avail. More
and more people had the courage to defy the once all-powerful state
and joined in the demonstrations which were now taking place all over
the country. ‘The very fact that more and more citizens now dared to
48 Klaus Larres

participate in activities which might land them in prison for years showed
that the regime was no longer feared enough to be stable’ (Grosser,
1992: 14).
While a considerable number of citizens were clamouring for re-
forms within the GDR, the stream of people who wished to escape
continued unabated. In the late 1980s the CSSR was the only country
where GDR citizens could travel without a visa. By 30 September 7000
GDR citizens were occupying the West German embassy in Prague,
which was not able to cope with this number. Prior to the GDR’s
fortieth anniversary celebrations held between 6 and 8 October the
Honecker regime wished to avoid any embarrassment. Therefore, West
German Foreign Minister Genscher was able to negotiate a solution to
the situation. The GDR allowed its citizens in the embassy to leave
for West Germany. But the Honecker regime insisted on the face-
saving device that the trains of the East German Reichsbahn had to
cross GDR territory to enable his government to give the emigrants
documents which set them free from GDR citizenship. However, soon
the embassy in Prague was again filled with more than 7000 people.
Again the GDR regime agreed to the solution of letting these people
go west on trains which had to cross GDR territory. This time, this
cumbersome procedure proved to be a debacle. Hundreds of people
tried to jump onto the trains and join the emigrants when the trains
passed through East German cities. On 4 October 3000 people assem-
bled at the main railway station in Dresden looking for the opportu-
nity to leave East Germany. Fierce battles with the police ensued. The
GDR had not seen such an outburst of public discontent and violent
street battles since the uprising in 1953 (Larres, 1994). Police brutality
reached a peak on 6, 7 and 8 October, when in the presence of leaders
from east and west the anniversary celebrations began and the regime
wanted to demonstrate the GDR’s stability and well-being to the world
(Bögeholz, 1993: 661–3; Bortfeldt, 1993: 48 ff.)
On 7 October Gorbachev intervened. During the anniversary cele-
brations in East Berlin he was distinctly cool towards Honecker indi-
cating that the latter’s political days were numbered. Moreover, in the
course of a meeting with the entire East German Politbüro, Gorbachev
urged those present to adopt his reform course. During a public speech
he repeated this and warned Honecker that without reforms his regime
would be overtaken by history. Unintentionally, the speech led to wide-
spread demonstrations and calls for reforms in East Germany through-
out October. Within the SED, opportunism gradually won the day. After
Gorbachev’s warning a majority of the SED Politbüro was in favour
 Germany in 1989 49

of conceding certain reforms to the demonstrators to stabilise the situ-

ation. Honecker and his orthodox friends were losing their influence
within the Politbüro. This was reflected in the events in Leipzig on
9 October 1989 which can rightly be called a ‘turning point’ and ‘cru-
cial breakthrough’ (Grosser, 1992: 15; Garton Ash, 1993: 345).
Although this is still unclear, Honecker had probably given the order
to dissolve the expected Monday demonstration in Leipzig on
9 October 1989 with the help of overwhelming police force. He wished
to demonstrate the might of the state and end the protests and wide-
spread civil disobedience in the country once and for all. The old man
in East Berlin had decided to resort to a ‘Chinese solution’ of the
problem. However, Honecker’s decision was ignored. Local SED leaders
and the respected conductor of the Leipzig Gewandhaus orchestra, Kurt
Masur, appealed for non-violence on both sides. This was the beginning
of the dialogue between the various reform groups and a reformist wing
within the SED represented by Hans Modrow, an SED outsider who
had been reprimanded in 1989 for showing too much enthusiasm for a
reform-oriented course à la Gorbachev (Zelikow and Rice, 1995: 37).
70 000 people participated in the demonstration on 9 October. It
was one of the biggest the GDR had ever seen and the forces of the
state did not interfere. It is unclear whether, as claimed by Günter
Schabowski and Egon Krenz, the majority of the Politbüro was already
opposed to the use of force (Schabowski, 1990: 191; Krenz, 1992: 365
ff.). Krenz claimed later that he instructed the police and army not to
use violence. It is much more likely that in East Berlin and in most
regions the SED was, at this point, still not ready for entering into a
constructive dialogue with the forces of reform (Thaysen, 1992: 75). It
appears that there were no ‘unanimous views inside the SED Politbüro
about the meaningfulness of using force and thus also on how far the
loyalty of the security forces could be stretched’ (Horn, 1993: 58;
Fulbrook, 1995: 252–7). Hannelore Horn argues that there certainly
was not a peaceful revolution ‘deliberately stage-managed’ by the Stasi
as sometimes claimed (Broder, 1993: 24; Reich, 1992b: 320). She claims
however that some ‘parts of the armed forces . . . intellectually de-
fected to the opposition and that Politbüro members responded accord-
ingly’. The ruling class wished to ensure ‘the continued existence of
the GDR with a reformed socialist-style system’ to safeguard its privi-
leges. Therefore, ‘the question of loyal compliance with orders could
not be clearly answered’ on 9 October, ‘thus making a withdrawal an
opportune option for the political decision-makers and experts on the
spot’ (Horn, 1993: 59; also Asmus, 1990: 64).
50 Klaus Larres

This somewhat ‘conspiratorial’ and ‘common sense’ interpretation

seems to go too far. Local and regional SED functionaries as well as
the rather chaotic circumstances and the breakdown of communica-
tions within the SED hierarchy appear to deserve most of the credit
for the absence of violence on 9 October. However, with ‘Krenz’s
somewhat belated ratificaton of this policy of – at least implicitly –
conceding the right to demonstrate, a major watershed had been passed’
(Fulbrook, 1995: 257). From now on demonstrations and rallies de-
manding free elections and the freedom to travel spread like wildfire
all over the country; the people no longer feared the SED’s use of
force against them. The legal demonstration on 4 November in East
Berlin attracted over 500 000 people. Soon, the Politbüro attempted to
regain control by declaring its interest in adopting some of Gorbachev’s
reforms. The will to rule had not yet disappeared. The SED intended
to save itself from annihilation by sacrificing its old discredited leaders
and putting itself at the head of the reform movement in the GDR.
On 18 October 1989 a coup d’état took place whose precise circum-
stances are still surrounded by mystery (see Zelikow and Rice, 1995:
82–6). Honecker had to resign all his posts on the grounds of ill health
and was replaced by Egon Krenz. Other orthodox comrades like se-
curity chief Erich Mielke and Günter Mittag shared his fate. Krenz,
however, was an unfortunate selection: he did not symbolise a new
beginning. Krenz had been Honecker’s successor designate for some
time and was generally regarded as a weak and opportunistic politi-
cian in the orthodox mould of Honecker. Krenz purged the Politbüro
of the ‘old guard’ on the eve of the huge demonstration on 4 Novem-
ber and elevated reformer Hans Modrow to the Politbüro. He blamed
Honecker for all mistakes and even promised free elections. Hardly
anyone believed Krenz. People were convinced that it was only a matter
of time before the SED would return to its old course if given the
opportunity. With hindsight it becomes clear that Krenz’s political
concessions, as far as new travel laws and other measures were con-
cerned, constituted merely the SED’s desperate attempt to cling to power
(Fulbrook, 1995: 257 ff.). Not many people were fooled. The demon-
strations and the exodus of people leaving the country continued una-
bated. Indeed, even if the GDR leaders were serious about changing
their country’s political course and underlying philosophy, they faced
a serious, almost irresolvable, dilemma: ‘What right to exist would a
capitalist GDR have alongside a capitalist Federal Republic? In other
words, what justification would there be for two German states once
ideology no longer separated them?’ (Otto Reinhold, one of the GDR’s
 Germany in 1989 51

leading social scientists and ideologues, as quoted in Zelikow and Rice,

1995: 38; Gransow and Jarausch, 1991: 57).
Following the demonstration in Leipzig on 9 October, the most de-
cisive event occurred exactly a month later: on 9 November the Berlin
Wall was breached. In the long run this event would seal the fate of
the GDR as an independent state. Although Egon Krenz later claimed
credit for having given the order to open the border with West Berlin
to pacify the demonstrating people, in fact the frontier gates between
the two German states were opened as the result of a severe misunder-
standing. On the evening of 9 November, SED Politbüro member Günter
Schabowski announced the new travel laws to international news re-
porters. He explained that the SED’s Central Committee had decided
that all GDR citizens could get immediate permission for private travel
abroad without the need of ‘special prerequisites’. In the hectic and
chaotic atmosphere surrounding this announcement Schabowski had not
paid attention to the small print of the Central Committee’s decision.
The SED had almost certainly not intended to let GDR citizens go
abroad without keeping a check on the travellers by issuing exit visas.
Moreover, the SED Politbüro members did not plan to open the border
to West Berlin; the city was after all the responsibility of the four
powers. They had instead intended to open the GDR border with West
Germany. Finally, the new travel law was supposed to come into ef-
fect on 10 November which would have given the government a few
hours to allow for organising the necessary border and visa arrange-
ments. However, the GDR people watching Schabowski’s vague an-
nouncement on television interpreted it as the possibility to cross the
border without delay. The problem was compounded when Schabowski
answered an American reporter’s question in English confirming that
the Wall was open (Zelikow and Rice, 1995: 98–101; Pond, 1993:
131–4).
During the night of 9 November thousands of East German citizens
went to the checkpoints and insisted on crossing into West Germany.
As the border guards had not received any instructions at all, they had
no choice, after some hesitation, but to let the mass of waiting people
cross. Only a few hours later hundreds of thousands of East Germans
were in West Berlin to see and experience this longstanding symbol of
western freedom, culture and capitalism for themselves. Most of them
returned to the GDR after a few days. But from now on almost 2000
people daily left the GDR for good (Anderson et al., 1993: 6; Zelikow
and Rice, 1995: 98–101). The opening of the Berlin Wall by mistake
meant that the Krenz government had ‘abdicated responsibility for the
52 Klaus Larres

most important decision in its history to the people in the street’ (Zelikow
and Rice, 1995: 101). The SED would never recover from this seizure
of power by the East German people. It was a mortal blow. The East
German people had taken over and there was nothing the SED could
do to reverse this development. This constituted the highpoint of the
revolution begun by the East German people in May 1989. All at-
tempts by the Krenz regime to regain the initiative were doomed to
failure.

THE POLITICIANS TAKE OVER

Almost everyone, east and west, was surprised by the opening of the
Berlin Wall and the totally unexpected rapid disintegration of the GDR.
However, from now on West German politicians would increasingly
take charge of the developments to ensure, as was said, that the events
would not get out of control. It took the Kohl government in Bonn
almost three weeks to recover from its surprise regarding the fall of
the Berlin Wall. Then the West German government successfully at-
tempted to steer the East German revolution towards a more orderly
and constitutional path which ultimately led to unification. This was
primarily the achievement of the chancellor himself as well as that of
American President Bush and their respective foreign ministers Genscher
and Baker. On 28 November 1989, when Kohl announced his ten-
point plan for a ‘confederation’ of the two German states and spoke
about the need for German ‘self-determination’, he wrested the initia-
tive and the international limelight away from the East German people
and from his own more cautious foreign minister and forced a course
which was increasingly oriented towards addressing the national ques-
tion (Bortfeldt, 1993: 75 ff.; Teltschik, 1991: 42 ff.; Gransow and Jarausch,
1991: 101–4; Genscher, 1995: 669 ff.).
Although at first Kohl had not believed in the imminent possibility
of unification, once he realised (between mid-December 1989 and January
1990) that this might indeed be an option, he did not hesitate to pur-
sue this course. American support was however vital in overcoming
the strong opposition to his policy from Moscow, London and Paris as
well as several other EC countries once it became clear in late 1989
that unification might well be on the horizon (Merkl, 1993: 303 ff.;
Pond, 1993: 153 ff.). There was one aspect which made Kohl’s task
easier: the lack of a concrete well-coordinated strategy in these capi-
tals. They all seemed to ‘have an attitude without a policy’ (Zelikow
 Germany in 1989 53

and Rice, 1995: 138). Britain, represented by its strong-willed but of-
ten idiosyncratic and somewhat unrealistic Prime Minister Thatcher,
simply did not have the political clout any more to force an anti-
unification policy onto Washington. The more practical French Presi-
dent Mitterrand was persuaded to give up his initial opposition to
unification for the promise that a united Germany would continue West
Germany’s policy of further integration into the European Community
and of making progress towards a single market and monetary union
(Merkl, 1993: 315–25; Bortfeldt, 1993: 106–13).
Gorbachev and the Soviet Union presented a much more difficult
problem. Despite all attempts by Kohl (including various offers of
financial and economic help on a huge scale) and Bush to dispel So-
viet fears of a united Germany, in the last resort Gorbachev’s eventual
agreement to unification seems to have been less the outcome of a
conscious decision in the Kremlin and more the result of Moscow al-
lowing itself to drift along without being able to arrive at a coherent
long-term strategy on how to tackle the looming German question.
Particularly, during the bilateral Malta summit with President Bush in
early December 1989, Gorbachev seems to have missed the chance to
enlighten Bush about Moscow’s strong opposition to unification and
persuade the president to force Kohl onto a more moderate course (for
example, a mere confederation of the two German states and the con-
tinuation of a separate East German government as repeatedly propa-
gated by new East German Prime Minister Modrow in November and
December 1989). Thus, the Americans received the impression that
Gorbachev was uneasy but not too concerned and in the last resort
‘malleable on the German question’, and that the Soviet Union ‘did
not seem to know where it was going’ (Zelikow and Rice, 1995: 130;
Bortfeldt, 1993: 113–17). Only in late January 1990 did Gorbachev
and GDR leader Modrow design a joint strategy of how to face the
pressure for unification from the West German government and the
East German people, but by then it was too late. Indeed, Gorbachev
admitted to East German radio journalists just before the arrival of
Modrow in Moscow on 30 January that ‘no one ever cast doubt in
principle on the unification of the Germans’ (Pond, 1993: 171; Gransow
and Jarausch, 1991: 122; Bögeholz, 1995: 687; Zelikow and Rice, 1995:
160–5; Merkl, 1993: 130). Former chancellor Willy Brandt concluded
that ‘now the matter is clear’, only the formal modalities still needed
to be worked out (Bortfeldt, 1993: 119–20).
Since the breaching of the Wall and the announcement of Kohl’s
ten-point plan, the East German people who had started and driven the
54 Klaus Larres

revolution with their mass demonstrations and flights to the West had
gradually lost influence. Still, until the introduction of economic unity
on 2 July 1990, and political unity on 3 October 1990, the East Ger-
man people continued to speed up developments by the mere threat of
emigrating from the GDR to West Germany en masse and, consequently,
of leaving an almost empty country behind and causing numerous financial
and social problems in the Federal Republic. The continuation of the
mass demonstrations and the convening of round table talks between
all major GDR opposition forces and the new reformist Modrow govern-
ment from 7 December ensured that the revolution did not lose its
momentum. The round table would meet regularly several times a week
until its replacement by a democratically elected government in March
1990. Modrow himself, however, would only participate from late January
1990 in the round table talks when the worsening situation in the GDR
and Bonn’s refusal to pour any more financial help into the bankrupt
and discredited East Germany left him no other option (Bortfeldt, 1993:
118–19, 96 ff.).
There were other developments as well. The arrests of former top
officials including Honecker and Mielke for corruption and abuse of
power began on 3 December. The East German Volkskammer had al-
ready voted to revoke the right of the SED’s leading political role as
enshrined in the East German constitution on 1 December. Krenz re-
signed as head of state and secretary general of the SED on 6 Decem-
ber. Modrow, who had become head of government on 13 November,
was now together with new party chairman Gregor Gysi the sole
leader in charge of the reformed and renamed SED/PDS (since 18 De-
cember). In early January 1990 widespread corruption and nepotism
within the top echelons of the SED was revealed. Moreover, through-
out December and January several attacks on East German and Soviet
military installations occurred without, however, creating much dam-
age. But these activities ran the risk of provoking Soviet soldiers and
East German security forces into becoming involved in the events in
East Germany and perhaps turning the largely peaceful revolution into
a violent one. In mid-January, protesters seized public buildings and
stormed the Stasi headquarters in East Berlin to prevent the Stasi and
government officials from destroying records of their activities during
the East German dictatorship (Bögeholz, 1995: 677 ff.). Events threat-
ened to get out of hand; chaos appeared to be looming just round the
corner.
At the same time it became increasingly obvious that the economic
and financial situation of the GDR was so desperate and the mood of
 Germany in 1989 55

the people so set on unification that the survival of the GDR was an
ever more open question. However, the civil rights movement in the
GDR, the very people who had started the revolution, played only a
marginal role in the further developments. The activists had sidelined
themselves by continuing to believe in the possibility of the further
existence of the GDR and a ‘third way’ between Honecker’s discredited
old-style ‘real socialism’ and West Germany’s capitalism (Pond, 1993:
134–6). This standpoint was shared by the Modrow government and,
for a considerable period of time until summer 1990, it was also the
position of the West German social democratic party (SPD) and their
chancellor candidate Oskar Lafontaine (Padgett, 1996: 244–5). With
this view the various reform groups as well as the entire round table
and the West German SPD weakened and isolated itself from the East
German people and made it much easier for West German Chancellor
Kohl to symbolise the people’s longing for unity.
It was however largely due to the continuation of the revolutionary
drive of the East German people that the first free elections in the
GDR took place in March 1990 rather than in May 1990 as had orig-
inally been planned by the round table. The first democratic elections
in the GDR on 18 March 1990 and the overwhelming victory by the
centre-right ‘Alliance for Germany’ which was strongly supported by
Kohl’s West German CDU party can be regarded as the formal end of
the East German dictatorship. While unification would take another
seven months – not least because of the international complexities which
were tackled by the so-called Two-plus-Four Talks convened between
early May and early September 1990 (Szabo, 1992) – the revolution
of the East German people had already been successful by March 1990.
From now on politicians and lawyers increasingly took over to work
out the complex legal questions of economic, social and political merger
between the two German states as well as the involvement of a united
Germany in international frameworks like NATO and the EC estab-
lished during the previous four decades. The western powers as well
as the Kohl government had insisted on united Germany’s member-
ship of these organisations and the Soviet Union eventually had given
its agreement.
The results of the GDR elections of March 1990 as well as the local
elections in May and the all-German elections in December 1990 (the
first since 1933) excluded most of the civil rights activists from fur-
ther active political participation. Most groups and parties (with the
exception of Bündnis 90/Die Grünen) had not been able to win elec-
tion to the first all-German parliament. Although this left a residue of
56 Klaus Larres

bitterness and frustration among the people who had forced down an
entire dictatorship, they largely had only themselves to blame. By stopping
short of endorsing unification, by attempting to preserve a socialist
GDR, although a better and genuinely democratic one, they had iso-
lated themselves from the wider East German population and in fact
shown that they did not properly understand the forces they had un-
leashed. Revolutions tend to swallow their own children – luckily the
actual East German revolution of 1989 as well as its aftermath re-
mained largely bloodless.

CONCLUSION

External stimuli like above all Gorbachev’s reform policy, the events
in Hungary and Poland (and much later the activities of the West German
and American administrations) were of the utmost importance in bringing
about the eruption and successful conclusion of the East German revo-
lution. However, the courage, stamina and motivation of the East Ger-
man people to take on the government of a heavily fortified police
state was the decisive element which ensured that general dissatisfac-
tion, suppression and discontent would explode into a widespread but
peaceful revolution – something which had never happened before in
modern German history.

NOTES

1. Discontent in the GDR had always been running high. From 1949 until the
building of the Wall in August 1961 almost three million people fled East
Germany. Between 1962 and 1988 more than 170 000 managed to escape
while 360 000 received permission to leave (Grosser, 1992: 10). The fol-
lowing number of people left the GDR between May 1989 and February
1991: May–Oct. 1989: 45 700; Oct.–Dec. 1989: 233 674; Jan.–June 1990:
238 384; July 1990–Feb. 1991: 110 000 (Neckermann, 1991: 101).
2. The only ‘proper’ revolution in modern German history was the unsuc-
cessful revolution of 1848–9. The so-called ‘November revolution’ of 1918
was hardly a revolution at all as not the German people but the victorious
World War I powers insisted on the abolition of the monarchy and the
introduction of a republican form of government in Germany (the Weimar
Republic). Whether the unsuccessful uprising in the GDR in June 1953
can be regarded as a revolution is an open question (see for the latter
Larres, 1994; Fulbrook, 1995: 177–87).
 Germany in 1989 57

3. According to Egon Krenz, Gorbachev spoke in fact less menacing words.

He said: ‘Our experiences and the experiences of Poland and Hungary have
convinced us: if a party does not respond to life, it is condemned’ (quoted
in Zelikow and Rice, 1995: 84).
4. GDR citizens needed a visa to travel to Hungary. Such a visa was rela-
tively easy to obtain as many East Germans habitually spent their summer
holidays in that country. However, it was necessary to apply for a visa
many months in advance. Therefore, only people who had made previous
arrangements – usually with the firm intention to go on holiday – were
able to benefit from the increasingly liberal attitude of the Hungarian govern-
ment. Spontaneous visits to Hungary were not possible. In summer 1989
the CSSR was the only country East Germans could travel to without the
need for a visa.

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 Part II
The Domestic Consequences
of German Unification
3 The German Economy since
1989/90: Problems and
Prospects
Christopher Flockton

THE GERMAN ECONOMY, 1989/90 TO 1996: AN OVERVIEW

Throughout 1994 and 1995 there was growing optimism that the end
of the deepest post-war recession in western Germany was well and
truly over, and that the east was showing signs of an accelerating and
broadening pattern of growth. Still by early 1996 much of the gloom
over the fading international competitiveness of western Germany (the
Standortfrage) and its ability to absorb the moribund eastern economy
without a financial crisis, had not been dispelled. Moreover, the hu-
man anxiety and output losses associated with economic collapse of
the old command economy upon unification will leave their mark for
many years.
Politically and psychologically the eastern population still remains
‘other’ than the people in the western part of the country: the econ-
omic burden of a hasty unification, accompanied by in part foresee-
able policy errors will remain for a decade in the form of very high
state indebtedness, a high tax burden and continuing structural unem-
ployment in the east. This burden of heavy state debt will naturally
constrain the chances of domestic growth, at a time when a higher rate
than the all-German trend of 2.5 per cent per annum is needed to re-
juvenate the east. It is no surprise therefore that deregulation and pri-
vatisation are once again high on the policy agenda for western Germany
in an attempt to escape these constraints and find a renewed growth
dynamic in the freer play of market forces. The fear over Standort
Deutschland, over Germany’s weakening competitiveness, is clearly a
related driving force in this more market-oriented liberal agenda. The
loss of 600 000 industrial jobs in 1993 and a further half-million in
1994 and 1995, coupled with impressive though gradually weakening
wage restraint since 1992, demonstrate however that the social market
mechanisms, so disapproved of by Anglo-Saxon market liberals, are
far from inflexibly rigid.

63
64 Christopher Flockton

The economic evolution since 1 July 1990, has of course been that
of a dual economy, of boom in the west and slump in the east. The
German expression ‘straw fire’ well describes the purely temporary
boost to the west which unification engendered: an inflationary over-
heating followed by deep recession from the second half of 1992. The
responsibility for the depth of this ensuing recession, which made the
task of absorbing the eastern economy all the more problematic, has
been laid somewhat unfairly at the door of the Bundesbank. By rais-
ing interest rates to an all-time high (in real terms) in late 1992, so as
to bring the inflationary wage claims and debt-financed overheating of
the economy to an end, the Bundesbank exacerbated recessionary trends
which already existed among Germany’s European partners. Such is
the central role of Germany in the European economy that its trading
partners could not remain unscathed by the strains of unification. It is
thought that in the first eighteen months following unification, partner
countries received a boost through extra exports to Germany of 1 per
cent of GDP, but then had to endure from late 1992 a high interest
rate policy, imposed through the exchange rate mechanism (ERM) parities.
Looking back over the first half-decade to economic and monetary
unification in mid-1990, the catastrophic fall in activity in the east and
the fundamental restructuring there, it is a truism to say that the diffi-
culties and costs of transforming the closed, centrally planned economy
were very seriously underestimated. It will not take three to four years
for the east to catch up, as was optimistically claimed in 1990, but
fifteen or twenty years. As will be seen, there were warning voices
which feared deep structural unemployment and the so-called ‘Mezzo-
giorno effect’ in the east, but these were brushed aside for a mixture
of motives. These ranged from the urgent political imperative to stem
the haemorrhage of key personnel and purchasing power from a col-
lapsing planned economy, to the self-confidence of an ascendant Fed-
eral Republic, which believed that market forces would liberate eastern
German industriousness and talent, just as it had done in 1948/49 in
the west.
The state treaty on economic, monetary and social union, which entered
into force on 1 July 1990, incorporated a largely closed, centrally
planned and highly monopolised economy into an advanced and free-
trading market economy overnight. The treaty specified the adoption
of West Germany’s economic constitution (the economic, social and
labour market legislation and competition laws), the adoption of a
monetary and banking system regulated by the Bundesbank and the
substitution of the Deutsche Mark (DM) for the Ostmark (OM) at given
 The German Economy since 1989/90 65

exchange rates. It specified the organised break-up of state monopolies

(the Kombinate) by the Treuhandanstalt (state holding trust or trustee
institution, established in March 1990) with a mandate which gave
first priority to privatisation. Overnight, therefore, the eastern economy
had to discover free market pricing in DM and abolish the old admin-
istered pricing system. It also had to be reorganised into competing
productive units to command the mass of western legislation and meet
the full force of international competition, particularly that from EC
partners.
The unification treaty, which ushered in formal unification on 3 October
1990 added further legislative requirements: it set out the constitution
of the Treuhandanstalt holding trust (THA), and specified the restitu-
tion of compulsorily acquired land and buildings back to their original
owners. This last requirement has continued to pose a substantial ob-
stacle to new investment in the east since the treaty favours the rights
of expropriated previous owners, over those of new investors. It ex-
cludes from compensation those expropriated under the Soviet land
reforms of 1945–49, which poses a further point of legal contention
upon which the Constitutional Court ruled finally in February 1995
(Financial Times, 14/2/1995, p. 2). Clearly, the two treaties specified
the forms of transitional assistance in support of eastern Germany and
these are treated in the following section (Sinn, 1992; Stares, 1992).

Much attention has been paid to the terms of monetary union, and it is
clear that the terms for the currency exchange, adopting the Deutsche
Mark (DM), have been one of several crucial factors in the eastern
collapse. At the outset, there were clear warnings by economists of
the consequences for output and employment of an ill-prepared and
hasty currency exchange. Not only would an over-valued exchange rate
expose cruelly the poor competitiveness of the eastern economy, but
the tendency in any unified labour market (‘social union’) towards wage
harmonisation would impose western labour costs on an economy with
only a fraction of its labour productivity. The resulting slump and long-
term structural unemployment would therefore resemble that of the
‘Mezzogiorno’ of southern Italy. A minority of economists favoured
the ‘shock therapy’ of instant unification, as a way of sweeping aside
the old command structures, but most feared the slump in activity which
might transpire in such an internationally uncompetitive economy. Both
the scientific advisory council to the economics ministry and the coun-
cil of economic advisers favoured gradual integration with perhaps a
staged move to monetary union with the help of a system of parallel
66 Christopher Flockton

currencies until a sustainable exchange rate was established. Lutz

Hoffmann, president of the German institute of economic research, pub-
lished a prescient article which foresaw unemployment of three million
in the east if the productivity gap were not closed (Schäfer, 1993).
Of course, the Bundesbank itself was not a party to the Bonn govern-
ment decision on 6 February 1990 to offer economic and monetary
union to the east. As is well known, the central bank favoured a less
favourable exchange rate of DM1 : 2OM, and eventually Bundesbank
president Karl-Otto Pöhl resigned at the lèse-majesté displayed by Bonn
towards the central bank. A monetary union has three principal im-
peratives: it must ensure the competitiveness of the trading sectors of
the partner economy, it must ensure fairness of treatment between debtors
and creditors (it has fundamental distributional consequences), and it
must avoid creation of excess monetary liquidity which would threaten
inflation. Often, it seemed, it was this latter concern which was upper-
most in western discussions. As a final and important consideration,
the exchange rate should not be so unfavourable that incomes in the
east would be so low that mass migration to the west would take place.
Thus, for instance, the Bundesbank’s proposal of 1 : 2 would have meant
that eastern average wages, then at one-third of those of the west,
would have become one-sixth. Greater economic competitiveness would
have been bought at the price of a huge wage gap, to be overcome
only by inflation or migration. The final terms contained in the state
treaty of translation of all current payments (including wages) at 1 : 1,
of all savings at parity (up to a ceiling of DM2000, DM4000, DM6000
for children, adults and pensioners, with 1 : 2 for savings in excess)
favoured wage-earners and savers for political reasons. The translation
of enterprise debt at 1 : 2 imposed debts of DM115 billion on the state
enterprises, now attracting high real West German interest rates. In
aggregate, the exchange rate was DM1 : 1.81OM (Hasse, 1993; Kreile,
1992).
Clearly this imposed an almost impossible competitive challenge for
the East German trading sectors, although at the time it appeared chal-
lenging, though possible. Since eastern labour productivity was assumed
to be 40–50 per cent of that of the west, and wage levels only 37 per
cent (with western social insurance contributions) then there was a
favourable relation between relative wages and productivity. Further,
there was scope for producer price falls of 30 per cent given the shift
from eastern production-related taxes. However, this equation held only
if the productivity calculation was correct, and if no wage inflation
ensued. Neither assumption proved sustainable, with highly damaging
 The German Economy since 1989/90 67

results. The introduction of the DM did in fact lead to the creation of

some excess liquidity, but overall the Bundesbank and banking system
managed the currency exchange excellently, with little directly attrib-
utable rise in inflation.
There were then fundamental errors in economics, although unifica-
tion was clearly driven by political imperatives. In terms of economic
analysis, aside from the fateful decisions concerning the currency ex-
change, there were evident errors in budgetary and exchange rate policy.
Unification represented a ‘demand shock’ for western consumer goods
and investment goods: to prevent inflationary overheating of the economy
a real appreciation of the DM would have been the appropriate re-
sponse (Schäfer, 1993). However, this was ruled out politically, since
the exchange rate mechanism had entered stage 1 of European mon-
etary union (EMU). Likewise, the failure to raise taxes in the west,
once the full budgetary consequences of the eastern collapse had be-
come apparent, also fuelled inflationary excess demand. Public defi-
cits, financed by borrowing, were matched for the first time since 1951
by current account deficits. Consequently the Bundesbank took its re-
sponsibilities by engineering a sharp rise in interest rates in late 1992,
tipping the economy into recession.
Table 3.1 illustrates the course of the dual economic evolution from
the second half of 1990, of boom and slump in the two halves of
Germany. Western Germany, which had enjoyed high GDP growth rates
at the end of the 1980s (partly due to the ‘1992’ effect) experienced a
sustained inflationary boom of 4.5 per cent for each year over the pe-
riod to mid-1992 with growth of 2 per cent and 1 per cent respectively
in the second half of 1990 and first half of 1991. This could clearly be
observed by the surge of demand for western goods emanating from
eastern Germany. Inflation peaked at 4.5 per cent in the west in late
1992. The scale of the shock to the eastern production sectors, and the
loss of domestic and eastern European export markets brought a col-
lapse of output in all sectors with a trough in production reached in
mid-1992 and then again in January 1993. Even by July 1993 manu-
facturing output stood at only 69 per cent of the pre-unification level
(MRDB, 7/1993). The labour force shrank from 10 million to 7.3 mil-
lion and true unemployment was heavily disguised by the ‘second la-
bour market’ measures of short-time working pay (when often there
was ‘zero work’) and of early retirement, retraining and job creation
schemes. Thus, for instance, even with a 15 per cent unemployment
rate in mid-1994, if we add the 1.13 million (including early retirements)
involved in special labour market schemes, this then would imply a
 68
Table 3.1 Macroeconomic Evolution in the FRG, 1990–94

West Germany East Germany FRG

1990 1991 1992 1993 1994 1990 1991 1992 1993 1994 1990 1991 1992 1993 1994

Christopher Flockton
GNP % change 4.5 4.9 1.2 –2.3 1.6 –14 –28 10 7 9 – 3.7 2.2 –1.1 2.8
(GDP E. Germany)
Gainfully employed, 28 479 29 190 29 452 28 994 28 600 8 855 7 179 6 170 5 900 – – – – – –
persons 1000
(E German estimated)
Unemployed, 1 883 1 689 1 808 2 270 2 556 240 913 1 170 1 149 1 142 2 123 2 602 2 978 3 419 3 698
1000 persons
Rate of 6.4 5.7 5.9 7.3 7.9 – 10.4 14.8 15.8 16.1 – – 7.7 8.8 9.6
unemployment %
Consumer price 2.7 3.5 4 4.2 3.0 – 8.3 11.2 8.8 3.0 – – 4.6 3.9 2.6
% change
Government borrowing –46.3 –121.8 –110 –133 –143
(territorial authorities)
DM bn
Current account balance 75.7 –32.3 –34.4 –33.3 –
DM bn
 The German Economy since 1989/90 69

true unemployment rate closer to 25 per cent in the former GDR. The
drastic shrinkage in the productive sectors is apparent from the bald
statistics: 2 million industrial jobs have been lost and more than one-
half of agricultural employment. Of course, the scale of growth, albeit
from a low level, is also apparent from Figure 3.1 in the more recent
period. Growth of 7.1 per cent in the east in 1993 was followed by
9 per cent in 1994, far outstripping the accelerating recovery in the
west but it has since slowed markedly. Furthermore, orders in the east,
rising by an annual 25 per cent for manufacturing and 33 per cent for
construction in the last quarter of 1993, show that growth in the east
is accelerating and broadening out. However, it remains the case that
transfers from the west account for one-half of final demand in the
east, and so the upturn is critically dependent on state transfers.
The causes of this economic collapse are now fairly well known,
but they do deserve repetition, particularly since undue weight tends
to be given to the currency exchange itself:
(a) concerning the exchange of DM for Ostmark, it is not the aggre-
gate exchange rate of DM1 : 1.81OM which is so critical for export
competitiveness but that of 1 : 1 for wages and prices. Even in 1989,
it had been calculated that a rate of broadly 1 : 4 would be required
for goods trade, since it took 1 OM of domestic resources to produce
exports worth 23 pfennigs in the west. This effective fourfold
overvaluation of the currency therefore rendered much of the manu-
facturing economy wholly uneconomic, but wage inflation subsequently
dealt a fatal blow.
(b) the calculations of the relative productivity of the east compared
with the old Länder were shown to be erroneous. Rather than the as-
sumed productivity level of 40–50 per cent of that of the west, it was
in fact closer to 30 per cent. Swathes of heavy industry were obsoles-
cent and grossly polluting, while labour-intensive industries simply had
neither the products nor the low wage levels needed to survive world
competition. In agriculture the gigantic state and cooperative farms
managed a productivity level of a mere 50 per cent of that of West
Germany’s small-farm sector.
(c) the collapse of Comecon markets upon the wholesale change in
January 1991 to pricing at world price levels in dollars by the eastern
bloc implied the loss of markets for swathes of heavy and light engin-
eering. These had supplied products suited only for the eastern bloc
markets under ‘specialisation agreements’. Since Comecon markets
accounted for 75 per cent of East Germany’s exports, their almost total
dissolution has dealt a mortal blow.
70 Christopher Flockton

(d) the subsequent wage inflation, arising from wage harmonisation

agreements negotiated by western German trade unions completed this
almost total loss of competitiveness. Originally the achievement of western
tariff wage levels by the end of 1994 was provided for, but after strikes
and lock-outs in early 1993, the wage-negotiating partners agreed to
extend the terminal date to July 1996. However, this offers scant alle-
viation, since eastern unit wage costs were 70 per cent above those of
western Germany, taking the low labour productivity into account. The
‘Mezzogiorno’ effect was definitely realised – it is only as a result of
massive state transfers that the accompanying poverty was avoided.
(e) As discussed earlier, the unresolved question of property titles
has seriously hampered privatisations and new investment projects. There
were 1.2 million claims for 2.5 million properties, of which 10 000
concerned titles.

The public finance consequences of this collapse have led to enormous

strains in fiscal and monetary policy, which have fed through at the
European level to disruption of the ERM currency parities and bands.
The following section is devoted to the instruments of policy for the
economic transformation in the east, and it is apparent that under every
heading, expenditure was far in excess of that planned. In aggregate
then, the costs of labour market support, of liquidity credits for Treuhand
firms, of pensions and social security, and regional assistance and in-
frastructure programmes are in excess of three times that foreseen in
the unification treaty of 1990. In 1993, gross public transfers from the
west amounted to DM180 billion, to which one might add expendi-
tures by the federal post and railways, bringing gross public spending
to DM235 billion in one year alone. Transfers of DM150 billion or
5 per cent of GDP will be required for many years. The public finance
consequences are of course most apparent in the accumulation of state
debt, which in 1994 totalled 58 per cent of GDP and exceeded the
Maastricht Treaty guideline of 60 per cent in 1995 as the debts of the
Treuhandanstalt and Kreditabwicklungsfonds (state credit agency) had
to be included in government debt (MRDB, 10/1994). The wholly in-
sufficient tax rises introduced to meet this fiscal indiscipline have been
dictated primarily by the electoral timetable. After a single exceptional
income tax surcharge in 1991/2 of 7.5 per cent of an individual’s tax
liability, the ‘no tax rises’ promise of the Kohl government in the
December 1990 election was shown to be very misleading. For the
general election of October 1994, the electorate were at least fore-
warned that a second 7.5 per cent impost was to take place in January
 The German Economy since 1989/90 71

1995. Clearly, had the federal government faced the deficit problem
early by tax-raising, this would have cooled the inflationary boom and
pre-empted the interest rate actions of the Bundesbank.
Given this course of events, it is therefore of little surprise that in
order to sustain heavy subsidisation of the east, including the large
core of heavy industry which remains in state hands, an almost ex-
actly opposite policy is being pursued in the west to pay for the east.
The tripartite solidarity pact of September 1993 sought to buy trade
union support for wage moderation in the east, while public spending
in the west was cut and redirected eastwards. Reminiscent so closely
of the first Kohl government of 1982, the policy agenda concentrates
once again on budget consolidation and privatisation, seeking a growth
dynamic through deregulation when the economy is in recession.

THE POLICY REGIME IN EASTERN GERMANY AND ITS

IMPACT (1990–95)

Economic Restructuring Policy and its Agents

With the confidence born of the boom years of the late 1980s behind
it and drawing on its own experience of the ‘economic miracle’ in the
years following the currency reform of 1948, the federal government
placed great faith in the economic forces to be unleashed by the rapid
transformation to market structures after 1 July 1990. Self-confidence
in industrial organisation, the skills and technical knowledge of east-
erners, and an unforgotten market behaviour among the easterners (stretch-
ing back further than the last communist expropriation wave of 1972
to the pre-war period) would all assist in a rapid market transforma-
tion such that a catch-up period of only three to five years was re-
quired. The federal government also appeared to believe that unification
would largely pay for itself, particularly once the growth process with
its buoyant tax revenue were to ease initial government borrowing.
Borrowings could in any case be met with the help of asset sales by
the Treuhandanstalt (established by the reform communist Modrow
government in early March 1990). To hold all state productive assets
(valued then at DM1000 billion) the state treaty clauses provided for
financial transfers from the west of DM22 billion in 1990 and DM35
billion in 1991. Hence the December election commitment of the rul-
ing Bonn coalition parties that no tax rises would be needed to meet
the costs of absorbing the east (Hüther and Petersen, 1993).
72 Christopher Flockton

Clearly the policy was founded on the ‘shock therapy’ strategy, which
may or may not have been economically the most efficient, but politi-
cally this was imperative, given the requirement to shore up the col-
lapsing economy in the east and consequently remove the layers of
Socialist Unity Party (SED) placemen found at every senior level. To
underwrite financially a structure managed by reform communists prom-
ised little for Bonn. So the state treaty on economic, monetary and
social union of July 1990 instituted overnight the economic and social
welfare constitution of the west and specified the creation of competi-
tive industrial structures through the break-up and privatisation of the
old giant industrial monopoly combines. The unification treaty speci-
fied the priorities of the Treuhand as ‘privatisation, restructuring and
lastly closure of wholly unprofitable enterprises’. This set the direc-
tion of a policy which was market-driven through privatisation rather
than the pursuit of a state intervention policy, actively restructuring
and redirecting enterprises while in state hands.
In addition to the Treuhand policy, we can typify the strategy as
involving start-up costs for social insurance and local administration,
heavy direct infrastructural investment (exerting a Keynesian public
works stimulus) and transitional assistance for the labour market. It
also involved the use of regional aid to ease the profound transforma-
tion which was the inevitable result of the shift to market relations
and world competition and prices. Broadly, the policy subsidised new
capital investment rather than, for example, labour subsidies, since it
was plain that economic renewal would be carried by new investment
projects responding to world conditions, rather than the subsidising of
technologies and modes of working inherited from the highly distorted
command economy (MRDB, 3/1991). There were then six public sec-
tor funds which supported this adjustment:
— the Treuhandanstalt offered liquidity credits to keep inherited state
industries afloat until they were privatised or closed. On a lesser
scale it offered direct capital investment injections. Originally budgets
of DM7 billion and DM10 billion were planned for 1990 and 1991,
but it was rapidly apparent that much larger support was needed to
avoid collapse, and so DM38 billion has been spent per year on
average to the end of 1994 when the THA was wound down;
— the German unity fund (DM115 billion) was established as the main
vehicle for ‘pump-priming’, spending programmes in the east to
establish the social insurance and pension funds (whose cost in-
creased sevenfold to DM40 billion) and for infrastructure and reno-
vation projects by local authorities;
 The German Economy since 1989/90 73

— the federal labour office met short-time working and retraining costs.
The guarantee of short-time working pay to sustain the bulk of the
labour force affected by such a profound transformation in produc-
tive structures had to be extended to 18 months, that is, to the end
of 1991. In fact, of course, the ‘second labour market’ covering all
those on retraining, job creation, or early retirement programmes
and covering 1.28 million persons cost DM55 billion in 1993;
— investment assistance for new capital projects in the form of very
favourable depreciation allowances and regional aid. For an interim
period, special investment grants of 14 per cent were payable and,
in addition, regional assistance worth 35 per cent of the project
cost (subject to the number of jobs created) ensured that investors
in the east had to pay less than one-half of the investment cost in
the first year;
— in March 1991, when the deep slump in activity had become pol-
itically unmanageable, an additional programme was announced,
the Gemeinschaftswerk Aufschwung Ost (the common effort for
achieving an upswing in the east) to improve investment incen-
tives, expand job creation schemes and to finance renovation by
local authorities. The programme represented a further DM24 bil-
lion of funding over two years. Lastly, and having the effect of
raising the relative incentive level in the east, regional aid to West
Berlin and the old border zone (Zonenrandgebiet) was to be phased
out by 1994;
— the federal railway as well as the federal post and telecommunica-
tion each instituted thoroughgoing infrastructure replacement pro-
grammes of DM1 billion each.
The fact that the strategy of the Treuhandanstalt (THA) became ever
more synonymous, in the public mind, with rapid disposal of assets by
privatisation meant that it also acquired the reputation of being ideo-
logically blind to all except the market, selling off public assets at mini-
mal prices and of insufficient audit, which allowed criminal dealings
and asset-stripping to proliferate. As we shall see, behind this gross
public caricature lay an important policy debate. Even under the tran-
sitional CDU-led de Maizière government in the east, the Treuhand
state holding company was given the priority of privatisation first in
the law of 17 June 1990. Detlev Rohwedder, the Treuhand president
after unification, until his assassination by Red Army Faction (RAF)
terrorists in February 1991, stressed the triad of ‘rapid privatisation,
decisive restructuring and cautious liquidation’. He himself valued the
assets at DM600 billions, and expected disposal to last until the year
74 Christopher Flockton

2000. In contrast, Birgit Breuel, his free market successor, insisted

that the move of productive capacity into the private sector, subject to
market criteria, would be the most efficient form of restructuring, offering
long-term prospects of survival. She therefore set an end date for disposals
of December 1994, and the tempo of privatisation reached three indus-
trial firms per day in 1991/2, falling to two per day from the end of
1992, as the recession in the west began to bite.
The transformation process embraced by the THA comprised firstly
the break-up of the 126 giant industrial combines into joint stock com-
panies, at first 8000 firms and finally 12 000 firms. Non-core activities
such as holiday homes and crèches and other welfare support were
separated out and on 1 July 1990 all enterprises had to draw up an
asset valuation and prepare a corporate plan. Only once this was ap-
proved, and the firm thereby considered capable of restructuring
(sanierungsfähig) could investment credits be given. Until that point,
only liquidity credits to cover running costs were offered. In the early
months, important errors were made, given the disorganisation, lack of
reliable management information and shortage of trained staff. Many
of the illegal transactions date from this chaotic period. At the same
time, however, key closure decisions concerning flagships of the East
German state, such as the Interflug airline, Pentakon Cameras and the
Trabant and Wartburg car plants led to social unrest against a back-
ground of collapsing industrial output. After Rohwedder’s assassina-
tion, it did appear that a shift in policy direction had taken place in
March 1991, with the agreement on ‘principles for cooperation be-
tween the federation, Länder and Treuhandanstalt for recovery in the
east’. Under these principles, the THA was enjoined to consult closely
with the new Länder on the unemployment impacts of its closure de-
cisions. Effectively this implied a moratorium on large plant closures
without Land agreement and so supposedly this reflected a shift to-
wards restructuring at the expense of rapid privatisation.
Regardless, the Treuhand, under its president Birgit Breuel, pushed
harder for a rapid completion of disposals by the end of 1994. As
could be expected, the easiest to privatise were firms supplying branches
with good market prospects, namely construction and building materi-
als and those serving naturally protected regional markets such as printing
and food processing. Very difficult to privatise were branches suffer-
ing world competition from low-wage countries. The textiles, leather,
clothing, optics and electronics branches all experienced factory
liquidations or their return to the original owners.
Because of the expected repercussions of large closures, in the heavy
 The German Economy since 1989/90 75

Table 3.2 Treuhand performance, November 1994

Of 12 370 firms
7 853 were fully privatised
3 713 were closed
536 were transferred to municipalities or
majority private shareholding
268 remainded
Employment and investment guarantees:
DM206.5 billion investments and 1 487 280 jobs
Second Half 1990 – 1994:
Income DM41.7 bn
Expenditure DM171.1 bn

industry sectors liquidations have been few. The steel, chemicals, ship-
building and railway rolling stock branches all were oriented heavily
to Comecon markets and are heavily polluting and technically obso-
lescent, producing at negative value-added under world prices. These
form the so-called ‘industrial core’ and represent a very heavy subsidy
charge for the THA. Those which have been sold have attracted a
buyer only after huge public capital injections, or with other financial
sweeteners (such as capital injections of DM3 billion in Jenoptik, Jena,
of DM2 billion for the Baltic Shipyards, and the assumption by THA
of most of the financial risk in the new oil refinery project at Leuna in
conjunction with Elf-Acquitaine).
Finally, THA President Breuel has constantly reaffirmed her desire
to create a raft of small and medium-sized enterprises, comparable to
the West German ‘Mittelstand’, so as to create a seed-bed for innova-
tion and new entrepreneurial talent. To this end, management buy-outs
(MBOs) were fostered, and accounted for 20 per cent of all privatisations.
Table 3.2 gives the Treuhand’s balance sheet at DM268 billion for
1994.
The fact that the DM1000 billion of assets (Modrow estimate) or
DM600 billion (Rohwedder estimate) shrank to a net deficit of DM270
billion in 1994 reflected primarily the huge current losses borne by the
state enterprises which clearly left few funds remaining for investment.
Public attention has focused of course on the extremely low sale prices
for the East German assets, seemingly given away to wealthy ‘Wessies’
(West Germans): total sales revenues may in the end amount to only
DM50 billion. We will return to the strategic question of rapid priva-
tisation, but let it be said that sales were typically by tender method
76 Christopher Flockton

(MBOs and fixed price sales were restricted to the smaller enterprises).
In reaching a negotiated price, the THA proceeded from the book value
of the asset, given in the opening balance. Substantial remaining costs,
such as inherited debt, environmental clean-up, redundancy provisions
and job and investment guarantees were all included in the final price,
explaining why in so many cases the ultimate price was minimal (DIW-
Wochenbericht, 1992a).
A further common criticism of the Treuhand is that it pursued so
little effective restructuring itself, waiting instead for a purchaser. It is
asserted that the THA starved its enterprises of investment funds, pre-
ferring rapid privatisation to restructuring over the medium-term and
therefore preventing firms from developing new products. It is the case
that investment credits were accorded only after the corporate plan
had been approved and meanwhile only support for running costs was
given. However, an astonishing 80 per cent of its firms were consid-
ered ‘capable of restructuring’. Investment levels were lower – only
one-half of those of privatised firms in eastern Germany – but this
doubtless reflected the fact that investment funds were very constrained
when current losses were so high. In 1992, for example, investment
and capital injections amounted to only DM2.8 billion while liquidity
credits consisted of DM8 billion. However, a further sign that the
Treuhand preferred private decision-makers to take investment deci-
sions is evidenced by the six ‘management limited partnerships’ which
it established to take some responsibility for restructuring. Each part-
nership is a mini-conglomerate grouping up to a dozen THA firms
whose privatisation has proven difficult. The partnership must restruc-
ture its component firms in preparation for sale, with bonuses paid
according to privatisation successes.

The Pattern of Economic Adjustment in the East

The pattern of adjustment which has emerged in the east is therefore

the combined result of the policy decisions discussed above, of the
relative national and international competitiveness of branches and, finally,
of foreign direct investment (FDI) flows into eastern Germany. The
collapse in activity which suffered a ‘double dip’ slump in mid-1992
and January 1993 was by the end of 1994 clearly in a sustained up-
turn, and the deindustrialisation process had broadly come to an end
(MRDB, 10/1994). However, the slump and transformation have been
without parallel. Eastern manufacturing output now serves only 12 per
cent of total eastern effective demand (after having made up 70 per
 The German Economy since 1989/90 77

cent of net material product in 1989) and the output of the non-state
service sector is 50 per cent higher than that of manufacturing (DIW-
Wochenbericht, 1993a). Within this overall evolution, the picture by
branch is very mixed, with rapid improvements in technology and product
mix existing alongside obsolescent heavy industry still in the hands of
the THA’s successor organisations. Plainly, sheltered branches and those
supplying the large infrastructure projects have prospered, while those
facing world competition with obsolescent technology or a high-cost
work force, faced a radical slimming cure. Successes are found in:
— construction which represents 15 per cent of regional output and
where house building has taken over from infrastructure building
as the main stimulus. Tax allowances, the resolution of ownership
claims and the removal of inherited debt liabilities from housing
corporations have all fostered the construction boom;
— the car industry is emerging from the low point of the slump in
mid-1992, particularly in new plants opened by Opel and Volkswagen.
Productivity equals the west, but the ‘lean production methods’ imply
that the number employed are in the very low thousands;
— the electrical and electronics industry now produces only 40 per
cent of the mid-1990 output level, with fewer than 25 per cent of
the employees (Wirtschaft und Statistik, 6/1994). It does however
serve the telecommunication and electricity supply monopolies, and
Deutsche Telekom intends to maximise local sourcing by 1997.
The electricity supply monopolies of West Germany which suc-
cessfully extended their territory eastwards, are committed to a DM40
billion renewal programme. Siemens has commenced building on
its DM2.4 billion microchip plant in Dresden, secured with DM700
million of regional assistance.
The problem cases remain the chemical, steel and engineering in-
dustries – the so-called ‘industrial core’. The chemical triangle of Leuna-
Buna-Bitterfeld/Wolfen in Saxony-Anhalt however experienced a halving
of turnover in the years 1991 to 1993 and employment now stands at
less than 25 per cent of the 1990 figure with a loss of more than
51 000 jobs. Dependent on basic chemicals and photosynthetics the
market has collapsed with the loss of exports to Comecon and the
shrinkage in fertiliser demand. As noted previously, Elf-Acquitaine agreed
only to commit itself to a new refinery at Leuna if it reduced its
shareholding from the initial 70 per cent to under 50 per cent and by
shifting the burden of risk onto the THA. Finally in engineering, which
was once the most significant branch in East Germany, most of the
78 Christopher Flockton

capacity remained in THA hands. Rationalisation was slow and output

and employment at the end of 1993 stood only at 32–35 per cent of
the second half of the 1990 figure (MRDB, 12/1993).
As implied above, the Kartellamt (Monopolies Commission) has been
willing to contemplate the extension of quasi-monopoly conditions to
the east in electricity supply and in potash mining, so as to secure an
effective and controlled rationalisation of excess obsolescent capacity.
In the case of electricity generation and supply, the dispute over the
Stromvertrag (electricity contract) between the large western utilities
and the eastern German municipal local supplies in March 1994 en-
sured that the big three western utilities (Bayernwerk, Preussenelektra
and RWE) acquired the East German VEAG national monopoly dis-
tributor for DM10 billion and committed themselves to a further DM40
billion of investments in electricity supply. The western utilities have
achieved vertical integration since Laubag, the largest brown coal pro-
ducer, was acquired in early 1994 by an RWE subsidiary in which
Bayernwerk and Preussenelektra have holdings. Likewise, in the case
of potash, Kali and Salz (BASF) assumed control of the East German
monopoly (Mitteldeutsche Kali AG) so as to rationalise excess capac-
ity in Germany. The fact that the eastern German workers at Bischofferode
went on hunger strike to protect their jobs led the THA to retain a
substantial minority share.
Can the service industry take up the slack and generate sufficient
employment in compensation? The sector has seen fundamental change
but it remains the case that the demand for services is heavily depend-
ent on the transfers from the west and on the evolution of real in-
comes. It does require a much broader industrial base. In the period
since mid-1990, the net growth has been of 125 000 jobs (since the
shake-out from state-owned retail distribution and transport undertak-
ings has been substantial). There has certainly been a rapid rise among
the self-employed, from 50 000 in 1989 to 300 000 in late 1993. How-
ever productivity remains at 40–45 per cent (according to activity) of
the western German level, while rapid wage harmonisation ensures that
unit labour costs remain far in excess of the western level. There can
therefore be no substitute for an expansion in manufacturing employment.
It is beyond doubt that the prime impact on the sectoral adjustment
process has been the privatisation and subsidisation (liquidity credits)
policy of the Treuhand. Private investment in the east has totalled only
DM26 billion, DM45 billion and DM52 billion in the years 1991 to
1993 respectively. In 1993 total investment reached DM135 billion.
Foreign direct investment itself (including investment from western
 The German Economy since 1989/90 79

Germany) has been at disappointing levels, with few ‘green field’ in-
vestments. It was only in 1994 that investment per head in eastern
Germany substantially outpaced western Germany, and for that reason
alone, one can postulate that the catch-up in productivity levels per
head may take 15 years. Clearly the unresolved property restitution
question continues to exact its harmful effect, but the existence of far
cheaper labour in central Europe, within 70 miles of Berlin, is exact-
ing a pull on plant location. Audi for example has switched a DM1
billion motor components project to Hungary from eastern Germany:
wage rates there are one-sixth of those of the old Länder.

THE DEBATE OVER RESTRUCTURING POLICY AND LABOUR

SUBSIDIES

During the first half-decade after unification the policy debate in Ger-
many focused on the prominence given to privatisation by the Treuhand,
in preference to an active industrial policy, which would seek to re-
structure firms while they remain in state hands. There was also the
question of introducing various types of labour subsidy to avoid a free
fall in employment levels. This debate is clearly reducible to that be-
tween market liberals and interventionists, but one must bear in mind
that while government and Treuhand have been accused of laissez-
faire liberalism, the actual degree of subsidisation presently practised
is without historical parallel in Germany. Was the Treuhand at fault in
pursuing a rapid privatisation and did it wilfully break-up viable units
for this purpose?
Points commonly made by those broadly sympathetic to market econ-
omics are for example that the speed of privatisation necessarily led to
a dramatic loss in the value of assets. The pressure for rapid disposal
must depress prices in a negotiation, especially when THA sales would
absorb the equivalent of three years of normal federal German invest-
ment. Further, in the prevailing market conditions of high real interest
rates and low profit forecasts, the selling price was bound to weaken
(Sinn, 1992; Kurz, 1993). The very lack of democratic supervision
(the Bundestag set up a supervisory committee at a very late date) and
the confidentiality of the sales contracts necessarily meant that viable
alternative strategies were not considered, or only after the event. For
example, in the case of Heckert machine tools of Chemnitz, the com-
pany’s R&D division and its distribution network were sold off to a
western group: it was only by the intervention of the Land Saxony
80 Christopher Flockton

and the labour union IG Metall, that the consequent closure of a dis-
membered Heckert AG was avoided. Saxony also stepped in, in con-
junction with IG Metall, to prevent the closure of the Freital stainless
steel works by finding a risk investor. More generally, Saxony has
sought to pursue an active industrial policy (in contrast Thüringen has
done so only on a minor scale). In the case of Saxony, its Atlas Project
has given medium-term support in the form of loan guarantees to fourteen
key regional employers in THA hands, with the express purpose of
offering a longer-term frame for restructuring before privatisation. The
success of the approach, however, remains in doubt.
Three broad alternative approaches to that of the THA have been
proposed, varying from the market liberal to the expressly interven-
tionist. Examples of the market liberal approach are those of Sinn (1992)
and the DIW, the German institute for the economy (DIW-Wochenbericht,
1992a). Sinn proposed that minority shareholdings be attracted from
‘sleeping’ partners in the private sector as a first stage: as restructur-
ing proceeds and the asset value rises, so the investor must acquire
further shareholdings at a higher share price. The DIW proposal fo-
cused on an ‘as-if’ privatisation, which would attract investment capi-
tal as a guide to the strategic direction for the enterprise. To ensure its
immediate short-term viability, inherited debt should be written off,
and wage subsidies allowed but further public investment would be
contingent upon attracting private investment and no further liquidity
credits would be permitted.
In contrast, the expressly interventionist approach, which foresees
medium- and longer-term subsidisation to maintain the integrity of the
enterprise and its workforce, was postulated by then SPD leader Björn
Engholm in his party’s ‘national recovery plan for the east’ (3 August
1991) and by others (Meyer, 1991; Arbeitsgruppe, 1992). Common to
such proposals is the desire to mobilise the panoply of state assistance
(regional aid, R&D aid, export guarantees) to promote the reorientation
to new markets, without the enterprise haemorrhaging through losses.
The latter critics favour the establishment of ‘technology centres’ in
large THA enterprises, drawing on the federal technology ministry’s
budget. The SPD on the other hand favours the assigning of product
specialisations to plants and developing these by a combined use of
investment subsidies, export guarantees and public purchasing contracts.
The federal government spoke of maintaining ‘industrial cores’ in
the east, and these clearly comprised the heavy industrial groups left
unsaleable in the THA portfolio. The proposal to sustain such cases as
major regional employers derived from the chancellor’s working group
 The German Economy since 1989/90 81

‘structural changes in the east’ which reported in spring 1992. In Sep-

tember 1992, the proposal was formally made by Chancellor Kohl and
separately by Finance Minister Waigel as a bargaining counter in the
early stage of negotiations on a solidarity pact to contain and redirect
state expenditure to the east, while buying union wage restraint. In
October 1993, Mr Waigel tabled a draft law to take control of the 100
enterprises the Treuhand could not sell, and institute over the period
1995–2000 a slow restructuring, costing DM45 billion. Given the vague-
ness surrounding the ‘industrial core’ concept (Breuel et al., 1993; DIW-
Wochenbericht, 1993a) there can be little doubt of the political motivation
behind the policy and also little doubt of the extreme cost of long-
term subsidisation.
The labour market debate also pitted market liberals against those
in favour of a managed labour market. ‘Social union’ as an intrinsic
part of the economic union has clearly extended the western employ-
ment legislation, social insurance and collective bargaining systems to
the east. This created a single labour market (albeit one grouping two
structurally very different economies with an extreme difference in
productivity levels) and there is of course the danger of wage harmon-
isation such that, taking account of productivity, unit wage costs in
the east will far outstrip those of the west.
This has clearly been the case since unification and accounts for
much of the largely structural unemployment in the east. Of course it
is held that social justice requires that wages be equalised with the
west, otherwise large-scale migration will occur. Such social justice
merely created mass unemployment. However, in these circumstances,
market liberals such as the government’s deregulation commission
(Reports I and II, 1990–91) and Donges (1991) and Hartel (1991) stress
the need to strike at the inherent rigidities in Germany’s wage bar-
gaining system and promote flexibility so that wage levels in the east
will reflect more closely the marginal product of labour there. There
are those who believe that these textbook recommendations hardly take
existing labour market structures into consideration: rather, schemes
of labour subsidisation are needed to reduce the costs of labour to the
employer so that it corresponds to the productivity of the workforce in
order to sustain labour demand and employment.
In a celebrated study Akerlof et al. (1991), using GDR planning
data for industrial combines, showed that only 8.2 per cent of manu-
facturing jobs in Treuhand enterprises could survive at October 1990
DM wage levels in the east. Were wages to be subsidised at 75 per
cent, then 77 per cent of jobs could survive. Akerlof therefore proposed
82 Christopher Flockton

a subsidy set in direct relation to the east–west wage gap which would
be fixed in volume and over time. As jobs expanded in number, or as
wage inflation proceeded, so the degree of subsidy would fall. There
are clearly fears associated with such systems: fears of long-term
subsidisation, of labour unions seeking to recuperate the subsidy in
their wage claims, and of the wage levels fuelling price inflation. They
obviously damage wage flexibility.
This wholly insufficient wage flexibility was also at the core of the
debate on ABS-Gesellschaften, the so-called ‘employment-enterprises’,
which the Treuhand strove to keep at arms’ length. Such quasi-firms
can be utilised under the 1986 Arbeitsförderungsgesetz (AFG) for job
creation or the retraining of those unemployed or potentially unem-
ployed. They can be used as a transitional mechanism by labour-shedding
firms for the active retraining of employees facing redundancy. In eastern
Germany such employment enterprises came to predominate as a vehi-
cle for special labour market measures under the AFG law financed by
the federal labour office. In 1993, there were 10 000 job creation and
retraining programmes in the east. Socially, these instruments were
clearly an important palliative, but economically they were open to
two very serious criticisms. These schemes were legally allowed to
operate only in non-profitmaking fields, in socially useful tasks such
as environmental improvement or social care, but there were wide-
spread complaints, especially by small firms, that they tendered for
work outside these fields and so represented heavily subsidised com-
petition to the struggling, newly established small firm sector. Secondly,
the retrainees received 100 per cent of the (rising) tariff wage for two
and sometimes three years. Here again was a mechanism for wage
inflation which prevented the adjustment of wage rates to reflect the
scale of unemployment. It merely strengthened the ‘Mezzogiorno’ effect.
In 1993, paragraph 249h of the AFG Law was therefore modified in
two ways. The object of the task had to be of ‘community value’ and
beneficiaries of support could henceforth only receive four days’ pay
weekly at the unemployment pay rate. In mid-1994, 75 500 retrainees
benefited in the east, of whom 50 000 were in Treuhand enterprises.

THE INTENSIFIED QUEST FOR COMPETITIVENESS IN POST-

UNIFICATION WESTERN GERMANY

The scale of the financial transfers to the east, and the dependence of
a sustained economic renewal there on western growth made painfully
 The German Economy since 1989/90 83

evident the need to achieve greater dynamism in western Germany’s

economy. The market liberal agenda of the first Kohl government in
1982–3 returned in the forms of a budgetary consolidation programme
and solidarity pact and in a renewed deregulation drive which encom-
passes the partial privatisation of utilities. The consolidation programme
combined near-term tax increases (e.g. solidarity surcharge of 7.5 per
cent of income tax due) once again with the setting of medium-term
targets to bring the deficits and escalating debt under control. The fed-
eral deficit of 4.5 per cent of GDP (or over 7 per cent if one includes
the ‘shadow budgets’ of other federal bodies) has been targeted for
reduction to 3 per cent in 1996/7 and the debt/GDP ratio, presently at
60 per cent, and therefore equal to the Maastricht ceiling, is planned
to be reduced to the pre-unification level of 45 per cent at a point well
into the future. This renewed stress on budget consolidation clearly
seeks to redress some of the main policy errors of unification (no tax
increases, haemorrhage of Treuhand losses, escalating wage rate-related
social benefits in the east): however, looking to the future it also points
to stagnant or slowly growing disposable incomes, and high tax levels,
including high corporate tax. Where then will be the stimulus for growth,
in exports or through supply-side efficiency gains?

After the ‘straw fire’ or evanescent boom induced by unification the

question resurfaced of whether Germany would remain on the slow
growth trajectory which prevailed from the first oil crisis of 1973/4 to
1987. The depth of the recession in 1992/3 intensified this soul-searching
as to the competitiveness of Germany as an industrial location, the so-
called Standortfrage. That western Germany has the highest produc-
tion costs in the world (though matched by high productivity) is well
known, and the report published in September 1993 (Zukunftssicherung
des Standorts Deutschland) by the free market economics minister
Günther Rexrodt highlighted the scale of the competitiveness problem
and proposed 147 measures for deregulation. The report cited what are
now quite well-known statistics: that the ageing of the population means
that 33 per cent of Germans will be aged over 60 years in 2030, com-
pared with 20 per cent now; that the German manufacturing worker
works only 82 per cent of the hours of his Japanese equivalent; and
that Germany, apart from having the shortest working week, has the
shortest machine running times. Moreover, the level of corporate taxa-
tion, the restrictiveness of environmental legislation, the constraining
effect of the centralised wage bargaining system on wage rate differen-
tials as well as the shop closing hours (relatively successfully tackled
84 Christopher Flockton

in mid-1996) were all listed, among many other cases. Clearly then,
the reforms proposed were for greater privatisation, reduction in red
tape constraining businesses, a reduction in corporation tax rates and a
shift in government spending towards the promotion of investment,
innovation and employment. Among a range of other policy changes
announced, the Standortsicherungsgesetz (law to ensure the competi-
tiveness of Germany as an industrial location) of 1993 included provi-
sions for a reduction in corporation tax, and the promotion of part-time
working in the civil service.
This debate in West Germany surfaced at least twice in the 1980s,
following phases of currency appreciation which hit exports, but was
then followed by periods of record export surpluses. Two studies (DIW-
Wochenbericht, 1992b, 1993b) stress that the problem is not structural
but engendered by a DM appreciation. They point out that, in the period
to 1991, high productivity, falling unit labour costs and record export
surpluses, were only matched by those of Japan. Only twice in 25
years did West German unit wage costs rise faster than in competing
countries and West Germany has maintained world export share (if this
includes shipments to East Germany). Can one say then that the present
difficulties are just a mixture of the merely cyclical, of the temporary
DM appreciation by 5 per cent after unification, and of tariff wage rises
of over 6 per cent in 1991 and 1992? Have the rise in the yen, and
wage moderation in Germany since 1993 now resolved the matter?
The fact that export demand in late 1993 and 1994 served largely to
pull western Germany out of recession does point to the Federal Re-
public’s ability to regain competitiveness. Real incomes of employees
have been stagnant or falling in response to the 2.6 million (8.6 per
cent) unemployed in the west in June 1994 (MRDB, 5/1994). This trend
continued in 1995. In fact, German industry has engaged in unpre-
cedented cost-cutting and restructuring since the onset of recession in
1992, in order to reduce production costs by the 20–30 per cent which
it was commonly said was required to hold off south-east Asian com-
petition. Unit wage costs have been falling since 1992 and a gradual
re-establishment of the profit rate occurred. However, the loss of many
hundreds of thousands of jobs could be observed at the same time.
The enormous scale of job cuts, and the acquiescence of the workforce
in real income losses and increased flexible working hours all point to
certain strengths in the centralised bargaining system, which is so
maligned among Anglo-Saxon market liberals. The point is that sec-
tor-wide bargaining fosters real wage moderation, since unions are seen
to be responsible for employment outcomes. Union representation on
 The German Economy since 1989/90 85

the supervisory boards of larger companies does also lead to greater

responsibility. In 1994 effective wage increases were brought down to
1.5 per cent or half the inflation rate. In addition, unions have agreed
a range of concessions on working time reductions (without compen-
sation) or, for example, the recruitment of the long-term unemployed
at rates 10 per cent lower than the tariff wage. The four-day working
week (without compensation) at Volkswagen, enabled the company to
spread working time among the labour force without job losses.
Reform in Germany is typically incremental, painstaking and legal-
istic, acknowledging employee rights within an (admittedly strained)
social market consensus. This is evidenced in the slowness of privati-
sation and in other loosening of regulatory constraints. The decisions
of the federal government to privatise utilities such as the post and
telecommunications, the Lufthansa airline and railways date back to
mid-1992. Of course the opening of competition in telecommunica-
tions, air transport and electricity supply is to a significant degree a
result of single market directives emanating from Brussels. One does
suspect, however, that the federal government, hamstrung by constitu-
tional provisions in this area and by the SPD majority in the Bundesrat,
is driven primarily by the prospect of financial gains from asset sales
rather than ideological fervour. Recent decisions comprise:
— the establishment in December 1993 of the Deutsche Bahn AG,
which unites the western and eastern railway companies. It is di-
vided into three subsidiaries covering network, passenger and freight,
granting much greater managerial freedom, and opening the possi-
bility of private railway operating concessions as well as private
capital injections;
— the Lufthansa AG is being privatised in three steps, reducing fed-
eral participation from 51.4 to 38 per cent by the end of 1995 and
subsequently to zero;
— the break-up of the Bundespost into three joint stock companies of
Telekom, Postdienst and Postbank in 1993, followed by the deci-
sion to commence privatisation of Deutsche Telekom in 1996. It
will retain its telephone monopoly according to a timetable set by
Brussels, ending in 1998 or in the year 2000.
In each of these privatisation projects, the question of the civil ser-
vant status (i.e. job tenure for life) of employees, other employment
rights, and their pension entitlements proved major obstacles and, in
the end, a substantial continuing burden. Only in the case of Lufthansa
have employees lost their job tenure, and the inherited pension costs
86 Christopher Flockton

(leaving out of account the huge cost to the finance ministry) have
burdened Telekom with DM40 billion in pension entitlements and
Lufthansa with DM4 billion. There is also no clear break with the past
in the regulatory conditions for the Telekom voice monopoly. So much
in its operating environment remains to be resolved but it clearly can
block entry to the market by the many substantial potential entrants.
In the huge growth sector of multimedia services (including pay TV)
the Telekom presides over the densest fibre-optic net in the world and
may yet retain monopoly rights to the year 2000.
There is plentiful evidence of the powerful constraints on regulatory
change in a federation which operates in a legalistic and consensual
way. One may cite in support the imperceptible attack on subsidies
(which amount to a relatively low 1.2 per cent of GDP for federal
subsidies, but up to 6 per cent of GDP in the widest definition), the
lack of relaxation in shop pricing freedom (Rabattgesetz) and the lim-
ited changes to working time regulations and shop opening hours. All
are evidence of the slow and deliberate nature of changes in regula-
tion. However, there is no doubt that competitiveness in the exposed
manufacturing sector is gradually regained: the question is whether
Germany can produce domestic sources of demand growth in the com-
ing years, or whether it is largely dependent on world export demand.
Will its powerful export industry further locate abroad in low cost
locations, squeezed as it is by intense competition from south-east Asia
in the higher technology products, and from central and eastern Eur-
ope in ordinary commodities? There is considerable evidence of in-
creased flexibility in working patterns and of a surgical restructuring
in western German manufacturing. The question remains however whether
Germany can sustain a sufficiently large and high value-added manu-
facturing sector in the face of relentless world competition.

REFERENCES

Akerlof, G.A., Rose, A.K., Yellen, J.L. and Hessenius, H. (1991), ‘East Ger-
many in from the Cold. The Economic Aftermath of Currency Union’, paper
presented to the Conference of the Brookings Panel on Economic Activity,
Washington, D.C. (4–5 April), p. 12.
Arbeitsgruppe Alternative Wirtschaftspolitik (1992), Memorandum ’92 – Gegen
den ökonomischen Niedergang – Industriepolitik in Ostdeutschland (Cologne:
Pappyrossa Verlag).
 The German Economy since 1989/90 87

Breuel, B. et al. (1993), ‘Erhaltung industrieller Kerne in Ostdeutschland?’,

Wirtschaftsdienst, no. 2, pp. 59–70.
DIW-Wochenbericht (1992a), ‘Zur Politik der Treuhandanstalt – eine
Zwischenbilanz’, no. 7, pp. 62–8.
DIW-Wochenbericht (1992b), ‘Industrieller Mittelstand in Ostdeutschland’,
no. 11, pp. 103–9.
DIW-Wochenbericht (1993a), ‘Stand der Privatisierung, Achter Bericht’,
no. 13, pp. 131–58.
DIW-Wochenbericht (1993b), ‘BRD: Strukturkrise oder konjunktureller
Einbruch?’, no. 26–27, pp. 360–8.
Donges, J.B. (1991), ‘Arbeitsmarkt und Lohnpolitik in Ostdeutschland’,
Wirtschaftsdienst (1991), no. 6, pp. 283–91.
Financial Times (14/2/1995), ‘German Court Rejects Property Claims’, p. 2.
Ghaussy, A.C. and Schäfer, W., eds (1993), The Economics of German Uni-
fication (London: Routledge).
Härtel, H.H.(1991), ‘Lohnpolitik im vereinten Deutschland’, Wirtschaftsdienst
(1991), no. 1, pp. 7–10.
Hasse, R. (1993), ‘German–German Monetary Union: Main Options, Costs
and Repercussions’, in Ghanie-Ghaussy, A. and Schäfer, W., eds, pp.
26–59.
Hüther, M. and Petersen, H.G. (1993), ‘Taxes and Transfers: Financing Ger-
man Unification’, in Ghanie-Ghaussy, A. and Schäfer, W., eds, pp. 73–91.
Kreile, M. (1992), ‘The Political Economy of the New Germany’, in Stares,
P., ed., pp. 55–92.
Kurz, H.D., ed. (1993), United Germany and the new Europe (Aldershot: Edward
Elgar).
Kurz, H.D. (1993), ‘Distributive Aspects of German Unification’, in Kurz,
ed., pp. 134–62.
Meyer, W. (1991), ‘Welchen Beitrag können Beschäftigungsgesellschaften
leisten? Anforderungen aus gewerkschaftlicher Sicht’, Wirtschaftsdienst (1991),
no. 8, pp. 385–8.
MRDB – Monthly Report of the German Bundesbank (various issues).
Schäfer, W. (1993), ‘The Unification of Germany, the DM and European
Monetary Union’, in Kurz, H.D., ed., pp. 217–30.
Sinn, G. and Sinn, H.W. (1992), Jumpstart – the Economic Unification of
Germany (Boston, Mass.: MIT Press).
Stares, P., ed. (1992), The New Germany and the New Europe (Washington,
DC: Brookings).
Wirtschaft und Statistik (various issues).
4 The German Party System
since Unification
William M. Chandler

THE PARTY SYSTEMS IN GERMANY BEFORE UNIFICATION

The post-1945 division of Germany created two radically different

regimes, each with it own distinctive party system. In West Germany
(FRG), the first Bundestag (federal parliament) election in 1949 pro-
duced a fragmented multiparty array but also established the Christian
Democrats (CDU) and Social Democrats (SPD) as pre-eminent con-
tenders for power. By 1953, in part due to the national application of
the five per cent minimum for the proportional allocation of parlia-
mentary seats, the post-war party system took on its essential charac-
ter, thereafter evolving gradually without traumatic disruptions (Smith,
1986: 88–124).
The West German version of party-government blends a Westmin-
ster-like competition between two major parties with a continental
multiparty tradition of coalition-building. Elections are strongly oriented
towards a choice between two chancellor-candidates, yet alternation in
power between the major parties has been a function of the crucial
pivot role played by the small but influential Free Democratic Party
(FDP), which has tended to form alliances with both Christian Demo-
crats and Social Democrats. As a Grand Coalition alliance of the two
Volksparteien proved viable, the party system also took on a triangu-
lar character, with a strong convergent dynamic of power-sharing. The
1983 Bundestag entry of the Greens challenged but did not destroy the
workings of this model (Pappi, 1984; Dalton, 1992: 52–76).
In the German Democratic Republic (GDR), an entirely different
and artificially created party system emerged under Soviet tutelage.
The forced merger of the eastern SPD with the communist KPD pro-
duced a communist-controlled Socialist Unity Party (SED). By assum-
ing the role of vanguard party, the SED governed the GDR for 40
years under a multiparty façade of smaller parties designed to provide
legitimacy for both the SED and the regime. These were the so-called
block-parties as they tended to side and vote with the SED en bloc
(Lapp, 1988: 7–47; Glaessner, 1992: 103–7). All Volkskammer (East

88
 The German Party System since Unification 89

German parliament) representatives were elected by means of a unity

list in which each party or group was allocated a pre-set number of
seats. Importantly, block-parties participated on condition of their rec-
ognition of the constitutionally ordained ‘leading role’ of the SED
(Glaeβner, 1992: ch. 1; Merkl, 1993: ch. 3).
Almost half a century after the division of Germany, unification brought
these two party systems together through an unequal merger. The sud-
den collapse of the regime and the peaceful democratisation in the
GDR prior to unification created unique circumstances for a total re-
structuring of the party political landscape. It can be summarised as
follows:
1. Dissolution of the GDR’s party system.
2. Sprouting of indigenous protest movements.
3. Extension and importation of the organisation as well as the finan-
cial means and expertise from western parties.
By 1989 the transformation of the party political structures in the
GDR was immediately visible in the rise of opposition groups and
mounting protests. With Honecker’s ouster in October 1989 and the
dramatic opening of the Berlin Wall one month later, there followed a
brief but crucial phase in which the SED/PDS leadership (first led by
Egon Krenz and then by Gregor Gysi) attempted to salvage the regime
by means of a damage control approach. However, concessions only
served to fuel public pressure for democracy. In the Volkskammer election
of March 1990 East Germans voiced an unmistakable preference for
rapid unification by electing the Christian Democratic umbrella organi-
sation ‘Alliance for Germany’. With this mandate, the new de Maizière
government, the first and last democratically chosen in the history of
the GDR, initiated negotiations with Bonn, leading to the complete
absorption of the former GDR into the Federal Republic, an event without
historical precedent.
Although ‘instant’ fusion could be seen as a vote of confidence in
western parliamentary democracy and the social market economy, it
also imposed immense challenges affecting all aspects of German politics.
Political parties were confronted with the task of absorbing some 16
million citizens into the institutions and practices of parliamentary
democracy.
90 William M. Chandler

FRAMEWORK FOR ANALYSIS

Because party systems are multifaceted, the following analysis distin-

guishes among three forms of change in the context of unification:
intra-party organisational integration, inter-party patterns of competi-
tion, and coalition relations as far as both the governing parties and
the parties in opposition are concerned. Table 4.1 presents these
distinctions.

Table 4.1 A framework for analysing party change

Intra-party Integration,
organisational founding, mergers,
adaptation membership change
Inter-party Electoral bases,
relations patterns of
competition
Coalition politics Governing/
Opposition roles

ORGANISATIONAL ADAPTATION OF THE PARTY SYSTEM IN

THE GDR

The end of the SED’s hegemony led directly to the development of

competitive politics and imposed on all parties new challenges of inte-
gration. The introduction of pluralism by the citizen protest groups
created a multiplicity of weak proto-parties, which lacked developed
infrastructures or active memberships. Most of these formations proved
ephemeral and were, for the most part, absorbed within the established
parties which were organisationally much stronger (Richter, 1994:
101–10; Niedermeyer and Stöss, 1994: 11–17). Imminent free elec-
tions in the GDR required all parties to begin with building organisa-
tions suitable for electoral competition.
For the established parties (CDU, SPD, FDP and Greens), integra-
tion occurred within two stages. Following the founding of new par-
ties and the reform of the existing block-parties, the first stage involved
the fusion of the eastern parties and groups with each other and the
formation of alliances. During the second stage western and eastern
organisations merged. The integration process carried over into the post-
unity period and more than half a decade after unification it has still
not been entirely completed.
The CDU, SPD and FDP quickly formed working alliances with
 The German Party System since Unification 91

Table 4.2 Patterns of party merger

Phase CDU FDP SPD Greens

Emergent DA, DSU DFP, east SDP, Oct Dissident

opposition FDP 1989 groups,
east Grüne
Block Reform in Reform in none none
party Ost-CDU LDPD
adaptation
Consolidation, Alliance Liberal SDP renamed Alliance
alliances for Germany regrouping SPD of three
pre-VK in BFD groups:
election Bündnis 90
Fusion of East–west Fusion, Fusion 1993
eastern merger, Oct December east–west
and Oct 1990 1990 1989 merger
western
wings

their eastern counterparts, leading to ‘friendly takeovers’. This shaped

the kind of parties that would prevail through the elections of 1990
and the immediate post-unity era (Eisenmann and Hirscher, 1992: 8).
The overall effect of the mergers was to simplify the configuration of
parties into certain patterns of organisation and competition in the new
Länder, which to a considerable extent mirrored the system of the old
Federal Republic.
For the Christian Democrats, the early integration phase comprised
three steps:
1. an internal renewal of the eastern CDU (Ost-CDU), starting with
the ouster of its chairman Gerald Götting and the election of Lothar
de Maizière,
2. the founding of new opposition groups, especially the Democratic
Awakening (DA) and the German Social Union (DSU), both of
which were naturally apprehensive about dealing with the Ost-CDU
(the DSU was created under the sponsorship of the Bavarian CSU,
the CDU’s sister party, which sought to establish links with the
east),
3. as free elections approached, finding a viable partner in the east
became a priority, culminating in the building of the ‘Alliance for
Germany’ in February 1990 to contest the forthcoming Volkskammer
election (Richter, 1993: 119–21; Clemens, 1993: 200–23).
92 William M. Chandler

For the western CDU, integration meant an awkward partnership

with a former block-party. The CDU in Bonn had long avoided con-
tact with the Ost-CDU, which was regarded as nothing more than a
‘transmission belt’ for the SED. However, the Ost-CDU, unlike the
newly formed opposition forces, promised substantial property hold-
ings and had a large membership (although many quit during the col-
lapse of the GDR). Once this former block-party became the principal
partner for the CDU in Bonn, rebuilding meant a western input of
money, resources and personnel. Organisational integration was com-
plemented by the importation of political leaders and top civil ser-
vants to staff key ministries in the new Länder (König, 1993: 386–96).
Increasing western involvement in the process of party-building natu-
rally paved the way to ultimate fusion, but this did not resolve persist-
ing tensions between older ‘Blockis’ and the newer ‘Renewalists’, which
since unification has cast a shadow over the CDU’s ability to mobilise
new support and to recruit candidates (Schmidt, 1994: 59–60).
For the FDP, organisational change was shaped by a similarly awk-
ward fusion with a block-party, the LDPD (the Liberal Democratic
Party of Germany). Existing contacts between the two increased sharply
after October 1989. By early 1990 the renamed LDP had undergone
significant programmatic transformation, but its chairman Manfred
Gerlach, a leading figure in the old regime, remained in office and also
became the last head of state in the final days of the GDR. For the
newly founded eastern FDP and the German Forum party (DFP), dis-
trust of the LDP made cooperation difficult (Roberts, 1993: 154–8),
yet political survival made merger inevitable. The early Volkskammer
election, first planned for May then scheduled for March 1990, forced
all these liberal formations to regroup under the umbrella of the BFD
(Bund freier Deutscher, Union of Free Germans). This coalition cap-
tured an unimpressive 5.3 per cent of the Volkskammer voting. Shortly
thereafter another block-party, the National Democratic Party (NDPD)
also fused with the BFD. Five months later, in anticipation of federal
elections in December 1990, the FDP’s party congress in Hanover ratified
the merger of the party’s eastern and western wings.
Merger provided an extraordinary boost for this small pivot party.
Instant inclusion of the LDP also gave the FDP substantial property
holdings, and total membership more than doubled. The FDP tempo-
rarily became the only party with more members in the new Länder
than in the old. However, many of its nominal 200 000 members dwindled
away after 1990. According to one reliable estimate, from some 136 000
eastern members only about 58 000 remained by 1992 (Soe, 1992). By
 The German Party System since Unification 93

1995 federal party membership was estimated at only 80 000 (50 000
west, 30 000 east). Grass-roots weakness has remained a persisting flaw,
confirmed after 1993 by the FDP’s dismal electoral performance in
both the old and new Länder. However, from late 1994 a gradual rise
in the electoral fortunes of the FDP could be observed (see below).
For the Social Democrats, more than for any other party, a preoccu-
pation with internal cohesion pre-dates unification. Its own success in
achieving the 1959 Bad Godesberg goal of a broad, inter-class Volkspartei
led to social diversification of both party membership and electorate.
This had a profound impact on internal party relations. The inflow of
new members accentuated divisions between a rising new middle class
espousing post-materialist priorities and the party’s traditionally mate-
rialist milieu of skilled workers and trade union members. Such inter-
nal dissension prevented the SPD from effectively capitalizing on the
frequent unpopularity of CDU/CSU-led governments. Furthermore, in
the 1980s, the SPD became the primary victim of the advances made
by the Green party. The gradual erosion of its electoral base, espe-
cially after it lost power in 1982, exposed a crisis of identity and prompted
endless debate about electoral strategy and organisational renewal (Silvia,
1993: 171–9).
Compounding these internal problems, unification imposed new chal-
lenges of integration. However, the SPD was spared the block-party
collaborationist legacy, and the newly created eastern SDP seemed at
first a promising partner, but its organisation was feeble, lacking in
resources and personnel. Thus, as elections approached the SPD found
itself at a disadvantage to the CDU. More fundamentally, the task of
recruiting activists was thwarted by the SPD’s own ambivalence to
unification, which rendered the party largely irrelevant to most eastern
voters during the crucial phase of party-building. The consequences
were found in the meagre support the party received both in the Volks-
kammer (21.9 per cent) and in the Bundestag (23.6 per cent in the
new Länder) elections of 1990. Although the east–west merger was
accomplished by December 1989, persisting organisational weaknesses
in the new Länder continued to plague the SPD’s electoral efforts
(Tiemann, 1993: 415–21; Silvia, 1993: 180).
Unification presented a difficult adaptation for the Greens. Of all the
parties represented in the Bundestag, only the Greens failed to merge
prior to unity. Two separate organisations competed regionally through
the 1990 elections: Bündnis 90 (Alliance of ’90) in the east and the
Green Party in the west. East–west merger was delayed due to both a
basic imbalance in membership and inherent policy differences. By
94 William M. Chandler

1993 an uneasy integration of the eastern and western wings was ac-
complished under the name Bündnis 90/die Grünen, but easterners have
remained fearful of being swallowed up by the much larger western
party (Poguntke and Schmitt-Beck, 1993: 191– 213; Frankland and
Schoonmaker, 1993: 215–34). The concern to preserve an eastern identity
in an unbalanced relationship was accentuated by defeats in several
eastern Landtag elections in 1994. Federally, Green membership in
1995 has been estimated at 40 000 but with only 2000 in the east.
While activists total 10 000, just 150 are located in the east (Hoffmann,
1995: 5).
For the Party of Democratic Socialism (PDS), the SED’s reformed
successor party, survival rather than merger became the paramount task.
With its SED legacy, the problem was primarily one of adaptation to
pluralist politics, that is, a transformation from democratic centralism
and a vanguard function to participation in competitive democracy. It
also led to a generational change through the departure of most of the
older members of the SED leadership, but there have been few new
entrants. The strength of the PDS remains based on the cadres of the
former SED (still some 130 000). They have provided a grass-roots
organisational presence across the new Länder, something that other
parties have failed to establish (Falter and Klein, 1994: 22–34). In the
1994 Bundestag election this was undoubtedly a key to the ability of
the PDS to win four direct mandates in Berlin.

BASES OF PARTY COMPETITION

Partisan dealignment has altered patterns of competition in all advanced

democracies. As a consequence of increasing voter mobility and the
erosion of traditional loyalties, the two large German Volksparteien
(CDU/CSU and SPD) have suffered decline in both membership and
electoral support. Dealignment has, correspondingly, provided a po-
tential for ‘new politics’ and populist protest (Dalton, 1992: 69–72;
Schultze, 1994: 472–93). Initially, unification appeared to facilitate even
greater volatility, in part because many eastern voters lack firm party
loyalties and have tended to be issue-oriented.

Trends on the Right

Urbanisation, secularisation and increasing affluence have all slowly

reduced the weight of rural Catholic bastions. Similarly, alterations in
 The German Party System since Unification 95

occupational structures have gradually expanded the electoral weight

of a new middle class which is relatively detached from traditional
party loyalties. Thus despite four successive Bundestag election victo-
ries between 1983 and 1994, Christian Democratic membership and
support stagnated. Importantly, however, the CDU/CSU did not suffer
alone. Both Volksparteien lost ground due to dealignment effects. The
weakening of the SPD was even more severe than that of the CDU, so
that by 1990 the gap of popular support between the two expanded to
about 10 per cent. After the 1987 election – and especially after the
Barschel affair in 1988 – but prior to the pressures of unification, the
vulnerability of the CDU/CSU had become evident by the party’s slump
in opinion polls and in Landtag elections (Chandler, 1993: 42–3). These
setbacks appeared to threaten the leadership of Chancellor Kohl. How-
ever, his political fortunes suddenly reversed when the GDR collapsed.
Although unification brought immediate benefits for the CDU as east-
ern Germans voted massively in support of the chancellor and his ‘fast
track’ approach, the longer term implications of unification were less
clear. Victories in the unity election of December 1990 postponed but
did not erase electoral anxieties for the CDU/CSU.
The new Länder offered no natural social bastion for the CDU. The
more Protestant and more secular eastern electorate has tilted the party
base away from its traditional core. As the 1990 elections demonstrated,
it was, however, significant that the CDU and not the SPD became the
primary party for eastern blue-collar workers.
In 1990 Chancellor Kohl promised that no one would be worse off
as a result of unification, yet unification exposed the reality of econ-
omic collapse, job losses and dependence. This confronted Bonn with
the immediate need to instigate new policies in an atmosphere of mas-
sive economic, social and emotional stress. As the major governing
party, the CDU/CSU had to wrestle with the dilemma of how to retain
popularity while pursuing painful policies. Its inability to provide im-
mediate relief led to mass disillusionment. Across the new Länder (where
the CDU won convincingly in 1990), CDU popularity dropped to the
20 per cent level, while SPD support rose to around 40 per cent.
At the same time, an influx of refugees made the asylum question
politically destructive. In this festering atmosphere, CDU popularity
eroded further. In the western bastion of Baden-Württemberg, the 1992
Landtag election resulted in significant gains by the far-right Republi-
can Party (Republikaner) and forced the CDU into a grand coalition
Roth, 1993: 1–20; see also Chapter 6 by P. Panayi in this book).
By early 1994, Helmut Kohl was down but not out. Benefiting from
96 William M. Chandler

a long awaited economic recovery, he again was able to engineer a

remarkable reversal of fortunes, first evidenced by a strong CDU/CSU
showing in the European elections of June 1994. Economic upturn, the
resolution of the asylum issue with the help of a change of the consti-
tution, plus victory in the federal presidential election of May 1994 all
contributed to a strong recovery, notably in the new Länder. Eastern
voters responded quickly to improving prospects. Despite this sharp
turnaround, CDU support in the 1994 Bundestag election remained
considerably weaker in the east than in the west. Only among western
voters was the CDU/CSU fully effective in mobilizing its core elector-
ate. Although these elections produced only a very slim overall major-
ity of ten seats between the government and all opposition parties
(however, when not counting the PDS’s 30 seats, the gap between the
government and the combined number of SPD-Green MPs amounts to
40 seats), they confirmed the stabilisation of CDU/CSU support.
As the Free Democrats have lacked a loyal electoral base through-
out the history of the Federal Republic, they always have had to rely
on ticket-splitting on the part of other party supporters. This has per-
petually put the FDP in danger of slipping below the crucial 5 per
cent minimum. However, unification appeared to strengthen the liberal
electoral base, and the 1990 campaign focus on Genscher and Lambsdorff
produced an enormous victory, with the FDP winning their first ever
direct mandate. Yet after 1990 the FDP squandered its electoral wind-
fall because of the party’s inability to transform immediate gains into
a solid base and a more modern organisation. By mid-1993, polls showed
a weakening of support for the FDP. Electoral defeats in a string of
seven consecutive Landtag elections prior to the October Bundestag
election – plus a weak 4.1 per cent in the June 1994 Euro-elections –
signalled a looming crisis of existence. In the general election of Oc-
tober 1994 the FDP absorbed massive losses compared to 1990 but
did survive, with 6.9 per cent. However, without firm roots or a stable
core, the FDP’s reliance on ‘itinerant’ voters remains an Achilles heel
(Søe, 1992: 32). In the public mind, the party no longer has a distinc-
tive role. In 1994 an estimated 63 per cent of FDP voters were strate-
gic ticket-splitters who identify more closely with the CDU/CSU (Jung
and Roth, 1994: 14).
With persisting dissension over the leadership of Klaus Kinkel, the
FDP tottered on the verge of extinction. Although the February 1995
Hessian Landtag contest provided a reprieve, the FDP’s crisis was in-
tensified by devastating setbacks in North Rhine-Westphalia and Bremen
in May 1995. These results meant that the FDP would be excluded
 The German Party System since Unification 97

from 11 of the 16 state legislatures and forced the resignation of Kinkel.

To a considerable degree, the FDP has been overtaken by the Greens
as the third party in the Länder. However, the new FDP leadership
consisting of chairman Wolfgang Gerhard and secretary-general Ingo
Westerwelle have vigorously attempted to establish the FDP as a mod-
ern capitalist party and have had some moderate success.

Trends on the Left

The collapse of communism caught the SPD off guard. The party’s
Ostpolitik of small steps to humanize authoritarianism in the GDR rested
on the assumption of the de facto permanent division of Germany.
When unification became unstoppable, adjustment was more difficult
for the SPD than for the CDU/CSU (for whom unification seemed natural,
even if wholly unexpected). Although by early 1990 public opinion
massively supported rapid unification, chancellor-candidate Oskar
Lafontaine warned against the economic problems associated with speedy
unification. This tactic divided the party and left the SPD out of step
with the wider public, especially in the new Länder. It also allowed
the chancellor and his majority coalition to capture the emotive ground-
swell of support for the fast-track to unity. By the time of the crucial
Volkskammer election in March 1990, the SPD had wasted its broad
but tenuous base in the east. In the 1990 Bundestag election, its 33.5
per cent marked its lowest share of the vote since 1957.
However, in the several Landtag contests between 1991 and 1994,
the SPD made significant gains in several Länder, pushing the CDU
out of power or forcing grand coalitions. Regional recovery has meant
a federalisation of power, with the SPD’s rising stars increasingly to
be found among its minister-presidents and opposition leaders in the
Länder (see Chapter 5 by C. Jeffery in this book).
After 1990, Björn Engholm assumed the leadership and served as a
moderating force, often opting for a pragmatic resolution of policy
issues rather than confrontational politics. But his sudden resignation
from all leadership posts in May 1993 threw the SPD into further dis-
array. The resolution of the leadership problem by means of an un-
precedented direct election by party members of the SPD’s national
chairman led to the election of Rudolf Scharping, the minister-president
of Rhineland Palatinate. This provided an unexpected boost to the SPD
just when Kohl was particularly unpopular. The leadership change fur-
thered the generational turnover that had been observed for some time.
It also restored both internal confidence and public approval. However,
98 William M. Chandler

the Scharping honeymoon with the electorate could not be sustained.

Late in the election campaign of 1994, as Scharping’s appeal faded
and Kohl’s image gained strength, the SPD resorted to a strategy based
on a leadership team personified in the troika of Scharping, Lafontaine
and Gerhard Schröder, the minister-president of Lower Saxony.
This led to the stabilisation of support for the SPD and to limited
gains (3.4 per cent) in the Bundestag election of October 1994, but
this fell short of what was necessary for a new coalition on the left.
At the party conference in Mannheim in November 1995 Scharping
was quite unexpectedly deposed as party chairman (though he remained
the SPD’s parliamentary leader) and Lafontaine managed to become
his successor.
With unification as the preoccupying question, the Bündnis 90/Greens
became temporarily irrelevant and lost their entire western parliamen-
tary delegation in the 1990 Bundestag election. This interruption by
no means signified the end of green politics, for recovery in the old
Länder became evident over the next three years. As Green popular
support revived to about 10 per cent, a Bundestag re-entry became a
virtual certainty. The 1994 results produced a modest but satisfying
return to federal politics for a more pragmatic Green alliance. However,
the demise of the eastern wing over the same period has meant that
the Greens have become a party heavily dominated by its western wing.
1995 regional election victories in Hesse, North Rhine-Westphalia
and Bremen attest to the expanding strength of the Greens in the old
Länder where it is assuming the role of third party, displacing the
FDP. Once the ‘anti-party’ party, the Greens have emerged as a force
of considerable experience at many levels: they are hardly outsiders
any longer. Considering the poor performance of the SPD opposition,
Joschka Fischer, one of the Green’s most prominent politicians and
former environment minister in Hesse, is regarded by many as the real
leader of the opposition in the Bundestag since 1994.
Due to the electoral rules exceptionally in effect for the 1990 elec-
tion, the 5 per cent minimum applied separately within two districts,
east and west. This permitted the PDS to gain a foothold of 17 seats
in the Bundestag, providing national exposure, which was effectively
exploited by the leadership of Gregor Gysi. At that time, many ob-
servers expected that, once the electoral law reverted back to a national
minimum of 5 per cent, the PDS could not survive as anything more
than a fringe party.
However, the unpopularity and organisational weakness of other parties
in the new Länder gave the PDS a chance to consolidate its base after
 The German Party System since Unification 99

1990. With a solid membership and local roots deriving from the former
SED, it became a voice of discontent among eastern German voters.
By 1994 the durability of the SED-successor had become fully evi-
dent. In all five eastern Landtag contests in 1994, the PDS substan-
tially advanced, winning on average an additional 5 per cent of the
popular vote. These gains attest to the diverse appeal of the PDS. It
cannot be labelled the party of the working class, despite its socialist
ideology, for its electorate is a social cross-section, consisting not only
of the disadvantaged.
It is worth noting that in the 1994 Bundestag election, reverse ticket-
splitting in key districts aided the PDS to win its direct mandates. An
estimated 18 per cent of second votes cast for the SPD and 25 per
cent of second votes given to the Bundnis 90/Grüne cast their first
ballot for the PDS candidate in the four crucial Berlin districts. Moreover,
the revival of the PDS blocked the chances of the SPD in the new
Länder, a trend already found in communal elections.

Populist Extremism

Following unification, disillusionment with the established parties widened

and deepened. As Germans increasingly voiced scepticism about the
competence of the established parties, the potential for protest and
extremism increased correspondingly. Although the far right remained
insignificant in the unity elections of 1990, it resurfaced in several
Land elections in conjunction with the economic slow-down and an
influx of asylum-seekers. By mid-1993, national support for the Re-
publican Party was slightly above the 5 per cent minimum, suggesting
a possible 1994 entry into the Bundestag. Such an outcome would
have plunged the party system into crisis and could have altered dra-
matically coalition alternatives, perhaps forcing a CDU/CSU-SPD grand
coalition. As in the 1966–9 period, the consequent lack of any major
party on the opposition benches could have then further intensified
rejection of the ‘cartel of élites’ in Bonn. Some two-thirds of extremist
support was based on diffuse discontent and frustration. When translated
into populist protest (Lepszy, 1993: 2), this made for an unstable elec-
torate, without firm social anchoring (Veen et al., 1993: 56–64; Roth,
1993: 17–19). However, when the numbers of asylum-seekers began
to diminish, partly due to the implementation of new restrictive proce-
dures, and as the economy began to recover, extremist appeals from
the far right dissipated. The CDU/CSU had successfully managed to
reintegrate many of the potential right-wing protest votes into its ranks.
100 William M. Chandler

COALITIONAL POLITICS SINCE UNIFICATION

Unification has provoked no reversal in the dominant role of the fed-

eral parties. Coalition formation has remained anchored in the triangu-
lar model in which two Volksparteien and one smaller pivot party,
define the three coalitional options (Smith, 1992: 79–83; Pappi, 1984;
Chandler and Siaroff, 1992). However, signs of new coalitional op-
tions, especially red-green alliances within the Länder, may suggest
the demise of the triangular model.
In Bonn, relations within the CDU/CSU majority party can be sum-
marised by the CDU’s relations with its two smaller partners, CSU
and FDP.
The relationship between CDU and CSU in the post-unity period
has undergone subtle but significant changes. From the perspective of
the CSU, two crucial developments reshaped its role. The 1988 death
of its charismatic leader Franz Josef Strauss obliged the CSU to renew
its leadership. Theo Waigel was chosen as party chairman, while in
Munich Max Streibl became minister-president. However, by late 1993,
scandals (notably the so-called Amigo affair) were undermining the
CSU’s traditional grip on Bavarian voters. When Streibl was replaced
by Edmund Stoiber, the CSU was able to overcome its internal crises.
The more vigorous leadership tandem of Waigel and Stoiber put the
CSU in a strong position for the electoral battles of 1994.
Unification also confronted the CSU with the reality of becoming a
smaller regional force in a larger Germany. While the CDU expanded
eastward through merger, the CSU’s effort at building a CSU-like DSU
in the new Länder faltered. Yet by 1994 the CSU, in the context of
economic recovery in the country at large, went on to impressive vic-
tories in the European, Landtag and Bundestag elections. The post-
Strauss and post-unity phase for the CDU-CSU relationship has become
one of relative harmony, evident in the cooperative partnership be-
tween Kohl and Waigel but enforced by the CSU’s realisation that it
has much less bargaining power in post-unification Germany than the
party had in the days of Franz-Josef Strauss.
The FDP’s coalitional significance is found in its pivot role rather
than in its popular base. Although the 1990 election results denied the
FDP its arithmetic balancer role, it emerged as the primary partner for
the CDU, ahead of the CSU, largely because the FDP was able to
expand eastward while the CSU, confined to Bavaria, lost leverage in
national politics. CDU-FDP relations were tested in the presidential
election of May 1994. With government popularity crumbling away in
the wake of recession, speculation mounted about a possible renewal
 The German Party System since Unification 101

of a social-liberal coalition after the 1994 general election. The FDP

candidacy of Hildegard Hamm-Brücher, a well-respected former for-
eign office minister, posed the question of the party’s intentions as far
as coalition-building was concerned. However, Kinkel remained op-
posed to any deal with the SPD, which could have provided the FDP
with a victory but would have split the coalition. Kinkel’s support for
the CDU’s candidate, former supreme court justice Roman Herzog, on
the decisive third ballot gave a psychological boost to Kohl as the hot
phase of the election campaign of 1994 unfolded.

For the opposition, significant SPD gains in the Länder have given the
party a controlling majority in the Bundesrat and a de facto power-
sharing with the Kohl government in Bonn. However, this also has
posed the internally very controversial question regarding the extent to
which the SPD should cooperate with the government and what alli-
ances it should pursue. Within the left, the main inter-party relations
have become those between the SPD and Bündnis 90/Greens (although
the PDS’s consolidation of its electoral support has complicated the
relations among the opposition parties in the new Länder). As the SPD
has emerged as the dominant party in many Länder and as the Greens
have advanced in most of the western Länder, red-green majorities
have become much more prevalent than in the past. Even though de-
bate over alliance strategy continues within all parties in the post-unity
period, there are three factors which account for the increasing viabil-
ity of the red-green option.
First, and most obviously, as the FDP has lost its representation in
most Länder, the party has almost vanished as a coalition partner for
either Volkspartei.
Second, although factional struggles have plagued the Greens through-
out their existence, the exit of hardline fundamentalists has cleared the
air and has given an advantage to the pragmatic wing of the party.
The increasingly mature and professional Greens have developed into
a party interested in sharing power. This internal transformation has
effectively altered their political style and made them more acceptable
to the SPD, signifying a normalisation of relations. In the February
1995 Hessian Landtag victory, Green professionalism produced popu-
lar gains, which translated for the first time into a major portfolio (Justice).
Three months later in North Rhine-Westphalia and Bremen as well as
in Schleswig-Holstein, while the SPD slipped, the Greens emerged as
clear winners and have become partners in government, though part-
ners the SPD finds it difficult to deal with.
Third, the presence of the PDS on the left has made the Greens
102 William M. Chandler

look less radical and therefore more acceptable to moderates in other

parties.
In the new Länder, SPD efforts to build up both organisation and
support have been made difficult by a revitalised PDS. With the left-
wing electorate split between these two, the CDU has been able to
stabilise its support in most of eastern Germany with the exception of
Brandenburg and former East Berlin. The presence of the PDS has
posed a strategic dilemma for the SPD: should exclusion or accommo-
dation define future relations with the reformed communists? The
Magdeburger Modell, that is, an SPD-Green minority government tol-
erated by the PDS (as developed in Saxony-Anhalt in June 1994) cre-
ated divisions within the SPD and became a political target for the
CDU/CSU’s attacks on the SPD during and after the many elections
in 1994.
Changing coalitional patterns in the Länder (as seen in Table 4.3)
reflect some of the post-unity complexities of German party politics.
Beyond the increasing viability of red-green alliances and the partial
demise of the FDP, indications of change at the Land level have been
seen in the transitory ‘traffic-light’ coalitions (Ampelkoalitionen) in
Bremen and Brandenburg, in the revival of grand coalition politics in
Berlin (1990), Baden-Württemberg (1992), Mecklenburg-West Pomerania
and Thuringia (both 1994), and in the SPD-Green minority govern-
ment in Saxony-Anhalt (Sturm, 1993).

Transition without Transformation

Historically, German party politics have been subject to periodic trauma

through war, regime collapse and dictatorship. Unification, although
positive in character, constitutes the most recent system shock. How
well has the post-war party system survived the strains of unification?
To what extent has the party system been reshaped? Several general
patterns appear evident.
Even when acknowledging the indisputable reality of the dealignment
phenomenon, what is striking in the recent German experience is the
remarkable endurance of the party system as a whole. Although unifi-
cation has brought disruptions and has provoked uncertainty to ‘poli-
tics as usual’ in the Federal Republic, the accession of the new Länder
has involved a process of incorporation that, on balance, has enhanced
the legitimacy of the German state, while simultaneously normalising
its international status. Thus, despite the turmoil of unification, the
party system has been contained within its institutional boundaries.
 The German Party System since Unification 103

Table 4.3 Coalition patterns: stability/change in the Länder

Land (Bundesrat seats) Unity phase, 1990–94 Post-1994

Bremen (3) 1991 Traffic light 1995 Grand Coalition
(SPD-FDP-Green) (SPD-CDU)
Hamburg (3) 1993 SPD accord 1994 SPD
with STATT Party
Schleswig- 1988 SPD; 1992 1996 SPD-Green
Holstein (4) SPD-Green reconfirmed
Lower Saxony (6) 1990 SPD-Green 1994 SPD
North Rhine- 1990 SPD 1995 SPD-Green
Westphalia (6)
Hesse (5) 1991 SPD-Green 1995 SPD-Green
reconfirmed
Rhine-Palatinate (4) 1991 SPD-FDP 1995 SPD-FDP
reconfirmed
Baden- 1988 CDU; 1992 1996 CDU-FDP
Württemberg (6) CDU-SPD
Grand Coalition
Bavaria (6) 1990 CSU 1994 CSU reconfirmed
Saarland (3) 1990 SPD 1994 SPD
Berlin (4) 1990 Grand Coalition 1995 CDU-SPD
(CDU-SPD) continued
Mecklenburg-West 1990 CDU-FDP 1994 Grand Coalition
Pomerania (4) (CDU-SPD)
Saxony-Anhalt (4) 1990 CDU-FDP 1994 SPD-Green minority
(Magdeburger Modell)
Brandenburg (4) 1990 SPD-FDP-B90 1994 SPD
(Traffic light)
Thuringia (4) 1990 CDU-FDP 1994 Grand Coalition
(CDU-SPD)
Saxony (4) 1990 CDU 1994 CDU reconfirmed

Sources: Sturm 1993, 123; Smith 1996, 68–9

The implantation of western party organisation and competition oc-

curred without fundamental alteration in the character of the existing
national party system, although some signs of change are more visible
within the Länder.
Despite the collapse of the GDR, including the fundamental restruc-
turing of its parties in the last days of this regime, since 1990 the
changes in the electoral bases of support have remained remarkably
incremental and modest in scope. Recent Bundestag elections have shown
no great popular reversals. If anything, they have tended to demon-
strate a consolidating effect, even allowing for a notable tendency towards
non-voting (Feist, 1994).
104 William M. Chandler

In contrast to 1990, the 1994 Bundestag elections suggest that, whereas

the two Volksparteien, CDU/CSU and SPD, have halted their down-
ward slide, the more significant changes apply to the smaller parties.
The Free Democrats have lost almost half of their 1990 vote and de-
spite a recent modest recovery are still an endangered species. The
Greens have recovered from a devastating defeat and appear positioned
to displace the FDP as Germany’s third force. The PDS has demon-
strated surprising regional strength. Its emergence as a viable opposi-
tion force marks an exception to the general case for endurance, but it
should also be remembered that this party is a residue of the past
rather than an expression of some new dynamic force.
A certain regionalisation of party electorates is evident across the
Länder. Comparisons of east–west voting patterns in the first five to
six years of unity suggest little evidence of convergence. Here party
competition appears to have crystallised into two broad patterns. In
the old (western) Länder, the Greens have expanded their base of sup-
port, while the FDP electorate to crumble. In the new Länder, a dis-
tinctive three-party configuration has developed. Here both Bündnis
90/Greens and FDP have faded away, leaving the PDS as the only
viable third party, but one that is unable to play the pivot role. Fi-
nally, even if it is not yet possible to decipher any emergent funda-
mental restructuring of the national party system and its electoral support,
more extensive change could be in store if the social and economic
problems of unified Germany remain unresolved. Ultimately, the en-
durance of the post-war governing model depends on a consolidation
of existing party loyalties. Should dealignment persist and extend, the
foundations of the established governing model would gradually erode.
As the increasing complexity of coalitional options within the Länder
attests, a loss of social anchoring and consequent fragmentation could
presage the emergence of some new party balance.

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der deutschen Vereinigung’, in Niedermeyer, O. and Stöss, R., eds, pp.
37–74.
Schultze, R.O. (1994), ‘Aus Anlass des Superwahljahres: Nachdenken über
106 William M. Chandler

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no. 3, pp. 472–93.
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in Padgett, S., ed., pp. 171–89.
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W.E., Padgett, S., eds, Developments in German Politics 2 (London:
Macmillan), pp. 55–75.
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Padgett, S., ed., pp. 87–101.
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Developments in German Politics (London: Macmillan).
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in the Federal Republic (New York: Holmes & Meier).
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(Westport, Conn.: Praeger).
5 German Federalism in the
1990s: On the Road to a
‘Divided Polity’?
Charlie Jeffery

One of the central debates about contemporary Germany concerns the

extent to which the established political structures and policy processes
of the pre-unification Federal Republic can absorb the shock of incor-
porating the new Länder of the former GDR. Some, most recently Douglas
Webber (1995), have identified a high capacity for adaptation in the
structures and traditions of the ‘old’ Federal Republic and for accom-
modating the former GDR without undue disruption. Others, though,
have argued that the incorporation of the former GDR will, over time,
produce ‘far-reaching’ (Lehmbruch, 1990) or even ‘fundamental’ (Veen,
1993) change. The latter has been the case particularly in assessments
of the impact of unification on the federal system in Germany. A number
of the most prominent commentators on German federalism – Heidrun
Abromeit (1992), Arthur Benz (1991), Jens Hesse and Wolfgang Renzsch
(1990), Hartmut Klatt (1993), Fritz Scharpf (1990, 1994) and Roland
Sturm (1991) among them – all predicted in the aftermath of unifica-
tion that, on balance, the integration of the five new German Länder
into the federal system would modify the relationships between Länder
and central institutions in favour of the centre, in particular the federal
government. Common to these assessments was the view that unless
the federal system underwent far-reaching reform, the divergences of
interest between eastern and western Länder thrown up by the prob-
lems of transformation in the east would predispose the eastern Länder
to accept a high degree of federal intervention in their affairs. This
would result in a net process of political centralisation and imply a
‘permanent loss of substance’ (Sturm and Jeffery, 1993) for a federal
system designed to deconcentrate and disperse power between federal
and Länder institutions.
This prospect of centralisation and ‘loss of substance’ was enhanced
by a second challenge to the balance between the federal state and the
Länder identified by these authors at the time of unification: the de-
bates and negotiations on the future of European integration launched

107
108 Charlie Jeffery

at the end of the 1980s which were to lead to the Maastricht treaty on
European union. Since the 1950s, the European integration process had
typically tended to tip the internal balance between federation and Länder
in favour of the former, and now stood to compound the tendency to
centralisation which unification was seen to have encouraged. As a
result, Germany, according to Scharpf (1994: 55), was moving ‘a big
step closer’ to becoming, in effect, a unitary state.
These are the issues which this contribution seeks to review more
than half a decade on from unification. The chapter seeks to assess
whether the situation observable in 1996/7 confirms, modifies or rejects
the pessimistic prognoses made in the aftermath of unification in the
early 1990s. Its first section identifies the inheritance of federal state–
Länder relations bequeathed by the ‘old’ Federal Republic. Section two
then sets out the dual challenge posed for the inherited procedures and
balance of the federal system by unification and deepening European
integration back in 1990–1 before examining the options which were
discussed at the time for meeting those challenges. The third section
discusses the way these challenges were (in the case of Europe) or
were not (in the case of unification) met. The final section then seeks
to exemplify the practical policy implications of these developments
by focusing on the highly divergent roles eastern and western Länder
have come to play in regional economic policy, traditionally a litmus
test of the wider policy role performed by the Länder. This will lead
to a conclusion which, building on Roland Sturm’s image of a polity
divided between old west and new east (Sturm, 1993a: 110), broadly
reaffirms the pessimistic tide of opinion about the future of the federal
system expressed in the immediate aftermath of unification.

THE INHERITANCE FROM THE ‘OLD’ FEDERAL REPUBLIC

The Structures of Cooperative Federalism

Any assessment of the impact of unification on the German federal

system requires a brief review of the character and evolution of the
pre-unification federal system, in particular of the way that the interre-
lationships of federation and Länder had been shaped prior to 1990.
These interrelationships were highly distinctive. Neither the federal nor
the Länder levels possessed a great range of exclusive fields of com-
petence in which they were responsible both for the formulation and
the implementation of legislation. Exclusive powers were held by the
 German Federalism in the 1990s 109

federation in foreign affairs and defence, citizenship and migration,

currency, customs and trade, rail and air transport, post and telecom-
munications, some aspects of policing and internal security, and a number
of other more minor areas. The exclusive powers of the Länder were
restricted to aspects of educational, cultural and media policy, and
policing. Other policy areas – the vast majority – were subject to some
form of shared competence. In most cases the federal level had the
power of legislation and the Länder (or more precisely the govern-
ments of the Länder) the corresponding power – in terms of financial
and technical resources and personnel – to implement that legislation.
Moreover, the federal level lacked extensive supervisory powers over
the implementation process. Article 83 of the Basic Law awarded the
Länder a high level of discretion in implementing federal law ‘as matters
of their own concern’ and in the light of the particular circumstances
which exist in each Land. This pattern of federal legislation combined
with discretion in Länder implementation was one which became ever
more pervasive after the establishment of the Federal Republic in 1949.
Its pervasiveness was the result of a gradual but persistent process of
constitutional and procedural adaptation which was justified by the
requirement in Articles 72 and 106 of the Basic Law that ‘living con-
ditions’ should be broadly ‘uniform’ across the Federal Republic, in
other words that general national standards of legislation should nor-
mally apply across the Federal Republic as a whole.
The division between federal legislation and Länder implementation
created a relationship of interdependence between the federal govern-
ment and the Länder governments. Because the Länder governments
possessed the lion’s share of implementive responsibility, resources
and expertise, their input and know-how was required by the federa-
tion in order for it to formulate effective legislation. As a result, they
were increasingly drawn into the co-formulation of federal legislation
alongside the main initiator of legislation, the federal government. This
co-formulation role was facilitated and strengthened by the position of
the Bundesrat, the legislative body of the Länder governments on the
federal level, which acts as Germany’s second parliamentary chamber
alongside the directly elected Bundestag. The Bundesrat’s legislative
power is based on the absolute veto it possesses over all federal legis-
lation deemed to affect the interests, duties or administrative procedures
of the Länder (alongside a lesser, suspensive veto over all other fed-
eral legislation). Buttressed by supportive decisions of the federal con-
stitutional court (Blair, 1991: 70–2), the Bundesrat was able to secure
a broad definition of the scope of its absolute veto power to cover, by
110 Charlie Jeffery

the 1980s, some sixty per cent of all federal laws. The scope of the
absolute veto strengthened the imperative on the federal government
to bind the Länder into the process of co-formulating federal legisla-
tion, and thus cemented the relationship of interdependence inherent
in the division of legislative and implementive powers between fed-
eration and Länder.
An important variant on this pattern of interdependence was intro-
duced by a series of constitutional reforms enacted in 1969. These
redesignated former Länder responsibilities in the fields of university
construction, regional economic development, agricultural structures and
coastal preservation as the so-called ‘joint tasks’ of federation and Länder.
These reforms were justified by a modified version of the principle of
maintaining a uniformity of living conditions across the federation:
the inability of the Länder otherwise to fund high expenditure policy
fields which were important, according to a new Article 91a of the
Basic Law, in the ‘improvement of living conditions’ of ‘society as a
whole’. Policy responsibility in these fields was subsequently exer-
cised jointly by the federal government and the Länder governments,
setting the seal on the emergence of what became known as ‘coopera-
tive’ federalism in Germany: a relationship of interdependence in the
making of nationally applicable legislative standards, which was con-
ducted through an ongoing process of coordination between the two
levels of government.
A crucial point to note at this stage is that for cooperative federal-
ism to work effectively from a Länder perspective, the Länder had to
be able to generate a strong collective voice in order to make their
implementive expertise, their Bundesrat veto and their ‘joint task’ role
count in framing national legislative standards. Cooperative federalism
therefore required a high degree of solidarity among the Länder. An
important mechanism for maintaining this solidarity was the Federal
Republic’s system of financial equalisation. Rudimentary financial equali-
sation mechanisms had existed since the foundation of the Federal
Republic in 1949, but only reached their fully fledged form in reforms
passed in 1969 to accompany the entrenchment of cooperative federal-
ism through the ‘joint tasks’. These established a highly complex equal-
isation system which redistributed resources according to fixed formulas
both vertically (between federation and Länder) and horizontally (be-
tween more and less affluent Länder) and were designed to ensure that
each Land had more or less the same level of income per head of
population. This process of resource redistribution was supposed to
guarantee that each of the Länder had both sufficient and similar levels
 German Federalism in the 1990s 111

of resources for the fulfilment of their various constitutional responsi-

bilities and could not, as a result, be ‘divided and ruled’ by the addi-
tional financial incentives a hypothetically devious federation might
offer to any Länder suffering temporary or structural financial weakness.

The Weakening of Cooperative Federalism in the 1980s

The 1969 financial equalisation reforms were designed to fine-tune the

relatively minor disparities in resource base which existed in a then
economically relatively homogeneous Länder community. This was a
task they performed effectively enough in the 1970s. However, the
long-term effects of the recessions of the 1970s and early 1980s had
produced, by the mid-1980s, far wider economic disparities than the
financial equalisation had been designed to bridge. These disparities
reflected the growing economic divergence between a predominantly
northern ‘rust-belt’ of Länder facing structural economic decline, par-
ticularly in heavy industry, and a group of predominantly southern ‘blue
chip’ Länder which had proven successful in exploiting new technol-
ogies to ensure continuingly high levels of economic growth. Widen-
ing inter-Länder disparities placed tremendous pressure on the financial
equalisation system. This, as noted above, was geared towards the
equalisation of income per capita in each Land. It therefore provided
(at the growing expense of the economically stronger Länder) com-
pensation to the economically weaker for the declining income levels
caused by economic decline. It however took no account of the higher
expenditures per capita – on social security and structural adaptation
policies – which economic decline generates. As a result, the economically
weaker Länder increasingly felt that the financial equalisation system
was no longer adequate for their needs and sought to extract higher
contributions from the economically stronger Länder. The latter, un-
derstandably, were not keen to be penalised for their economic suc-
cess and equally sought to limit their contributions to the equalisation
mechanism.
The result was a partial breakdown of inter-Länder solidarity which
led to a number of complaints about the (depending on the perspec-
tive) supposedly inadequate or over-generous redistributive effects of
financial equalisation being brought by representatives of both groups
of Länder before the federal constitutional court (Mackenstein and Jeffery,
forthcoming). More importantly, the growing divergence of economic
and financial interests threatened to create a lasting strategic divide in
Länder priorities. The financially weaker Länder displayed an increasing
112 Charlie Jeffery

propensity to look to the federation for financial assistance, for exam-

ple in the 1988 Structural Aid Law and the discussions, led by Lower
Saxony, which preceded it (Exler, 1993: 25–6). Some of the more af-
fluent Länder – notably Baden-Württemberg, Bavaria and North Rhine-
Westphalia – on the other hand sought in part to turn away from their
obligations to their weaker counterparts – and more broadly from co-
operative federalism – by devoting their greater resource base to sup-
porting autonomous Länder policies, most notably in the field of regional
economic policy (Götz, 1992; Jürgens and Krumbein, 1991).
The growing divergences of interest and strategy which became evi-
dent in the 1980s threatened to knock the established mechanisms of
cooperative federalism out of equilibrium, opening up for the federa-
tion the opportunity to drive a wedge between the two groups of Länder
and thus to impose its priorities on a fractious Länder community. The
full effect of declining inter-Länder solidarity had not, however, be-
come clear by the time unification emerged to dominate the political
agenda in Germany. It did, though, point to a growing prospect of the
Länder losing their ability to act collectively as a counterbalance to
the federation. This prospect of a shift in the balance between federal
state and the Länder in favour of the federation was significantly en-
hanced following the incorporation of the five new Länder of eastern
Germany into the federal system in 1990.

THE CHALLENGES OF UNIFICATION AND EUROPEAN

INTEGRATION I: THE PROBLEMS

The East–West Divide

The central problem faced by the new Länder after unification has
been the economic near-collapse in the east which followed German
economic and monetary union in July 1990 and the slow pace of econ-
omic reconstruction ever since (see Chapter 3 by C. Flockton in this
book). The economic problems of transformation have inevitably posed,
in their wake, immense financial problems for the new Länder. The
low level of economic activity in the east means that the new Länder
raise far fewer tax revenues per head of population than their western
counterparts. At the same time, though, they face far higher expendi-
ture burdens per capita. These reflect in part the costs of social dislo-
cation and economic reconstruction – including massive outlays on
improvements to the communications and environmental infrastructure
 German Federalism in the 1990s 113

– thrown up by the transformation process. More broadly, though, they

have also reflected the immense burden, imposed by the treaty of uni-
fication, of assuming the ‘acquis fédéral’ accumulated by the western
Länder over the forty years since the Federal Republic was founded in
1949 (Jeffery, 1995: 257).
The combination of low income and extraordinarily high expendi-
ture created a tremendous potential for distributional conflict between
east and west, far greater than that carried out over financial equalisa-
tion between economically stronger and weaker Länder in the west in
the 1980s. In addition, the difficulties of the transformation process in
a more general sense created policy priorities in the east vastly differ-
ent from (and therefore difficult to coordinate with) those which had
been developed in the west. The implications of such a deep east–west
divide for a cooperative federal system in which the role of the Länder
was primarily based on the generation of a collective voice vis-à-vis
the federation were clear. Some kind of far-reaching reform was clearly
necessary if the expanded and far more diverse Länder community of
the 1990s was to retain an ‘efficient’ (Sturm and Jeffery, 1993: 174)
role in German government in the future. As Fritz Scharpf (1994: 58)
drily noted: ‘German federalism can only win or lose in the coming
years, but it cannot remain as it was before’.

Accommodating the New Länder: Options for Reform

A clear window of opportunity to seek reform was given by the terms

of unification in 1990. Firstly, any immediate pressure on the financial
equalisation system was avoided under the terms of the treaty on econ-
omic and monetary union of July 1990. This made provision for the
establishment of a German Unity Fund, co-financed by federation and
western Länder, which was intended as a substitute for the financial
equalisation in the new Länder until the end of 1994, by when a more
enduring solution to the equalisation problem was to be found. This
solution on financial equalisation was supplemented by a provision in
the October 1990 treaty of unification. It allowed for wider discussion
of constitutional changes which were deemed necessary to shore up
the federal system after unification. Together these provisions gave the
Länder a breathing space to consider the options for reshaping and
revitalising the federal system for the post-unification context.
The options for reform which were considered can be divided into
three main groups – legislative competences, financial equalisation, and
territorial reform. Significantly, they revealed two competing and to a
114 Charlie Jeffery

large extent contradictory (Jeffery, 1995: 258–60) directions for re-

form, the one implying a revamping of the inherited structures and
practices of cooperative federalism, the other a move away from coop-
erative federalism. The first group of reform proposals – by no means
representing a consensus view across the Länder community (Jeffery,
1995: 261–2) – suggested a partial move away from the ethos of co-
operative federalism and foresaw a change in the division of competences
between federation and Länder. The prime concern here was to restore
to the Länder more exclusive competences in part by returning the
fields covered since 1969 by ‘joint task’ arrangements to Länder juris-
diction, and more generally by rejigging the distribution of legislative
competences in the Basic Law in favour of the Länder. The aim was
evidently for the Länder not to have all their eggs in the now rather
dubious basket of cooperative federalism, but rather to break some of
the ties of interdependence with the federation and move more gener-
ally towards the more autonomous policy role some had begun to de-
velop in the later 1980s.
The reform discussion centred secondly on the possibility of reform
to the financial equalisation process. A simple incorporation of the
new Länder into the existing system would, quite simply, have ruined
most of the western Länder, but would still not have addressed fully
the extraordinary expenditure needs faced in the east (Peffekoven, 1990:
348). The only conceivable outcome would have been the financial
dependence of both east and west on the federation. Some kind of
rethink was therefore necessary which could take into account the ex-
penditure side of the equation, while leaving all of the Länder in east
and west in the position to carry out their constitutional responsibilities
and maintain an effective balance between Bonn and the Länder. A
wide variety of ideas were discussed (see Jeffery, 1995: 264–5) which
focused in essence on two alternative approaches: the first supported
the mooted move away from cooperative federalism proposing to grant
the Länder the necessary fiscal autonomy to support a more auton-
omous legislative role; the second sought to shore up cooperative fed-
eralism by ploughing sufficient additional resources into the new Länder
(either through the equalisation mechanism or through separate, tar-
geted grants) to secure a viable basis for maintaining inter-Länder soli-
darity across the east–west divide.
Many of the suggestions on financial equalisation – of both variants
– were accompanied by proposals for a territorial reform of Länder
boundaries. Territorial reform had long been a topic for debate in the
‘old’ Federal Republic before 1990 (Sachverständigenkommission, 1973),
 German Federalism in the 1990s 115

where Länder boundaries had been set largely according to the mili-
tary and diplomatic considerations of the post-war occupation zones
rather than any ‘technocratic’ (Benz, 1993: 38–9) administrative or
economic criteria. The debate flared up again after unification when
the short-lived (and equally ‘untechnocratic’) Länder in the former Soviet
zone of occupation, abolished in 1952, were revived as part of the
unification process. The aim of the proponents of reform (for an over-
view of the debate, see Presse- und Informationsamt der Bundesregierung,
1993, vol. 7, section 1.2.2.2) was to create out of the haphazard, post-
unification map of sixteen Länder of widely varying size, population
and economic potential a new map of seven or eight Länder of broadly
equivalent size, population and (in the case of the east, long-term)
economic potential. A smaller number of larger Länder would, it was
argued, have been administratively and economically more efficient
and would have removed some of the controversies of financial redis-
tribution. Such Länder would also – depending on the preferred view-
point – have been easier to coordinate with one another vis-à-vis the
federation and could therefore help to shore up cooperative federal-
ism, or would have provided a more effective basis for a more auton-
omous Länder policy role and a move away from cooperative federalism.
The contours of the reform debate certainly suggested a widespread
conviction in the Länder that, as Scharpf suggested, some form of decisive
action needed to be taken to secure the future role of the Länder in the
federal system. Importantly, though, it was also evident that no clear
agreement existed as to how reform should be approached, with two
broad alternative strategies emerging, the one committed to revitalis-
ing the inheritance of cooperative federalism in the new 1990s con-
text, the other looking to a more autonomous Länder role distanced
from the traditional pattern of interdependence with the federation. This
divergence in responses to the challenge of unification had important
implications for the outcome of the reform debate, and is discussed
further below. First, though, attention is given to the simultaneous
challenge posed at the start of the 1990s by the European integration
process.

European Integration and German Federalism

The problem here was in some respects even more fundamental than
that posed by unification. Rather than undermining the solidarity of
the Länder in their dealings with the federation, the mechanics of the
European integration process tended to tilt the broader, overall balance
116 Charlie Jeffery

of relationships between federation and Länder to the detriment of the

Länder. The central problem was that European policy was defined as
a foreign policy responsibility and thus fell under the exclusive com-
petence of the federation. This had two main implications. Firstly, the
federal government possessed the sole right to transfer the sovereign
powers of the Federal Republic to European institutions, including those
powers hitherto exercised or co-exercised by the Länder. Such trans-
fers of sovereignty, over which the Länder had no constitutionally
guaranteed right of control, could therefore undercut the rights of the
Länder in their remaining exclusive fields of legislative responsibility.
Importantly, transfers could also undermine the implemention-based
input of the Länder into any federal-level powers transferred to the
European level where the Länder had previously played an interde-
pendent role alongside the federation. Although the Länder are still
responsible domestically for implementing the lion’s share of legisla-
tion enacted at the European level, they generally have less discretion
in doing so than in the implementation of federal laws, particularly
where European regulations, with direct binding effect in the member
states, are concerned (Bulmer and Paterson, 1987: 190). Adding insult
to these injuries to Länder legislative and implementive competences,
the federal government was then able, on the basis of its powers in
foreign relations, and through its seat on the Council of Ministers, to
help shape legislation in Brussels in areas of responsibility previously
exercised by the Länder. Such transfers of sovereign powers often had
the effect – normally de facto and rarely de jure – of amending the
distribution of competences in the Basic Law to the detriment of the
Länder and to the (indirect) benefit of the federal government.
The problems raised by this indirect shift of responsibilities from
Länder to federation had been experienced, with uneven intensity, since
the establishment of the European Coal and Steel Community in 1951.
They became, however, especially severe from the mid-1980s, when
the Single European Act produced the biggest integrative ‘jump’ since
the Rome Treaties and also laid the groundwork for the further ‘jump’
which was ultimately set out at the Maastricht European Council at
the end of 1991. Although the Länder had, over time, managed to
accumulate a number of procedures which enabled them to be con-
sulted and to comment on European level initiatives (Bulmer and Paterson,
1987: 191–5), they lacked full, constitutional rights of input into the
European policy process either within the Federal Republic or in Brussels.
The acceleration of integration in the 1980s created a new imperative
to secure such rights. Initial progress was made in the discussions between
 German Federalism in the 1990s 117

the federal state and the Länder which accompanied the ratification of
the Single European Act (Hrbek, 1991: 92–8). More importantly, though,
the Single European Act raised a collective awareness among the Länder
of the potential dangers posed to their position by a ‘deepening’ EC.
The result was the preparation of a coherent, collective Länder strat-
egy for meeting the challenges of European integration which could
be – and, in negotiations surrounding the Maastricht treaty, was –
mobilised to secure a fuller Länder role in the European integration
process.
The strategy of the Länder was characterised by the employment of
three different approaches (Jeffery, 1994: 7–25). The first sought to
exert greater control over the federal government’s European policy,
more or less by subjecting this policy to the internal procedures of
cooperative federalism. Here, the Länder were concerned on one level
to restrict the federal government’s right to transfer sovereign powers
both where their exclusive powers of legislation and their cooperative
powers of implementation were concerned. They were also concerned
to establish a fuller role in the wider, day-to-day process of European
policy-making within the Federal Republic. Secondly, they were con-
cerned to enter into direct relations with European institutions in policy
fields which fell domestically under their exclusive legislative compe-
tence. And thirdly, and as a rather more long-term aim, they hoped to
generate and shape a wider subnational voice in the EC which could
be brought to bear on European policy-making and lend a broader base
of support across the EC for their European policy aims.

THE CHALLENGES OF UNIFICATION AND EUROPEAN

INTEGRATION II: THE OUTCOMES

Unity and Success in the European Arena

Quite remarkably, the Länder made substantial progress on achieving

all of these aims in the domestic and international negotiations and
debates which surrounded the formulation and ratification of the
Maastricht treaty. Two factors facilitated these achievements. First,
compliance with the terms of the Maastricht treaty on EU citizenship
and economic and monetary union required amendments to the Basic
Law. Such amendments are subject to the support of two-thirds of the
Bundesrat and gave the Länder, through the Bundesrat, a veto power
over the ratification of the treaty. The federal government, as a prime
118 Charlie Jeffery

mover behind Maastricht, was unwilling to countenance any threat of

German non-ratification, and was therefore under pressure to make
substantial concessions to the Länder. Secondly, and in order to make
this veto power credible and operative, the Länder succeeded in main-
taining a tightly united front throughout the Maastricht debates. This
reflected the unifying force of the common, external threat posed by
the deepening integration process and, as a result, the carefully coor-
dinated preparation of European strategy which followed the Single
European Act. The united front was, moreover, in no sense weakened
by the incorporation of the new Länder, although this probably had
more to do with the inexperience of the new Länder in European af-
fairs and their preoccupation with, for them, far more pressing dom-
estic problems than any deep-seated unity of European interest with
their western counterparts.
As a result, Länder unity endured, and was mobilised to secure con-
cessions in the treaty itself and a number of domestic constitutional
changes. The latter were enshrined mainly in a new Article 23 of the
Basic Law, whose effect was to break the exclusive power of the fed-
eration in European policy and to extend cooperative federalism ar-
rangements to the domestic process of European policy-making. The
Länder won, through the offices of the Bundesrat, a veto over all fu-
ture transfers of sovereignty to the EU, thereby ensuring for them-
selves input into the disposal of both their exclusive powers and their
implementive role in the federal legislative process. They also won
full rights of information and consultation in day-to-day German European
policy-making to the extent that where their legislative powers or their
‘authorities and administrative procedures’ are concerned, their word
is normally ‘decisive’. Again, this solution covers both their own ex-
clusive legislative powers and their work in implementing federal legis-
lation, and would seem to offer effective protection against what had
previously been for them the detrimental and inaccessible mechanics
of the European policy process.
Additional protection was given by the clauses inserted under Länder
pressure into the Maastricht treaty. Most importantly and concretely,
the Länder (working in coordination with the Belgian regions) were
able to secure a right for representatives of the Länder to sit for the
Federal Republic on the Council of Ministers in policy areas (mainly
in education and culture) where the Länder hold responsibility dom-
estically. Länder pressure was also decisive in securing the establish-
ment of the Committee of the Regions in the treaty, and in shaping
the final wording of the subsidiarity clause in Article 3b. Though neither
 German Federalism in the 1990s 119

was entirely what the Länder had envisaged (see Jeffery, 1994: 10–11),
both offer direct or indirect opportunities for subnational input into the
European integration process and can be seen in part at least as initial
fruits of extensive efforts made by the Länder in the run-up to Maastricht
to generate a wider subnational lobby in European affairs (cf. Jeffery,
1994: 9–10, 20–5).

By any standards, the negotiating efforts of the Länder in and around

Maastricht were extremely successful and have done much to meet the
challenge posed by European integration to the wider balance between
the federal state and the Länder. The Länder have certainly created a
favourable framework for asserting their interests in EU-related matters.
The key to this success was undoubtedly the united front they were
able to bring to bear on the Maastricht process. A note of caution has,
however, to be entered at this point. It is not entirely clear that the
Länder will be able to maintain their sense of unity over European
policy in the coming years in the practice of using the new powers
gained in and around Maastricht. This is a point the discussion returns
to later. It is prefigured, though, in an examination of the less than
satisfactory outcomes of the reform debate sparked by the domestic
challenge of unification. Here, as the following discussion makes clear,
the Länder were unable to maintain a unity of purpose, and as a result
failed to confront effectively the problems raised by the east–west divide
created by unification.

Division and Non-reform in the Domestic Arena

Put baldly, no significant progress was made in reshaping the federal

system in the light of the challenges posed by unification. This scen-
ario of non-reform applied equally to the ideas mooted for adjusting
the distribution of legislative competences, for overhauling the finan-
cial equalisation system and for redrawing the territorial boundaries of
the Länder. Territorial reform, after an initial flurry of debate in the
Länder, soon emerged as a non-starter. Despite the vociferous advo-
cacy of Hamburg, supported to greater or lesser extents by Schleswig-
Holstein, Baden-Württemberg and North Rhine-Westphalia (Presse- und
Informationsamt der Bundesregierung, 1993: vol. 7, sections 1.2.2.1
and 1.2.2.2) the reform impetus stumbled on three hurdles (Benz, 1993:
50–2; Presse- und Informationsamt der Bundesregierung, 1993: vol. 7,
4522). Firstly, reform would have been a protracted, expensive and, in
the short term, administratively disruptive process. A consensus emerged,
120 Charlie Jeffery

particularly in regard to the eastern Länder struggling anyway with the

problems of administrative reconstruction, that territorial reform would
be an unnecessary distraction. Secondly, there was considerable popu-
lar opposition in the east to any change in the boundaries of the Länder
reconstituted in 1990. The reconstitution of the territorial units abol-
ished by the GDR regime in 1952 was a heavily symbolic feature of
the transition to democracy. Any move to redraw their boundaries (be-
yond the merger of Berlin and Brandenburg proposed in the treaty of
unification but rejected by the two states’ parliaments in early 1996)
would have been an uncomfortable echo of what happened in 1952.
And thirdly, there were also considerable popular attachments to exist-
ing Länder boundaries in the west, but, probably more importantly,
extremely strong attachments to those boundaries among the politi-
cians and civil servants of some of the Länder – Bremen, Saarland
and Rhineland-Palatinate – whose positions were likely to be affected
by any reform.
Equally, but for reasons indicative of the wider problems of the post-
unification federal system, no far-reaching changes came to be insti-
tuted in the fields of financial equalisation and legislative competences.
Rather, differences in priority and strategy among the various Länder
cancelled each other out in reform discussions and produced ‘fudges’
which left the bases of the existing system untouched. Regarding financial
equalisation, any considerations of the urgency of reform were sub-
merged under narrow and short-term calculations of immediate financial
self-interest. Especially instructive were the detailed proposals for reform
put forward by a number of the western Länder – Hesse, Baden-
Württemberg, Bavaria, Saarland and Bremen – during 1992. These,
with the honourable exception of Bremen (but only just), managed to
burden the home Land less than all the other competing proposals. In
similar, self-interested vein, clear indications emerged towards the end
of 1992 that the eastern Länder were preparing to cut a deal with the
federal finance minister Theo Waigel which would be highly disad-
vantageous to the ‘old’ Länder (Jeffery, 1995: 265–6).
In the end though, the Länder ultimately managed to unite on – and
eventually implement against federal opposition – probably the only
course of action which could have produced consensus among them: a
vast transfer of additional funds at the expense of the federation to
prop up the existing system of financial equalisation. This ‘solution’
to the financial equalisation problem was of course trumpeted as a
vital success for the Länder and for the federal system (Jeffery, 1995:
268). A more sober assessment would suggest otherwise. The equalisation
 German Federalism in the 1990s 121

system remains income-oriented, and takes no account of the differen-

tial expenditure needs faced in different parts of the Länder commu-
nity, but in particular in the east. A continuation of income-based form
of equalisation, given the experiences of the 1980s in the west, pres-
ages future conflict between stronger and weaker Länder around the
east–west divide (especially in light of the difficulties in papering over
the differences of perspective which emerged between the Länder dur-
ing the 1992 reform debate).
A similar outcome of non-reform emerged in the debate over the
distribution of legislative competences. The proposals to restore legis-
lative competences to the Länder and move away from cooperative
federal arrangements were championed by Hesse and Baden-Württemberg
– the two Länder with the highest per capita incomes in the Federal
Republic and, therefore, with the soundest financial basis to pursue a
vision of enhanced legislative autonomy. Support for their proposals
was conspicuously lukewarm among other western Länder, and was
wholly absent in the east. The priority of the new Länder was, above
all else, to haul up living standards towards the western level, not to
extend, or even necessarily to preserve autonomy. This latter point
was clearly illustrated by Gottfried Müller, President of the Thuringian
Land Parliament, in May 1992:
The enormous legislative catching-up process which the parliaments
of the new Länder are having to undertake leaves us groaning too
much under the weight of existing Länder competences to regret
their diminution in favour of the federation. (Gemeinsame Verfassungs-
kommission, 5. Sitzung, 7 May 1992: 9)
The net result of these conflicting viewpoints was a wholesale fail-
ure by the Länder to make use of the opportunity presented to them in
the treaty of unification to reshape the constitutional bases of the fed-
eral system. Differences of perspective again largely cancelled each
other out, leaving the inheritance from the ‘old’ Federal Republic broadly
intact (Jeffery, 1995: 260–3). The Länder therefore remain bound into
a distribution of competences in which the effectiveness of their input
remains dependent on maintaining a high degree of inter-Länder soli-
darity vis-à-vis the federation.
What has emerged, in other words, is a no more than marginally
modified version of the status quo ante of 1989. As was argued earl-
ier, this status quo was increasingly inadequate to the task of main-
taining an effective balance between federation and Länder before 1990.
If that is the case, it is hardly likely to provide for such a balance in
122 Charlie Jeffery

the far more difficult circumstances of the 1990s. The German federal
system is thus highly vulnerable to the dangers which had become
apparent at the end of the 1980s: a punctured solidarity, clashes of
financial interest and, as a result, the opportunity for a divide-and-rule
strategy of the federal government.
These dangers have been manifested in a number of ways since 1990.
Firstly, the new Länder have demonstrated a readiness to meet sepa-
rately from their western counterparts to formulate common positions
on a range of policy areas where the transformation has placed par-
ticular burdens on them: for example school and university education,
social policy, trade with eastern Europe and, in particular, budgetary
matters (Sturm, 1993b: 122–4; 1994). The prominence of the latter
budgetary issue has been, of course, a reflection of an economic and
financial weakness, which has predisposed them, secondly, to accept
high levels of federal intervention in their policy programmes in re-
turn for financial support. This was a pattern established in the period
directly after unification, when agreement was reached for the federa-
tion to play a limited, transitional role in financing new Länder policy
responsibilities in economic reconstruction (the ‘joint task’ for recov-
ery in the east) and even in the core areas on exclusive Länder compe-
tence, education and culture. As Hartmut Klatt (1993: 10–12) warned
at the time, the danger clearly existed, given the long-term economic
weakness of the new Länder, that such support would become institu-
tionalised and leave a persistent divergence in the quality of the rela-
tions between the federal state and the Länder in east and west. This
seems to have become the case in key policy areas like higher educa-
tion (Neuweiler, 1994: 11) and health-care provision. Concerning the
latter, for example, Regine Hildebrandt (1994: 25) has noted that ‘Land-
level efforts alone will not be sufficient to meet fully the catch-up
demand for hospital provision’ in the east, with the result that the new
Länder have negotiated a ten-year programme for co-financing hospi-
tal investment with the extensive support of federation and the health
insurance funds. Extended and extensive support of this kind would
seem to give substance to Klatt’s warning. The scenario which exists
is one, to follow Roland Sturm’s (1993: 110) description, of ‘policy-
making for a divided polity’, a scenario which runs counter to the ethos
and procedures of the flawed inheritance with which the Länder, despite
the reform debates of the early 1990s, are still lumbered.
 German Federalism in the 1990s 123

THE DIVIDED POLITY: REGIONAL ECONOMIC POLICY IN

THE NEW FEDERAL REPUBLIC

This scenario can be illustrated especially clearly in the field of re-

gional economic policy. This is a field of policy which, for obvious
reasons, is of central importance to the Länder. It is also a field which
has tended to exemplify wider changes in the pattern of the relations
between Bonn and the Länder in policy-making since 1949. In the
early years of the Federal Republic, regional economic policy was
considered to be one of the exclusive fields of competence of the Länder.
By the 1960s, however, changing policy problems and priorities – notably
the decline of key, often regionally concentrated industrial sectors of
national importance and the then enthusiasm for ‘Keynesian’ forms of
economic interventionism – had led to greater central government in-
volvement in regional economic management. These changes were in-
stitutionalised in 1969 in a series of constitutional changes which, with
a ‘joint task’ of the federation and the Länder for regional economic
development, established a fully fledged cooperative federalism in re-
gional economic policy. It also instituted a period of joint planning,
implementation and financing of regional economic initiatives.
The 1980s saw, though, a renewed period of change which in part
dismantled the cooperative structures of 1969. This renewed change
had three main sources. The first reflected a growing disillusionment
with the instruments of Keynesian economic management in Germany
(as elsewhere) and saw the partial withdrawal of the federal govern-
ment from its commitment to co-financing joint initiatives with the
Länder in regional economic policy. The process of withdrawal was
confirmed secondly by the deepening of European integration in the
1980s, in particular by the commitment to create a single, barrier-free
European market by 1993. Under the rules of EC structural policies
and of the Single Market programme, the instruments on which previ-
ous joint central-regional policies had been based – above all the
subsidisation of declining industrial sectors – were progressively out-
lawed. The third force for change reflected the divergences of econ-
omic performance and interest which had emerged among the Länder
in the 1980s. Disillusioned by some of the rigidities inherent in the
‘joint task’ arrangements, some of the more affluent Länder sought to
place a new emphasis on a more autonomous and often innovative
role in regional economic policy (Allen, 1989). While their less pros-
perous counterparts also sought to develop a similar, more autono-
mous policy role, their financial position gave them less leeway and
124 Charlie Jeffery

left them to a large extent still reliant on the now downgraded ‘joint
task’ structures (Scharpf, 1988: 250).
Before unification, therefore, a situation of growing differentiation
in regional economic policy processes across the Länder had emerged
which reflected a changing international economic environment and
the strains placed on cooperative federalism by an increasingly diver-
gent Länder community. The scale of regional economic policy differ-
entiation has, however, been markedly widened since unification. In
three key respects, a more or less separate set of policy structures has
been established in the new Länder and starkly distinguishes east from
west. The first concerned the role of the Treuhandanstalt, the federal
agency set up to execute the restructuring, privatisation or liquidation
of former GDR state enterprises, a series of functions obviously of
crucial importance for the regional economy. Despite this crucial im-
portance, the new Länder made relatively little impact on the work of
the Treuhand (or of its successor institutions, now that the main task
of the Treuhand, industrial privatisation, has been completed: the
Treuhandanstalt was wound up in late 1994).
There exist a number of reasons for this. Most fundamentally, the
Länder were excluded from a full role in the Treuhandanstalt simply
because it and its remit were set up before they were established them-
selves in 1990 (although they did subsequently receive places on the
Treuhand board). With notable exceptions (such as the Saxon Atlas-
Project to save ‘regionally significant firms’ with good medium-term
profitability prospects (Anderson, 1995)), the Länder failed to push for
a full role (Seibel, 1994: 10–13). On the one hand, their bargaining
hand was weakened because of the vast sums the federal government
was pouring into industrial subsidies, which, of course, they did not
want to (and indeed could not conceivably) take over. On the other,
they were reluctant to shoulder co-responsibility for the unpopular de-
cisions the Treuhand made concerning restructuring and, in particular,
liquidation. The net result has been, and remains, a degree of federal
involvement in the management of the regional economy vastly out of
step with the much more limited federal role in the west.
An equivalent situation exists, secondly, with regard to the ‘joint
task’ of the federation and the Länder in regional economic develop-
ment. As noted above, the scope of the ‘joint task’ in the west was
narrowed in the 1980s, and has been cut back further since unification.
These latest cut-backs have, however, been used to free resources for
the east, where the ‘joint task’ has been revamped and represents a
major tool of economic regeneration and industrial subsidy (Anderson,
 German Federalism in the 1990s 125

1995). Taken together with ad hoc federation-new-Länder initiatives

like the ‘joint task’ for recovery in the east (a two-year DM 24 billion
programme of investment in infrastructure, housing and urban devel-
opment begun in 1991) an extraordinary east–west policy divide has
emerged: on the one hand, the western Länder have opted – or, in-
creasingly, have been forced – to develop the autonomous form of
regional economic policy initiative noted above; and on the other, the
eastern Länder are bound tightly into a policy process between Bonn
and the Länder funded largely by the federation.
The same pattern can be identified, thirdly, with regard to the EU
Structural Fund, whose primary function is to support regional econ-
omic development. The western Länder have never achieved Objective
One status for structural funding, have never received large amounts
from the European purse, and have seen those amounts reduced since
unification. The new Länder on the other hand have blanket and well-
funded Objective One status and are as a result tightly bound into a
structural funding process involving close coordination with the fed-
eral government (through the structures of the ‘joint task’ in regional
economic development) and the European Commission (Benz, 1996;
Anderson, 1995).

CONCLUSIONS

This scenario of divided policy-making in regional economic policy,

with the new Länder bound tightly to the federal government and the
old Länder left largely to go their own way, may be something of an
extreme case, bound up as it is with the overriding imperative of econ-
omic reconstruction. But, taken with the other examples briefly men-
tioned earlier, it does seem indicative of a wider schism between east
and west and of a tendency of the eastern Länder to accept the support
and intervention of the federal government in their affairs.
The reason for stressing this is not to castigate the eastern Länder
for their lack of solidarity; they have in part been forced to resort to
the federal government by the unwillingness of the western Länder to
make sacrifices on their behalf. The point rather is to stress the inad-
equacies of the present unreformed structure of German federalism
in maintaining the kind of balance between the federal state and the
Länder which existed, albeit under increasing strain, before 1990. As
Scharpf implied in the aftermath of unification, the worst-case scen-
ario for the federal system would be for its structures to remain as
126 Charlie Jeffery

they were before. This does not mean, as Scharpf also implied, that
one should talk of a ‘unitary state’. Nevertheless, the stark divisions
which exist between east and west, and which suggest the emergence
of a form of ‘divided polity’, do seem to imply an upward movement
in the balance of power between Bonn and the Länder in favour of the
federation which will not easily be reversed.
With this in mind, it is worth making a final comment on the new
European policy powers won by the Länder in and around Maastricht.
As was stressed earlier, these powers provide an impressive frame-
work for Länder input into European policy-making which, on paper,
have eliminated the disadvantages which have traditionally accrued to
the Länder because of the peculiar, nation-state-focused mechanics of
the European integration process.
The thrust of the above discussion suggests, however, that the Länder
may not be able to use those powers to their full extent. As in the
cooperative federalism of domestic politics, they will only be fully
effective if the Länder can generate a solid, collective voice. It is a
moot point whether they can attain such a voice. In the European arena
as in the domestic arena, there are clear differences of interest be-
tween Länder in east and west. The driving interest of the western
Länder has been to stop the drift of competences to Brussels and to
have a greater say in how European policy is made. Given their present
economic and financial situation, the driving European interest of the
eastern Länder is to secure high levels of structural funding. It is not
clear that these differences of interest are easily reconcilable. This may
have something to do with the rather muted voice of the Länder re-
garding the Maastricht review, the intergovernmental conference which
met in 1996–7 to evaluate the Maastricht Treaty. This compared poorly
with the clear and vocal strategy they developed for Maastricht in 1991.
These comments lend weight to a pessimistic conclusion. The east–
west divide bequeathed by the unification process in 1990 has not only
undermined the sense of unity necessary for the assertion of collective
Länder interests in an unreformed domestic federal structure. It also
threatens to create weighty obstacles for the Länder in their pursuit of
a fuller European policy role. Germany is, it seems, at the expense of
the Länder, firmly on the road to a divided polity.
 German Federalism in the 1990s 127

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des deutschen Föderalismus’, Staatswissenschaften und Staatspraxis, no. 4,
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in der DDR und in den neuen Bundesländern’, Aus Politik und Zeitgeschichte,
no. B3/94, pp. 15–25.
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ter: Leicester University Press).
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Republik’, Leviathan, vol. 18, no. 4, pp. 462–86.
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6 Racial Exclusionism in the
New Germany1
Panikos Panayi

As artificial ethnic entities, nation-states tend to exclude the groups

and individuals who do not conform to their rules of citizenship. The
methods of exclusion vary from one state to another and depend upon
the national traditions existing within an individual nation-state and
the system of government. Obviously, a dictatorship like the one which
existed in Germany between 1933 and 1945 will behave in a much
more extreme way than any contemporary European liberal democ-
racy. The methods of exclusion in the former were ruthless and brutal,
while those employed by the latter are of course far more ‘genteel’.
Nevertheless, while the methods of discrimination or persecution clearly
differ from one country to another and from one system of govern-
ment to another, all nation-states are ultimately in the same business:
the inclusion of those who meet the necessary ethnic criteria for citi-
zenship and the exclusion of those who do not.
In post-war European liberal democracies the methods of exclusion
have been basically consistent throughout the continent and have in-
volved both governments and populace with the assistance of an omni-
present, and perhaps omnipotent, media which popularises views
sometimes also held in academic circles.
It is useful to distinguish between official and unofficial forms of
anti-foreigner prejudice in modern liberal democracies. Beginning with
the former, these are basically three in number. They can be described
as structural components of the liberal-democratic nation-state. The first
of these elements consists of immigration controls, whose existence
means that individuals not born within a country are not offered the
economic, social and political benefits to which the native population
is entitled. The second structural component consists of nationality laws,
which, again, are designed to exclude foreigners from the benefits en-
joyed by natives. The final element in the structural racism of the nation-
state consists of the forces of law and order in the form of the police
and judiciary which implement the measures outlined above.
Popular racism in liberal democracies also manifests itself in a vari-
ety of unofficial ways. The most potent of these includes the development

129
130 Panikos Panayi

of pressure groups and extreme parties. In post-war Europe these have

not been able to seize power but, instead, have forced the ruling par-
ties, terrified of losing votes, to adopt some of their policies, albeit in
an assimilated form. Racial violence might be seen as the most potent
manifestation of unofficial hostility varying, in liberal democracies, from
attacks upon individuals to nationwide riots.
The official and unofficial manifestations of racism are not constant
and are determined by short-term factors which can be narrowed down
to three in post-war Europe. First, political changes, especially in the
nature or system of government; second, economic downturns; and,
third, large influxes of immigrants who inevitably receive attention in
the racialised discourse which controls politics in the nation-state.

GERMAN ATTITUDES TOWARDS IMMIGRANTS

IN HISTORICAL PERSPECTIVE

Since unification in 1990, Germany has experienced all of the above

short-term changes, and this has inevitably meant that the position of
immigrants has deteriorated. Nevertheless, in the case of Germany,
historical traditions are important. Any study of race in contemporary
Germany cannot ignore the historical situation of minorities within
the country, not only during the Nazi period, but also in the late
nineteenth and early twentieth century and continuing after the Second
World War.
Various factors have been constant. First, the importation of foreign
labour, which began at the end of the nineteenth century, by which
time Germany had changed from being a net exporter to a net im-
porter of population (Bade, 1983). In all subsequent periods of econ-
omic growth in German history, labour has been imported from a variety
of countries (Dohse, 1981). During the Nazi period the newcomers
originated in eastern Europe and involved as many as twelve million
people in the exploitative labour system established during the Second
World War (Homze, 1967). In the early post-war years the labour shortage
was met by Germans from eastern Europe. They consisted of refugees
who had fled the Russian advance at the end of the war as well as
ethnic Germans affected by boundary changes. Together they repre-
sented approximately 20 per cent of the population of the Federal Republic
in 1960 (Bethlehem, 1982; Lehmann, 1990).
When this source of labour was no longer available, especially after
the construction of the Berlin Wall in 1961, the Federal Republic had
 Racial Exclusionism in the New Germany 131

to turn to new areas of Europe. Beginning with Italy in 1955, the Ger-
man government concluded agreements with southern European coun-
tries which, by the late 1960s, included Spain, Greece, Turkey, Portugal
and Yugoslavia. This process was halted during the economic recession
caused by the oil crisis of 1973–5 (Bade, 1992b), but by 1989 the foreign
population of Germany had reached 4.9 million (Bade, 1992a: 1983).
By this time, however, this figure also included an uninvited com-
ponent in the country – asylum seekers. Due to the comparatively lib-
eral German asylum laws their numbers had begun to grow dramatically
by the end of the 1980s. As a result of the decay of eastern European
communism and the loosening of its shackles, vast numbers of ethnic
Germans from eastern Europe began to enter the country (Bade, 1992:
198, 199; Kemper, 1993).
The non-German population developed many of the characteristics
of immigrants in a liberal democracy. They resided predominantly in
urban geographical concentrations, usually in the more deprived areas
of cities, including West Berlin, Cologne, Frankfurt and Stuttgart
(Blotevogel et al., 1993: 89–96). The overwhelming majority of mi-
grant workers were employed in unskilled and low-skilled jobs, in-
volving heavy, dirty and dangerous work, especially in iron and other
metallurgical production, as well as in the construction industry (Cas-
tles et al., 1987: 127–38, 159–89).
All non-German groupings who made their way to the Federal Re-
public have attempted to re-create their original ethnic environment in
their new country of residence. Religion has played an important role
in this process so that by 1987 a city such as Duisburg had thirty
mosques. In addition, cultural organisations have been created at both
a local and national level among most groups. Similarly, countless news-
papers were founded for the newcomers in post-war West Germany.
With the increase in religious refugees, political activity has become
important, a good example being the Kurds (Nielsen, 1992: 29–33;
Schlaffke and von Voss, 1992: 98–9, 159–64).
Some integration has also taken place. This has partly occurred through
education of second generation immigrants in German schools, although
the children of immigrants have a lower success rate at school than
the children of Germans (Faist, 1993). Integration is more clearly in-
dicated in the incidence of marriages between Germans and non-Germans,
which in 1990 made up 9.6 per cent of all such unions in the country
(Schumacher, 1992: 144).
Just as constant as the presence of migrant and refugee communities
in the Federal Republic of Germany has been the hostility towards
132 Panikos Panayi

them. The remainder of this article will focus upon three indicators of
racial exclusionism: unofficial racial violence; the existence of extreme
right pressure groups; and the use of official immigration control and
nationality legislation by the German state.

Racial violence, endemic in the nation-state, began to develop in Ger-

many during the 1920s with the rise of violent anti-semitism, con-
nected especially with the Nazis. After 1933 the extermination of
European Jewry became the central goal of the National-socialist state
(Dawidowicz, 1987). In the liberal-democratic Federal Republic the
manifestations of racial violence have been far milder, reaching a peak
in 1959–60 with a wave of anti-semitic daubing of Jewish targets (Dudek
and Jaschke, 1984: 266–7). Attacks upon foreigners began to develop during
the 1980s, connected with both football supporters and extreme right
groupings (Husbands, 1991). By the end of the 1980s violence against
foreigners was also not uncommon in East Germany (Ammer, 1988).
Since the end of the Second World War overtly racist political par-
ties have always been present and obtained votes, often on a signifi-
cant level, in the Federal Republic. In the late 1940s and early 1950s
the two major groupings consisted of the Socialist Reichs Party and
the German Reichs Party, the former of which obtained 11 per cent of
the vote in the Lower Saxony Landtag election in 1951 only to be
banned in 1952. The German Reichs Party had less support and in
1964 reconstituted itself into the National Democratic Party (NPD),
the major right-wing force during the 1960s. The NPD’s success reached
a highpoint in 1969 when it secured 4.3 per cent of the vote in the
general election with a peak membership of 28 000. The 1970s ‘were
a dismal period for the far right in Germany’, a situation which con-
tinued into much of the 1980s (Childs, 1991). However, apart from
the major groupings mentioned above, one should also consider the
countless smaller organisations which have always existed (Hirsch, 1989:
314–39).
Until the 1980s the main manifestations of official hostility to immi-
grants consisted of labour importation and nationality laws. The sig-
nificance of the former basically lies in the fact that German governments
simply viewed migrant workers as a commodity which could be im-
ported during times of economic growth, as in the 1950s and most of
the 1960s, and expelled in a time of economic recession, such as hap-
pened to a limited extent in 1966. Although this policy was not re-
adopted during the recession of the mid-1970s, labour recruitment stopped
(Bendix, 1990: 10–87).
 Racial Exclusionism in the New Germany 133

Nationality laws, meanwhile, have operated on the basis of jus

sanguinis rather than jus solis, meaning that, unlike the classic liberal
democracies of Britain and the USA, nationality is determined, liter-
ally, by blood, or the ability to prove German origin, rather than place
of birth. This situation has remained constant since the formation of
the German Empire at the end of the nineteenth century. It originates
in the lack of a German state before this time, which meant that birth
within territorial boundaries was less important than ability to prove
German origin. Nevertheless, because of the constant presence of
Auslandsdeutsche throughout German history, jus sanguinis has remained
the constant principle. Two basic pieces of legislation have upheld
this situation. First, the Nationality Law of 1913 and, second, the fed-
eral constitution, especially article 116 which recognises a German citizen
as a person or his/her descendants who held German nationality ac-
cording to the German borders of 1937 or refugees or deportees with
German ethnicity (Wilpert, 1991; Brubaker, 1992; Hoffman, 1993; Aziz,
1992).
The main consequence of the above is that aliens and their descend-
ants are deprived of basic civil rights such as voting in elections while
those of German ethnicity, who, in some cases, trace their German
origins back to the twelfth century, can enjoy these priviliges if they
move to Germany. Because of the complications involved in obtaining
German nationality, it has been difficult for non-Germans to improve
their position (Hoffman, 1993: 88–91, 139–40; Aziz, 1992; Steger and
Wagner, 1993: 67)
One aspect of the Federal Republic which would suggest a more
open and tolerant attitude towards aliens consisted of the old Article 16
of the federal constitution. Section 2, sentence 2, declared that ‘Political
refugees enjoy the right to asylum’ (Steger and Wagner, 1993: 59;
Münch, 1993: 13–37). During the explosion of potent racism which
occurred after unification, the article was viewed by the press and con-
servative political opinion as one of the causes of the upsurge because
of the ever-increasing number of asylum seekers who were entering
Germany.
However, the causes of the growing attention which focused upon
race in the new Germany are far more complicated than this and atten-
tion should be drawn to a complexity of factors which considers his-
torical traditions, socio-economic conditions, and political causation.
Historical traditions can simply be viewed as an underlying factor,
but, to use the currently popular historical jargon, one must question
whether the ‘memory’ of Nazism can ever be eradicated from German
134 Panikos Panayi

national consciousness. Moreover, racial exclusionism has guided the

history of Germany in the same way as it has done in all other nation-
states. It has always been a core ideology.

THE UNIFICATION CRISIS

What was needed for the demons of the Nazi past to make another
appearance was a short-term crisis which worked against the back-
ground of the milder forms of racism characteristic of the German
nation-state. The crisis took the form of unification, which had both
socio-economic and political effects. Beginning with the former, unifi-
cation had serious consequences upon economic production and em-
ployment, especially in the east, which, before the collapse of the eastern
bloc, claimed to have eradicated all unemployment. Therefore, between
1990 and 1993 the unemployment rate in the new Länder increased
from zero to 17 per cent in January 1994. In addition, there also existed
‘hidden unemployment’ in the form of people engaged in job creation
programmes financed by the government. The western German economy
also went into recession. While the change was not as dramatic as in
the east, an increase in unemployment from 6.2 per cent in 1990 to
8.8 per cent in January 1994 took place. Moreover, the bill to restruc-
ture the eastern half of Germany, which included cuts in public spend-
ing had negative effects (Flockton, 1993; OECD, 1993; Süddeutsche
Zeitung, 9 February 1994).
The second socio-economic factor which led to the upsurge of hatred
consisted of the mass migrations into Germany since the end of the
Cold War, a process which, as mentioned above, actually began to
develop in the increasingly tolerant last years of many east Euro-
pean regimes. Between 1983 and 1992, 1 397 640 asylum seekers en-
tered the country, together with 1 556 060 ethnic Germans (Press and
Information Office of the FRG, 1993: 77). Furthermore, in 1992 Ger-
many received 79 per cent of all applications for asylum in EC coun-
tries (Guardian, 1 June 1993). These totals have to be contextualised
by considering the history of population movements into the Federal
Republic since 1945. Although Germans never perceived their country
as one of mass immigration, this was in fact the case as West Ger-
many accepted, as we have seen, a combination of eastern German
refugees, ethnic Germans, foreign workers and refugees who were fun-
damental to the reindustrialisation of the West German economy (Bade,
1983: 59–81). As a consequence one third of the population of the
 Racial Exclusionism in the New Germany 135

Federal Republic in 1989 was the result of immigration while in the

period 1945–80 the Federal Republic admitted 17 million newcomers
compared with just 11 million admitted in the USA (Hoffman,
1993: 28-9).
Despite this important tradition of immigration into the Federal Re-
public, links can clearly be drawn between the rise of racism and the
recent influx of newcomers into Germany. In general, however, the
rise in racism and increased immigration need not necessarily be con-
nected, unless the latter occurs on a large scale during a time of crisis.
This would differentiate the early 1990s newcomers from those who
entered the country during much of the period from the late 1940s
until the early 1970s. The latter were needed for the reindustrialisation
of Germany, and therefore fitted into the classic post-war European
pattern of the importation of foreign workers during times of economic
growth and a reduction of foreign labour during times of economic
recession (Castles, et al., 1987). The perceived problem for the German
government as well as for the press and the public in the first half of
the 1990s was that they all felt powerless to halt the influx, as it had
been possible to do in 1966 and 1973 as far as foreign workers were
concerned. Consequently, obsessive attention focused upon the assumed
abuse of Germany’s asylum laws by so-called ‘economic immigrants’,
although, in reality, it is very difficult to distinguish between an econ-
omic and a political refugee. Therefore, asylum seekers became scape-
goats for the economic recession in Germany. The link between public
and media attention to this issue and the outbreaks of racial violence
is striking. Newspapers and periodicals carrying accounts of racial vio-
lence often also printed details about the abuse of the asylum laws. 2
However, there are also more political reasons for the growth of
potent racism and again one can discern several causes. The most
important is simply the enormous significance of unification and the
end of the Cold War. The latter had a global impact in releasing pre-
1945 nationalist tensions. In the German case, simply the act of unifi-
cation has given a boost both to virulent nationalism and potent
xenophobia. Returning to historical traditions, the situation in Germany
in the late twentieth century resembles the period of time which fol-
lowed the original unification in 1871 when the euphoria over this
event also led to a rise in popular anti-semitism (Dawidowicz, 1987:
62–75).

The most potent manifestation of the rise of racism following unifica-

tion came in the form of racist violence. This violence has basically
136 Panikos Panayi

taken two forms. Firstly, small-scale attacks which include homicides,

arsons, bombings, assaults, and property damage. They have affected
the entire country. Secondly, large-scale riots, which have been small
in number and have only affected eastern Germany.
The year of unification, 1990, actually represented a quiet twelve
months as far as racial violence was concerned, with a fall in the number
of attacks carried out by right-wing extremists compared with the pre-
vious year (Bundesministerium des Innern [BMI], 1990: 124). How-
ever, a dramatic increase occurred in 1991 with a rise, compared with
the previous year, from 270 to 1483 in the number of right-wing offences
– attacks both against people or their property – which resulted in
three deaths (BMI, 1992: 75). Most of the incidents took place be-
tween August and October. Before the late summer incidents had oc-
curred in a series of locations including Bad Krotzingen-Schlatt in
Baden-Württemberg; Eisenhüttenstadt near the Polish border; East Berlin;
Pirna near Dresden; Grossenhain in Saxony; and Gelsenkirchen in the
west of the country (BMI, 1992: 79–80; Searchlight, May 1991; ibid.,
July 1991: 15–16; ibid., October 1991: 15).
The most serious incident occurred in Hoyerswerda in Saxony, which
had developed during the 1960s and 1970s into ‘an industrial barracks’
of 70 000 people dependent for its economic existence upon a nearby
electric power plant and brown coal mines. Following unification the
unemployment rate rose, remaining at 7 per cent and rising by the
autumn of 1991. Social facilities were extremely limited. A few hun-
dred foreign workers lived in the town together with 230 asylum seekers.
After an increase in hostility towards these two groups during the summer,
a full-scale riot broke out between 17 and 22 September involving
hundreds of local residents, together with skinheads who had made
their way to the town from other locations in eastern Germany (Hockenos,
1993: 23–5; Searchlight, November 1991: 10; Spiegel, 30 September
1991: 48–51; Die Zeit, 26 September 1991; Stern, 2 October 1991: 24).
Even as the events in Hoyerswerda unfolded, further isolated at-
tacks took place all over Germany. Between 18 and 23 September the
most significant incident occurred in Saarlouis where a Molotov cocktail
thrown into a refugee hostel burnt to death a Ghanaian and severely
injured two Nigerians (Jürgs and Duve, 1992: 109–12). Attacks con-
tinued on a nationwide scale, unabated and uncontrolled, reaching a
crescendo in the week following the day of the anniversary of German
unification. It is difficult to offer a full explanation for the events in
Germany in the first two weeks of October 1991 when frequent at-
tacks on foreigners were taking place. Morning radio news broadcasts
 Racial Exclusionism in the New Germany 137

often began by listing the attacks which had occurred the previous
evening. The violence did not subside until mid-October. The 490 at-
tacks in that month fell to less than 200 in November and under 100
in December (BMI, 1992: 75).
The high number of attacks carried out by extremists in Germany
during 1991 increased even further during the following year, from
the total of 1483 for that year to a new height of 2584 in 1992, an
increase of 74 per cent. Just as notable was the rise in the number of
racist murders from three in 1991 to 17 in the following year. How-
ever, only one month, September, surpassed the number of attacks which
had occurred in the previous October, with 536 in the former and 488
in the latter.
The pattern for the course of 1992 was similar to that of 1991, with
a relatively small number of attacks until the autumn, although at a
higher level, followed by an explosion. In the case of 1992 this oc-
curred one month earlier, sparked off by a similar event to the one in
Hoyerswerda, which, on this occasion, took place in Rostock at the
end of August (BMI, 1993: 69–71).
The city of Rostock faced an economic crisis following unification
as about fifty per cent of the working population had lost their jobs.
Discontent began to focus on an asylum home in the city throughout
the summer and violence exploded against it, involving thousands of
local residents and travelling neo-Nazis, between 22 and 27 August
(Funke, 1993: 106–7, 111–12; Süddeutsche Zeitung, 24–31 August 1992;
Ostsee Zeitung, 24–31 August 1992).
The events in Rostock gave rise to racial violence throughout Ger-
many. On the weekend beginning Friday 28 August as many as 50
incidents may have taken place, a significant percentage of them in-
volving neo-Nazi youths attacking refugee hostels in the former GDR
(Searchlight, October 1992: 21). Such events continued throughout
September 1992 when, as in the previous October, immigrants and
refugees were attacked, with the state apparently powerless to halt the
violence or arrest the perpetrators. The disorder declined somewhat in
October, although the number of attacks still stood as high as 364 in
that month and 344 in November (BMI, 1993: 69). On 23 November
one of the most notorious incidents took place in the town of Mölln in
Schleswig-Holstein when three Turks were murdered in a firebomb
attack (Hamburger Abendblatt, 24 November 1992; Die Zeit, 27 No-
vember 1992).
The year 1992 represented the high point in racial violence in post-
war Germany. The following years resulted in a decline in the number
138 Panikos Panayi

of attacks against asylum seekers and foreign workers and their fam-
ilies. In addition, no riots occurred comparable with Hoyerswerda or
Rostock. Nevertheless, the number of attacks which took place during
1993–4 still exceeded the total for 1991, although, significantly, they
represented a fall of over fifteen per cent compared to 1992.
The major incident of 1993 occurred on 29 May when a firebomb
attack on a Turkish house in Solingen resulted in the death of three
children and two women. The significance of this incident lies not just
in the tragic loss of life but also in the revulsion against it, manifest-
ing itself most spectacularly in violence and civil disobedience by Turks
(The Times, 31 May 1993; The European, 3–6 June 1993).3 However,
even as the above events took place, a further spate of attacks against
the foreign population of Germany occurred. June represented the
highpoint of racist violence in 1993, with 256 attacks occurring in that
month.
The major incidents of 1994 occurred in March and May. The first
involved an arson attack on a synagogue in Lübeck on 25 March, just
before the start of the Passover. This was the first time such an event
had happened since the Nazi era (Frankfurter Rundschau, 26 March
1994; Searchlight, May 1994: 18; The European, 1–7 April 1994). A
few weeks later, on 12 May, foreigners were attacked in the streets of
Magdeburg by 60 neo-Nazi youths (Searchlight, June 1994: 18).
As indicated in the table below, a geographical analysis of the ra-
cial attacks which occurred in 1991 and 1992 indicates that most of
the violence, simply in terms of numbers, has taken place in western,
as opposed to eastern Germany. Nevertheless, a breakdown of attacks
per 100 000 of the population in individual federal states has demon-
strated that those with the highest proportions consisted of the new
areas of Mecklenburg-Vorpommern and Brandenburg, with a figure of
over nine attacks per 100 000, followed, however, by Schleswig-Holstein,
Saarland, Sachsen-Anhalt and North Rhine Westphalia, the last of which
actually counted the highest total number of attacks. Perhaps most sig-
nificantly, the states with the seven lowest totals all lay in western
Germany (BMI, 1992: 76; BMI, 1993: 72–3).
Just as significant as the above statistics is the fact that there have
been variations in the nature of the violence between east and west.
While both the new and the old federal states have experienced small-
scale attacks, riots in the form of Hoyerswerda and Rostock have only
occurred in the east. The explanation for this would lie in the fact that
western Germany, with a greater experience of large-scale immigra-
tion, has reached a more mature phase of race relations, in which anti-
 Racial Exclusionism in the New Germany 139

Table 6.1 Racial attacks in Germany in 1991–92

1991 1992
East West Nationwide East West Nationwide

Homicides 1 2 3 7 10 17
Arson and 123 260 383 222 500 722
bombings
Assault 198 251 449 307 418 725
Property 171 477 648 329 791 1120
damage
Total 493 990 1483 865 1719 2584

Sources: BMI, 1992: 76; Press and Information Office of the Federal Govern-
ment, 1993: 39.

immigrant riots are unacceptable, a situation which also exists in Britain,

whereas the new Länder have yet to reach this stage (Panayi, 1993: 17).

THE EXTREME RIGHT IN UNITED GERMANY

Analyses of the perpetrators of racist crimes in Germany carried out

by the federal office for the protection of the constitution in Germany
(Amt für Verfassungsschutz, AVS) reveal that the overwhelming ma-
jority are youths. In 1991, 69 per cent of suspected perpetrators were
under 20 years of age, including 22 per cent between 16 and 17, while
less than 3 per cent were over 30. The figures for 1992 are similar.
These statistics are not surprising and demonstrate that youth expresses
racism in the basic form of violence (BMI, 1992: 84; BMI, 1993: 82).
In addition, young people also form an important component of sup-
port for neo-Nazi groupings in the new Germany. Such groupings have
always been present since the end of the Second World War, but in-
creased their support in the early 1990s.
Neo-Nazi bodies usually consist of groups with a small number of
members who are not afraid of participating in criminal activity as
defined by the AVS, especially of a violent nature (Husbands, 1991:
89–90). In the Federal Republic during the 1980s the total of these
bodies fluctuated just above 20 while their total number of members
fell from 1800 in 1980 to 1150 in 1984 to reach 1800 again by the
end of the decade (Husbands, 1991: 91; Hennig, 1993: 103). The major
140 Panikos Panayi

organisation was the Free Workers Party (Freiheitliche Deutsche

Arbeiterpartei, FAP), established in 1979, with over 450 members by
1988 and responsible for 34 per cent of all right-wing acts of violence
in 1987. However, the party received just under 0.1 per cent of the
vote in the 1989 European election. Other organisations have emerged
but soon disappeared, as a result of being banned by the federal govern-
ment (Paul, 1989; Husbands, 1991).
By the time of the fall of the Berlin Wall neo-Nazism had also
made an appearance in the GDR, especially revolving around a skinhead
youth subculture which had developed in the early 1980s. At the time
of unification there may have been as many as 1500 people in organ-
ised groups, with West German neo-Nazi groupings also active in East
Germany. These activities were known to the authorities in the GDR,
who, in 1988 and 1989, carried out over 60 prosecutions against youths
involved in extreme right-wing offences (Farin and Seidel-Pielen, 1992:
74; Bergmann, 1994: 266; Ködderitzch and Müller, 1990).
In contrast to the extreme right as a whole and to the increase of
incidences of racial violence, the numbers of neo-Nazi groups and their
membership did not grow significantly after unification. In 1990 there
were 27 organisations with 1400 members which increased to 30 and
2200 in 1991 and stood at 33 and 1400 members in 1992. However,
during the same period, the number of extreme right-wing groups (in-
cluding the German People’s Union [Deutsche Volksunion, DVU], and
the National Democratic Party [NPD] but excluding the Republican
Party [Republikaner]) grew from 69 to 82 with their membership in-
creasing from 33 600 to 43 100 (BMI, 1993: 66).
The major neo-Nazi groupings included the FAP, with a member-
ship of only 220 in 1992. It received just 0.37 per cent of the vote in
a local election in Berlin in May 1992 (BMI, 1993: 135; Stern, 24
February 1994: 105). New groupings also came into existence, includ-
ing the German Alternative established in Bremen in May 1989; it
received much support in eastern Germany (Farin and Seidel-Pielen,
1992: 88–9). On 1 February 1990 six young men founded the National
Alternative in East Berlin. It reached a membership of 500 by June
(Lynen von Berg, 1994: 117). The National Offensive, meanwhile, was
founded in Augsburg in July 1990.
The federal government decided to take action against neo-Nazi group-
ings when it banned several of them at the end of 1992, including the
National Offensive, the National Front and the German Alternative,
with moves considered against the FAP in the autumn of 1993. Never-
theless, these groups continued to function, and some of their mem-
 Racial Exclusionism in the New Germany 141

bers reconstituted themselves into new organisations. In addition, there

have always existed several thousand unorganised skinheads. At the
end of 1994 the federal government outlawed the Viking Youth (Wiking
Jugend), a right-wing youth organisation (Institute of Jewish Affairs,
1994: 37; Spiegel, 1 February 1993: 71–3; ibid., 8 August 1993: 93–8;
Searchlight, December 1994: 15; Skrypietz, 1994).
Just as important as the neo-Nazi groupings which have remained
on the fringe, and have made an impact essentially through the violent
actions of their members against foreigners, are the more mainstream
organisations which attracted attention due to the support they gained
during local and regional elections after 1989. The major parties con-
sisted of the old-established NPD, which reached its highpoint during
the late 1960s, the DVU founded as early as 1971, but only making an
electoral impact after unification and, above all, the Republican Party.
It was established in 1983 by Franz Schönhuber who had served in the
Waffen SS and who left the CSU in 1983 because of its, as he saw it,
too conciliatory attitude towards the GDR (Weissbrod, 1994: 227; Childs,
1991: 79).
As these groups and parties would be banned if their ideology was
overtly neo-Nazi they have presented themselves as centre-right or-
ganisations. Still, they have been much more openly nationalistic than
any of the mainstream parties. They all support the collective over the
individual, the collective consisting of a homogeneous nation, people
or state. They have been overtly racist and have called for more ex-
treme measures to deal with the ‘threats’ posed by foreigners within
Germany, including deportation and a further tightening of the right of
asylum, guaranteed under the federal constitution. They have blamed
immigrants for unemployment and for social problems and fear that
German national identity will be destroyed by foreign cultures. All
three groups have also advocated a move away from the feeling of
guilt they believe Germany has suffered due to its Nazi past, asserting
that the country should take pride in its history. Furthermore, they are
hostile to the European Union and want to see Germany return to its
1937 borders (Weissbrod, 1994: 227; Saalfeld, 1993; Gessenharter, 1991).
In the early 1990s the above nationalistic mix appealed to many
groups in the country, especially within particular geographical loca-
tions. The Republican Party climbed to a membership total of 25 000
while the DVU reached 11 500 and the NPD totalled over 6100 (Jaschke,
1993: 118; BMI, 1993: 36). More spectacular was the electoral sup-
port obtained by the DVU and, more importantly, the Republican Party.
In fact, the former grouping only really made a major breakthrough in
142 Panikos Panayi

the regional elections in Bremen in October 1991 and in Schleswig-

Holstein in April 1992, on both occasions obtaining over six per cent
of the vote. The NPD, meanwhile, only obtained such a vote in the
local election in Frankfurt in 1989 (Feist, 1992; Falter, 1994: 21).
It was the electoral successes of the Republican Party which really
grabbed the headlines. After obtaining 3 per cent of the vote in the
Bavarian regional election of 1986, it faded into the background until
1989 when it was catapulted into the limelight again by gaining 7.1
per cent in the election to the European Parliament and 7.5 per cent in
the regional election in Berlin. In the former, the highest support was
obtained in Bavaria (14.6 per cent) and the lowest in North Rhine-
Westphalia (4.1 per cent). The Republican Party fell back to just 2.1
per cent in the federal election of 1990. However, the party subse-
quently achieved its most spectacular success in the early years of the
new Germany, rocketing to 10.9 per cent of the vote in the regional
election in Baden-Württemberg in 1992 and gaining just around five
per cent on several other occasions. The party has managed to per-
form significantly better in the old Federal Republic than in the areas
which have been added to it since unification, where voters, if they do
not support the established centre parties, tend to choose the reformed
communist party, the PDS (Falter, 1994: 21; Childs, 1991: 80; Die
Zeit, 12 March 1993; Lynen von Berg, 1994: 119–22; Die Woche, 17
March 1994; Krisch, 1993; Stern, 24 February 1994: 103).
Several political scientists and journalists have analysed the elec-
toral support of the extreme right, focusing especially upon the results
in Baden-Württemberg and Schleswig-Holstein. In terms of gender, two-
thirds of both DVU and Republican Party voters were men. Both par-
ties also had a disproportionate percentage of voters among the younger
age groups. Socially, the parties of the right were successful in attract-
ing members of the working classes and lower middle classes, as well
as the unemployed: all felt that their economic position was threatened
(Jaschke, 1993: 123–36; Feist, 1992; Falter, 1994; Roth, 1993; Wüst,
1993: 28–9; Minkenberg, 1992: 72–76).
Nevertheless, in the federal election of October 1994, the extreme
right did not make the breakthrough which had seemed to be immi-
nent in 1991 and 1992 but which appeared increasingly less likely
since 1993. While the DVU did not contest the election, the Republi-
can Party gained just 1.9 per cent of the vote, falling below the 2.1
total it achieved in 1990 and thereby polling considerably less than
the 4.3 per cent gained by the NPD in 1969 (Die Zeit, 21 October
1994; Searchlight, January 1995: 13; Childs, 1991: 73; Falter, 1994: 21).
 Racial Exclusionism in the New Germany 143

Several explanations can be offered for this poor showing. First, the
Republican Party suffered internal divisions which came to a head two
weeks before the election when the party’s executive voted ‘to dump’
Schönhuber as its leader (Searchlight, November 1994: 21). Second,
the strength of support for the extreme right mirrored the incidence of
racial attacks, both of which reached a peak in 1991–2. This would
suggest that the highpoint of post unification xenophobia, fuelled by
economic difficulty, was reached in these two years, after which it
declined. A third explanation is that the election results were typical
protest votes characteristic of a contemporary liberal democracy in the
middle of a parliament, with voters moving back to the mainstream
for the ‘real thing’. However, at least part of the answer seems to lie
in Germany’s liberal asylum laws which were tightened in 1992–93.
This resulted in the ruling coalition’s ability to woo some of the pro-
test votes away from the extreme right and back to Chancellor Kohl’s
centre-right coalition government.

CONCLUSION

An enormous influx of refugees and ethnic Germans into Germany

took place immediately after unification, so that in 1992, 438 191 asy-
lum seekers and 230 565 ethnic Germans entered the country. This
represented an increase from the previous year’s figures of, respec-
tively, 256 132 and 221 995 (Wüst, 1993: 30). These statistics became
a media obsession which often dominated the evening news broad-
casts. Similarly, newspapers and magazines also focused heavily upon
this issue. Chancellor Kohl’s governing coalition also contributed to
the general hysteria by speaking about the ‘uncontrolled flood’ of refugees
and of the ‘boat being full’ (Searchlight, December 1992).
Throughout the early 1990s and, in fact, over a longer period of
time, the CDU-CSU government had wanted to change Article 16 of
the constitution, but this task proved difficult because a two-thirds majority
is needed in the Bundestag to amend the Federal Republic’s Basic
Law. Without the support of the opposition SPD, which at first proved
reluctant to toe the government’s line, no change could take place.
However, during the second half of 1992 the main opposition party
eventually accepted the necessity of change, so that by the end of the
year Chancellor Kohl and the SPD had reached an agreement to amend
Article 16 of the constitution. It came into effect in July 1993 (Steger
and Wagner, 1993: 61–2).
144 Panikos Panayi

The changes meant that asylum seekers could not enter Germany if
they came from a country in which they did not face persecution, either
originally or on their way to Germany. Under the new legislation
deportation was also made much easier (Steger and Wagner, 1993:
61–3; Wüst, 1993: 31; Kuechler, 1994: 51–2). The new measures seem
to have been effective because a significant decrease occurred in the
number of asylum seekers in the second half of 1993. Nevertheless,
these figures may be illusory because illegal immigration takes place
on a massive scale so that many refugees may simply have gone ‘under-
ground’ (Stern, 7 October 1993: 51–8; Focus, 4 October 1993: 52–4,
10 January 1994: 27). It may well be the case that the federal govern-
ment is powerless to halt the mass immigration from post-Cold War
eastern Europe and beyond and that in this respect Germany has now
become the new America (Berschin, 1995).
The German government’s reaction to the ever-increasing number
of attacks on foreigners living in Germany consisted of intensifying
its racial exclusionism. In contrast to the change in the asylum laws,
little progress has been made towards a radical change in nationality
legislation, despite the fact that the issue has been on the public agenda
for some time (Focus, 14 June 1993: 28–30; Stern, 7 June 1993: 18).
After all, part of the compromise between government and opposition
regarding Article 16 consisted of the agreement to simplify the process
of naturalisation for foreigners who wish to obtain German citizenship
(Kuechler, 1994: 52–3).
In the early 1990s Germany’s behaviour towards newcomers paral-
leled that of liberal democracies throughout the twentieth century. An
economic crisis combined with a large influx of unwanted newcomers,
and, in this instance, a resurgence of nationalism, led to an increase of
moves towards racial exclusionism. Another example of a country where
such a situation occurred was Britain in the late 1950s and early 1960s.
Increased right-wing activities, racial violence and government con-
cern led to the introduction of legislation in 1962. In the British case
this process has been continuing ever since with a constant tightening
of controls on immigrants and refugees (Layton-Henry, 1992).
It remains to be seen whether this will happen in united Germany.
This is one possible scenario. However, the determining factors will
probably be the need of the German economy for cheap labour and
the strengthening of the discriminatory economic and political forces
which drive people out of eastern Europe. Certainly, the racial crisis
of the early 1990s has passed because the factors which caused it in
the form of the combination of an economic crisis and the national
 Racial Exclusionism in the New Germany 145

hysteria resulting from unification have faded away. However, these

were potent manifestations of the racial exclusionism which underlies
the existence of the modern nation-state, and there is little doubt that
the everyday exclusionism will continue, as it has done in almost all
nation-states throughout the twentieth century.

NOTES

1. I am grateful to the following for financing the research for this chapter:
the Alexander von Humboldt Foundation, the Nuffield Foundation, and the
Department of Historical and International Studies at De Montfort University.
2. See for instance Spiegel, 9 September 1991, lead story, 30 September 1991,
pp. 30–8; Frankfurter Rundschau, 23 September, 7 October 1991; Welt am
Sonntag, 6, 13 October 1991; Rheinischer Merkur, 2, 9, 16 August 1993;
Stern, 15 August 1991, p. 107.
3. These developments were far more dramatic and spectacular than the rather
timid ‘candlelight’ processions against racism in which Germans partici-
pated. These demonstrations had occurred sporadically since the end of
1991. See for instance The European, 12–18 November, 1993 and 10–13
December, 1993.

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 Part III
The External Consequences
of German Unification
7 The German Model and
European Integration
Eric Owen Smith

Even though there are far-reaching political implications involved in

any free trade area, customs union, common market and/or currency
union, this chapter is confined to the economic, fiscal, monetary, social
and anti-trust policy aspects of the German model and European inte-
gration. The basic argument will be that a number of features of the
German economy have already been adopted, or would lend themselves
to adoption, at the European level.
What, then, is the German model? The social market economy (SME)
can be defined in general terms. Freedom, efficiency and equity all
receive equal weight (Wiseman, 1989). The SME was the product of
opposition to both fascist and communist economic systems, as well
as to the laissez-faire school epitomised by von Hayek (Nicholls, 1994:
102–3, 146; Owen Smith, 1994: 16–20). As Helm (1995) points out,
to Anglo-American economists the Germans do all the wrong things:
they protect their companies from hostile take-overs; they cosset their
employees with generous social security provisions; they have allowed
employees to have a say in business since long before the social chap-
ter was enacted in the Maastricht treaty; they face heavy taxation;
monopolies dominate important sectors of the economy; and the role
of local and national government is extensive. An independent central
bank is also a product of German history, that is to say a product of
two humiliating inflations. International financial markets hold this bank
– the Bundesbank – in such high esteem that the exchange rate of the
Deutsche Mark (DM) has been continually revalued. The highly regu-
lated dual system of vocational training is jointly provided by the state
and employers. In short, by Reagan-Thatcher standards, the German
economy should be a major disaster area. Yet the industrial wasteland
of East Germany has been incorporated into the Federal Republic as a
result of German economic, monetary and social union (GEMSU). After
some needless prevarication, during which theoretical Anglo-Saxon neo-
classical competitive models were considered for the former East Ger-
many, fiscal transfers from western to eastern Germany have financed
fundamental infrastructure reforms in the former GDR (Owen Smith,

151
152 Eric Owen Smith

1996a). But European integration represents a far greater degree of

heterogeneity than that exemplified by GEMSU.
Secondly, therefore, what is the nature of the heterogeneity which
bedevils European integration? Dyker (1992: 1) gives an excellent
perspective of European problems in this respect. Europe is unique
among the high income regions of the world. It is extraordinarily het-
erogeneous, boasting some fifty major nationalities (not all enjoying
separate statehood), and nearly as many languages. Economic devel-
opment has therefore proceeded in the face of a whole range of cul-
tural and linguistic barriers. Yet in spite of the comparative poverty of
Europe in raw materials, its economies typically trade a relatively high
proportion of its GNP. The contrast between all this and the richly
endowed USA is impressive. Several other factors must be added. The
USA is a single currency area and possesses a common working lan-
guage. In area, even the united Germany is smaller than California,
Montana or Texas; for that matter it is smaller than Spain and France,
and not much bigger than Italy or Poland (Sinn and Sinn, 1992: 22).
It follows that a useful third and final introductory item would be to
summarise the relevant elements of the German model. Germany is
the EU’s dominant member. This is attributable to her general econ-
omic prowess. Many developments within the EU have reflected, or
will take account of, German practices and experiences:
— If monetary union is realised, the European central bank will prob-
ably enjoy the degree of autonomy accorded to the Deutsche
Bundesbank. Outside of the economies of the Benelux countries,
probably Austria, and possibly France, this appears to be a con-
straint on deepening.
— In the less likely event of full fiscal harmonisation being achieved,
and/or a significant amount of tax revenue accruing to Brussels,
the German model of fiscal equalisation would become a constitu-
tional feature. On the expenditure side, the question of subsidies –
especially in the agricultural sector – would pose significant prob-
lems for the Germans themselves. This appears to be a constraint
on widening.
— If a full European economic and monetary union (EMU) is ever
achieved, the lessons learned from German unification may be heeded
by policy makers. The problems resulting from uniting dissimilar
economies by introducing common exchange rates, particularly against
the US dollar and Japanese yen, is one such lesson. Assuming such
a currency union, the exchange rates of the currencies to be absorbed
 The German Model and European Integration 153

against the Euro, as the currency will be called, may be a potential

cause of price instability.
— The EU social chapter contains provisions which resemble the German
social insurance and industrial democracy provisions.
— EU anti-trust legislation corresponds closely to the German model.
In the following each of these features will be considered in turn.

MONETARY POLICY

The European monetary institute, the forerunner of the European Cen-

tral Bank (ECB), is situated in Frankfurt am Main – a city which is
also the seat of the Deutsche Bundesbank. It is not surprising that this
is the only major European institution to be located in Germany. The
ECB will certainly be a clone of the Bundesbank (BBk). Above all, it
will enjoy the degree of independence from political influence enjoyed
by both the Bundesbank and its predecessor (Bank deutscher Länder –
BdL). It is important to understand the historical reasons for this inde-
pendence, the differences between the BdL and the BBk and the policy
implications of central-bank independence, although these implications
have been far more widely investigated than any other aspect of the
German model (Marsh, 1992; Owen Smith, 1994, ch. 4).
When Germany was blockaded during the First World War, it chose
to finance what was expected to be a short conflict by a significant
increase in government borrowing. There was a consequent increase in
the money supply. After the war the allies made extortionate repara-
tion demands which caused a balance of payments deficit and a disas-
trous fall in the exchange rate. In 1919 the annual inflation rate was
70 per cent but by 1923 it was 1.9 billion per cent (Owen Smith,
1994: 4). This hyperinflation stands in contrast to the suppressed infla-
tion after the Second World War, although government debt was again
created with the help of a servile central bank. During the latter inflation
there were white markets in which the allies allowed the Nazi price
and wage freeze to continue, grey markets in which money substitutes
were used and black markets which accounted for 10 per cent of trade
but 80 per cent of monetary circulation (ibid.: 6). It was the conse-
quent need to induce dishoarding and give a further stimulus to indus-
trial production that caused the draconian allied currency reform which
saw the launch of the BdL and the introduction of the Deutsche Mark.
The BdL coordinated the policies of the central banks in each of the
154 Eric Owen Smith

Länder (federal states). It predated the election of the first post-war

federal government by eighteen months and was thus already exercis-
ing the large degree of policy independence bequeathed by the west-
ern allies when an elected government came to power. Both the BdL
and the BBk – which was established in 1957 – have almost invari-
ably succeeded in winning any policy conflict with federal politicians
(ibid.: 185–93). Moreover, the BBk is more centralised than its pre-
decessor. It is owned by the federal government. Its eight-strong direc-
torate – notwithstanding their subsequent independence – are federal
appointees. Länder representation on its governing council was reduced
to nine as a result of GEMSU and its attendant threat of an unwieldy
council. Together with the directorate, therefore, the policy making
council now consists of 17 members. In order to achieve its sole goal
of price stability, it uses its contemporaneous interest-rate instruments
and currently targets the monetary aggregate M3 (ibid.: 143–78). Be-
cause the DM is a major trading, investment and reserve currency, the
fortnightly deliberations of its council are an internationally important
event.
A number of issues would have to be resolved before the ECB could
be modelled on the BBk. First, even if all fifteen EU members were in
a position to move simultaneously to the third and final stage of EMU,
would all fifteen central-bank presidents or governors be accorded a
council seat? If so, BBk experience with GEMSU indicates that very
few additional places would be available for other representatives.
Secondly, what type of securities would be acceptable collaterals for
discounting by the ECB? Because of its restrictive approach to dealing
in public-sector debt, the BBk has evolved its own ‘flexible’ securities
for this purpose. Thirdly, would politicians retain the right to nego-
tiate exchange-rate treaties? If so, central bankers would be perturbed
by the possibilities of imported inflation.

FISCAL POLICY

Because GEMSU incorporated East Germany into an existing economic,

monetary and social union, tax rates were already established – albeit
that some transitional arrangements were made. Such a degree of tax
harmonisation was not, of course, made possible by the Single Market
Act. VAT rates still differ widely within the EU, as do excise duties.
Citizens of member states living near Luxembourg, for example, make
considerable savings by purchasing motor-vehicle fuel and tobacco
 The German Model and European Integration 155

products in the Grand Duchy – in some cases merely by crossing a

road or bridge!
There is an even greater problem. It was shown in the last section
that the establishment of a centralised ECB is at an advanced stage of
preparation. By way of complete contrast, the EU’s fiscal powers are
relatively negligible. Basically, the ceiling on ‘own resources’ until
1999 is 1.27 per cent of the EU’s GNP, a reduced share of VAT but a
contribution related to each member state’s GNP (BMF, 1994: 174).
In 1992 the budget totalled ECU61.1 billion – about the same size as
the combined general-government and the Treuhand privatisation agency’s
budgetary deficits in Germany, and not a great deal larger than the
solidarity surcharge enhanced federal unshared tax yield in that year
(ibid.: 110–11; MRDB, 1/94: 75* and 4/95: 55*; OECD, 1994: 153).
Even more significantly, it was trivial compared to the magnitude of
flows from western to eastern Germany (Ifo, 1994: 5). By 1997 (in
real terms) the EU’s budget will total ECU74.5 billion, 28.4 per cent
(gross) of which will be contributed by Germany (von Laun, 1994: 55).
This 22 per cent budgetary expansion is, however, dwarfed by the costs
of GEMSU – an exercise analogous to including Sweden and Greece
(to say nothing of the central European aspirant members) in EMU.
On the expenditure side, the common agricultural policy (CAP) still
accounts for a half of the total EU budget, with Germany faring better
than the UK. At an early stage in the emergence of the social market
economy, German farming interests were soon able to evade market
forces, and accommodating the French farmers as European integra-
tion progressed meant that agriculture would remain protected and
subsidised (Nicholls, 1994: 345). In fact, despite its comparative dis-
advantage, Germany became a major food exporter (Flockton, 1992:
58). Reform of such a fiscal arrangement is supposedly to be under-
taken by 1999, although in the spring of 1995 Bavarian farmers dem-
onstrated against the loss of southern EU markets as a result of the
revaluation of the DM being unaccompanied by the CAP’s MCAs.
Indeed, food prices throughout the EU were set at German levels, by
far the highest in Europe. Pegging farm prices to the DM, which was
introduced on German insistence in 1984, was brought to an end only
after it had cost EU taxpayers ECU 35 billion. The Economist (8 July
1995) predicted that food stocks in the EU will rise again unless prices
are further reduced. Given the electoral and lobbying power of Ger-
man farmers that seems unlikely. The two policy options for European
integration therefore appear to be either delaying any further EU en-
largement, or not permitting new members into the CAP until after a
156 Eric Owen Smith

long transitional period. This latter option effectively means according

virtual associate membership to successful applicants from central Europe.
The quantitative and qualitative magnitudes of both revenue raising
and expenditure are thus respectively too insignificant or misdirected
to provide any countervailing power to the envisaged degree of cen-
tralisation in monetary policy. Price stability will therefore be the only
policy goal, even if employment creation by public-sector spending is
considered a viable alternative policy scenario. Any clone of the BBk
will normally view public-sector expenditure as suboptimal.
On the other hand, the German model has a potentially useful de-
vice for fiscal equalisation – although the donor Länder within the
Federal Republic were critical of the system even before GEMSU. In
view of what was said in the previous paragraph, the German model
demonstrates the fairly obvious proposition that each level of govern-
ment must be allocated a revenue flow which corresponds to its im-
plicit expenditure commitments (= vertical equalisation). It also indicates
the need for fiscal transfers from more affluent to less affluent areas,
especially in the event of an economic, monetary and social union
(= horizontal equalisation). By referring to Table 7.1, it is possible
first to consider German vertical equalisation.
There are several points worthy of note. Above all, the federal share
of VAT has fallen over the years, not least as a result of ‘compensat-
ing’ the western Länder for the full inclusion of the new Länder in the
system as from 1 January 1995. (Between 1990 and 1994 these obli-
gations were met out of the German unity fund, to which the federal
government was by far the largest contributor.) Hence the federal govern-
ment’s share of VAT fell from 65 per cent in 1986–92, to 63 per cent
in 1993–4, and to 56 per cent in 1995. The shortfall was in turn par-
tially met by increasing the independently levied federal duty on hydro-
carbon oils, the revenue which almost doubled between 1989 and 1994
(MRDB, 4/95: 55). An income tax solidarity surcharge was reintro-
duced as from 1 January 1995, again amounting to 7.5 per cent. It
should also be noted that the tax revenue of local authorities – re-
garded by the federal president as the ‘schools of democracy’ in June
1995 – is insufficient to cover expenditure needs. They admittedly re-
tain 86 per cent of their trade-tax yield which, while significant, is not
shown in Table 7.1 because its fundamental reform is under active
consideration (Owen Smith, 1994: 100–1, 107–8; FAZ, 29 April 1995).
Interestingly enough, the larger local authorities are pressing for a
constitutionally guaranteed share of VAT revenue in return for the
complete abolition of the trade tax. When the payroll element of this
 The German Model and European Integration 157

Table 7.1 Vertical fiscal equalisation (percentage shares in principal tax

revenues)
Government level Federal Länder Local Total
Income tax 42.5 42.5 15 100
Corporate tax 50 50 – 100
Value-added tax 56 44 – 100
Excise duties 1 100 – – 100
Inheritance/wealth tax – 100 – 100
Property tax – – 100 100
1
Excluding beer, which is a Länder tax.
Sources: Grundgesetz Article 106, as amended in 1995, 1956 and 1969; MRDB
4/95: 55*; OECD 1993: 122

tax was abolished in 1979, the local authorities received an additional

percentage point share in the income tax yield. But the trade tax not
only undermines industrial competitiveness. The virtual cap on further
increases means that alternative sources of revenue have to be found.
Above all, fee income from services such as sewage disposal totalled
DM34 billion in 1994, having grown by almost 50 per cent in the
period 1989–93 (Die Zeit, 15/94).
Now consider horizontal equalisation. Articles 106(3) and 107(2) of
the Basic Law respectively require the federal and Länder governments
to promote uniform living standards throughout the republic, achiev-
ing this by means of fiscal equalisation between financially strong and
financially weak Länder. It is difficult to think of a more instructive
model for any genuine deepening (= EMU) or widening (= admission
of former communist economies) of the EU. There are three funda-
mental lessons. First, GEMSU was also a costly exercise in this
respect. Second, Bremen and Saarland – the two weakest Länder in
western Germany – have remained eligible for additional assistance
between 1995 and 1998. Third, both the federal and the richer Länder
governments were significant contributors. Table 7.2 illustrates all three
features.
Basically, the ‘fiscal power’ of any Land is its tax revenue raising
powers. If this indicator exceeds the Land’s ‘equalisation indicator’,
the Land becomes a net contributor and vice versa. The first round of
equalisation process then results in each Land being brought up to a
minimum share of 95 per cent of the average tax revenue raised by
the Länder. Hence, the first three columns of data in Table 7.2 illus-
trate this process. Next, the second round of federal grants-in-aid would
 158
Table 7.2 GEMSU and horizontal fiscal equalisation (as from 1995)

Unadjusted Horizontal transfer Adjusted Federal grants-in- Readjusted Average

Land fiscal power1,2 [⫹⫽ recipient] fiscal power aid minus German fiscal power adjustment
(per cent of [ ⫺⫽ contributor] (per cent of unity annuity (per cent of (per cent of
average) (DM million) average) (DM million) average) average)

North-Rhine Westphalia 107.2 –3 892 102.3 –2 176 99.5 95.4

Bavaria 106.8 –2 359 102.3 –1 439 99.5 94.0
Baden-Württemberg 113.2 –4 320 103.3 –1 250 100.7 96.7
Lower Saxony 96.8 397 98.0 858 100.6 93.8
Hesse 116.8 –3 345 104.0 –732 101.2 97.2

Eric Owen Smith

Rhineland Palatinate 95.9 267 97.4 727 101.6 94.3
Schleswig-Holstein 98.4 71 99.0 353 102.0 94.3
Saarland 88.7 301 95.0 2 017 103.7 93.4
Hamburg 106.7 –440 102.3 –235 99.9 129.7
Bremen 82.8 538 96.2 2 117 104.1 128.1

Saxony 81.4 2 818 95.0 6 318 125.4 105.0

Saxony-Anhalt 81.7 1 667 95.0 3 975 126.8 105.9
Thuringia 81.6 1 517 95.0 3 657 127.3 106.0
Brandenburg 82.1 1 452 95.0 3 598 127.0 106.1
Mecklenburg-W. Pomerania 81.0 1 167 95.0 2 716 127.5 106.8
Berlin 74.7 4 161 95.0 4 830 118.6 140.1
Old Länder 106.0 –12 7823 101.5 241 100.4 96.5
New Länder 79.9 +12 7823 95.0 25 086 124.6 112.4
Total 100.0 – 100.0 25 327 100.6 100.0

1
Shared and separately levied taxes of Länder, plus half of imputed local tax revenue, 2Includes DM19.5 billion VAT transfer from Federal
and old Länder governments to the new Länder; 3 net transfer from old Länder to new Länder.
Sources: BMF (1993) and 1994: 153–4: Ifo (1994): 9–11; OECD (1993): 123; Owen Smith (1994): 68–71
 The German Model and European Integration 159

normally bring every Land up to a minimum revenue level of 100 per

cent of average revenue. But the remaining three columns of data il-
lustrate the exceptional measures associated with the integration of the
new Länder, all of which, including the amalgamated two halves of
Berlin, lie below the bold line in Table 7.2. It will be seen that the
federal cost of this exercise alone was DM25.327 billion. This statistic
consists of the second round of federal grants, plus a number of special
grants designed to reduce the administrative and financial burdens of
transition between 1995 and 2004 (BMF, 1993: 42). In addition, the
new Länder will receive infrastructure renewal grants, also for the period
1995–2004. Finally, the old Länder’s annuity payments to the German
Unity Fund have been deducted. As can be seen from the penultimate
column, this all results in a rough equalisation of the old Länder
relativities (recall that Bremen and Saarland receive supplementary
assistance). On the other hand, the new Länder are on average almost
25 per cent better off. Alternatively, (final column) the relationship
between the degree of equalisation in this widest sense results in a 10
percentage-point difference between the non-city states in western and
eastern Germany. The problems of the city states were to be partially
resolved with the merging of Brandenburg and Berlin, however this
failed in early 1996 (note that these two Länder in any case have only
one seat on the BBk’s Council; Hamburg and Bremen similarly share
representation with their surrounding Länder).
Summarising, it can be said that integrating the new Länder into the
fiscal equalisation system will cost the federal government DM41.9
billion annually over the next ten years. This consists of DM16.6 bil-
lion in forgone VAT revenue, plus DM18.7 billion in grants-in-aid
and DM6.6 billion infrastructure assistance. Grants-in-aid to the old
Länder will cost the federal government an additional DM6.9 billion,
although these will decline after 1998. The old Länder will in addition
contribute a gross DM15.7 billion to the costs of integration: DM2.9
billion in forgone VAT revenue, plus horizontal equalisation payments
of DM12.8 billion. Hence, over the next few years the total equalisa-
tion flow to eastern Germany from the federal and old Länder govern-
ments amounts to DM57.6 annually (Ifo, 1994: 5). The German unity
annuities increase this sum to DM67.2 billion (ibid.). Total transfers
are even higher, of course. In net terms – that is eliminating double
counting, deducting the federal government’s tax yield in eastern Ger-
many and deducting privatisation revenue from the losses of the priva-
tisation agency – transfers between 1991 and 1994 totalled DM626
billion (Deutsche Bank Research, 1994: 21). As well as the continuing
160 Eric Owen Smith

costs of the now defunct privatisation agency, there is a social insurance

transfer which in 1993, for example, cost DM42 billion (Ifo, 1994: 5).
This latter cost, given the advanced social policy embodied in the SME,
was inevitably high. But before analysing this aspect of the German
model, some of the reasons for the high costs of GEMSU can be specified.
They represent grave shortcomings in the introduction of an economic,
monetary and social union.

GEMSU (GERMAN ECONOMIC, MONETARY AND SOCIAL

UNION)

GEMSU turned conventional economic thinking on its head. The or-

thodox approach to a union between two such vastly dissimilar econ-
omies would have been one of gradual assimilation and convergence.
GEMSU was, in other words, a ‘big bang approach’: a step-by-step
approach would have been normally expected. For this reason, exchange-
rate determination is arguably the most important lesson from this leap
into full union. Put at its simplest, the GDR had in effect employed
long-run average shadow export pricing of Ostmark (OM)3.73:DM1
(Akerlof et al., 1991: 17–18). Even short-run average cost pricing meant,
in DM terms, an average loss of 84 per cent on each item exported to
non-socialist economies (ibid.). The politics of GEMSU meant flows
were converted at OM1:DM1, and stocks generally at OM2:DM1. This
clearly resulted in most eastern German products being price uncom-
petitive, especially given that they were now officially priced in the
world’s hardest currency and the former GDR’s export markets were
in the reserve-impoverished Comecon. In addition, eastern German
products were also uncompetitive on qualitative grounds – a charac-
teristic that reflected the technological backwardness of the industrial
base. This was in contrast to the viable industrial base which existed
when the social market economy emerged in West Germany. Had it
been possible to retain two segmented labour markets at the time of
GEMSU, the average lower productivity level in eastern Germany would
have been reflected by lower money wage rates converted at 1:1. But
segmentation was by definition ruled out. Either there would be a high
degree of migration and commuting to higher paid jobs in western
Germany, or money wage rate equalisation, initially through subsidisation,
would have to occur (Owen Smith, 1994: 317).
Eastern German industrial production consequently plummeted to a
third of its former level within a year of GEMSU, a fall even more
 The German Model and European Integration 161

catastrophic than the five-year Great Depression of 1928–33 (Sinn and

Sinn, 1992: 29–30). Commuting and migration to western Germany,
training schemes, early retirement and short-time working did not pre-
vent a headline unemployment rate of 17 per cent (ibid.; Owen Smith,
1994: 259). Actual unemployment probably peaked at three times the
official figure (Steinherr, 1994: 27). Total exports fell by 60 per cent
during 1989–91, and three-quarters of this decrease was due to the
decline in Comecon trade (ibid.). One-third of the fall in industrial
production was due to the decline in exports, and the other two-thirds
by the shift within eastern Germany to foreign products (ibid.). Such a
series of repercussions begs the following central question. Could a
more rapid and thorough recovery be anticipated in eastern Germany
than in the relatively more gradualist Poland, Hungary and the then
Czechoslovakia – three aspirant members of the EU? Yet as early as
1990 the estimated catching-up period for eastern Germany lay be-
tween 15 and 30 years, assuming a net investment of at least DM1.0
trillion (Lipschitz and McDonald, 1990: 77; OECD, 1990: 51; Owen
Smith, 1994: 22–4). Nonetheless, eastern Germany could rely on the
SME into which she had been incorporated, a treaty which in addition
carried automatic membership of the EU (Kurz, 1993: 193).
Major blunders were also made in the fields of monetary and fiscal
policies, both of which had implications for the German model. Within
the paradigm of this model, as already shown above, the monetary
policy reactions were predictable, whereas the fiscal policy mistakes
were avoidable. The latter errors emanated from the promises made by
members of the federal coalition parties prior to the first all-German
election in December 1990. It was contended that GEMSU would make
no one in western Germany poorer, but would improve everyone’s
economic lot in the eastern part of the newly united economy. The
mounting debt required to finance transfers to eastern Germany, which
was in turn initially financed by borrowing, ultimately led to rising
short-term interest rates and taxation. Two income tax surcharges of
7.5 per cent, a 1 percentage point increase in the top rate of VAT to
15 per cent and increases in the excise duty on hydrocarbon oils were
necessary. Raising taxes to reduce the public deficit was justifiable –
if arguably suboptimal – under the circumstances. Widening the in-
come tax base by abolishing numerous tax exemptions was one alter-
native. Even so, the overall tax rate, at about 43.6 per cent, was not
seriously out of line with the average for 13 OECD countries (although
the USA, Japan and the UK were significantly below the average of
43.1 per cent in 1993 [OECD, 1994: 96]). On the grounds of inflation,
162 Eric Owen Smith

however, the hike in short-term interest rates by the BBk is more diffi-
cult to justify. Analogies may be drawn with the first two crude oil
price shocks (Owen Smith, 1994: 158–60). At their peak, current real
short-term rates in 1974, 1981 and 1992 were respectively –0.9, 0.2
and 3.2 per cent (Owen Smith, 1996a). There could surely not have
been such a vast difference in the implied expected rates of inflation.
Analysis of the wider exchange-rate implications of the BBk’s in-
terest-rate policies is rendered more difficult by the apparent stubborn
refusal of other ERM members to agree to a realignment. For exam-
ple, the Canute-like attitude of the British government, culminating in
two hikes in short-term interest rates on Black Wednesday, withdrawal
from the ERM and retraction of the second interest-rate rise, was a
stylised example of British exchange-rate policy – as was the decision
to enter the mechanism at DM2.95 : £1. Along with the fact that, fol-
lowing Black Wednesday, there was an immediate and dramatic fall in
the DM:£ rate, the episode was an extremely costly lesson in how not
to approach currency union. Among the resource costs were avoidable
bankruptcies and an increase in unemployment. Nonetheless, EU states
retained high interest rates just as their economies were facing a major
slow-down in growth (Chauffour et al., 1992: 251). In discussing Steinherr
(1994: 1), de Cecco compares the manner in which GEMSU was im-
plemented with the decision in the USA to rapidly increase public
expenditure in the 1960s, without a commensurate increase in taxa-
tion. He traces the destruction of the Bretton Woods international
monetary regime to this policy scenario. Whereas Hobsbawm (1994:
241–2) agrees with this view, he correctly adds that the French availed
themselves of the option of converting US dollars into gold, thereby
drastically reducing the initially large gold reserves at Fort Knox. Had
policymakers at the BBk also chosen to use their significant reserves
to purchase gold, they would have profited considerably and the US-
dominated international monetary and trading systems would have col-
lapsed even earlier (ibid.: 275–6; Smyser, 1993: 221). Further policy
inferences for European integration can thus be drawn from this pro-
cess, not least the presence of a dominant member. This is precisely
the position that Germany is assiduously trying to avoid – with varying
degrees of support within the EU. Nonetheless, the handling of GEMSU
was inept. Because the necessarily huge rise in public expenditure could
not be monetised through a compliant central bank, the rise in interest
rates induced a massive inflow of capital. Since international investors
were guaranteed instruments denominated in a high interest, low infla-
tion and revaluing currency, they were enticed to invest in Germany.
 The German Model and European Integration 163

De Cecco (in Steinherr, 1994) plausibly sees the ERM as being the
‘first international victim’ of this policy. Domestically, the boom in
western Germany ended and unemployment rose. Significantly, capital
controls had been an important element in the success of the EMS
during the 1980s (Higgins, 1993: 33). It follows that there are clear
policy implications for the system’s reform (ibid.: 37). The three op-
tions are: (1) reduce capital mobility; (2) accept a single monetary
policy; (3) allow exchange rates to adjust freely. In other words, GEMSU
and unsound macro-economic policies undoubtedly contributed to strains
within the ERM, but fundamental reform may be required as a precur-
sor to EMU.
There were further differences between the emergence of the SME
and GEMSU (Owen Smith, 1993 and 1996a). Briefly put, they can be
summarised as follows. Markets still functioned, albeit imperfectly, after
the Second World War. Federal subsidies and tax relief induced in-
vestment during the 1950s. Following GEMSU, the German govern-
ment procrastinated over the property-rights question and also failed
to offer significant subsidies for investment in real capital (Thornton,
discussant in Steinherr, 1994: 6). Hölscher (1994) usefully postulates
three stylised facts for the development of the SME. They are the 1948
currency reform, the 1950 EPU credits and the 1953 London treaty.
On the whole, West Germany gained extremely beneficial relief from
internal and external debts, along with invaluable balance of payments
assistance. Yet one of the most impressive accomplishments during
the GEMSU process was western German thoroughness in drawing up
various accounts setting out the degree of eastern German indebted-
ness. This was a major contributory factor to their becoming collec-
tively known as ‘Besserwessie’ in eastern Germany – a corruption of
the German term for ‘know-all’ (Besserwisser). Moreover, some west-
ern German commentators insisted on market principles for eastern
Germany that had been ignored in western Germany for decades (Owen
Smith, 1996a; Smyser, 1993: 167). A good half of the savers’ conver-
sion loss was probably siphoned off by the BBk. Moreover, the priva-
tisation process transferred whole enterprises to western German
ownership without according an opportunity for share ownership to
easterners, and the restitution process transferred a large part of hous-
ing wealth to western Germany (Kurz, 1993: 135; Sinn and Sinn, 1992:
74, 117; Smyser, 1993: 178). The Deutsche Bank accepted DM12 bil-
lion in eastern deposits, but made loans of only DM6.8 billion (Smyser,
1993: 157). Hence, if the eastern Germans believed that the adoption
of the DM would make them wealthier in the short term, they were
164 Eric Owen Smith

cruelly disabused (Flockton, 1992: 60). GEMSU was implemented in

a manner which made eastern Germans ‘victims’ (de Cecco, discuss-
ing Steinherr, 1994: 2).

SOCIAL POLICY

Initially the introduction of the single market in 1993 was seen by the
EC as generating the need for the protection of fundamental social
rights because of the threat of cross-border mergers and the attendant
process of concentration (Owen Smith, 1994: 310). Although this was
the genesis of the social chapter, it is necessary to recall that such
developments date from the Rome treaty itself. This notion of
countervailing power is also a built-in feature of the SME. In any case,
the firm is not the black box assumed in neoclassical economic theory;
social efficiency is as important as economic efficiency (FitzRoy and
Kraft, 1987: 496; 1993: 366, 374–5; Owen Smith, 1996a). Indeed, there
is some evidence that, contrary to the predictions of property rights
theorists, employee participation in managerial decision-making may
improve efficiency (Gurdon and Rai, 1990). Similarly, Kersley and Martin
(1995) demonstrate that productivity growth is increased by improving
conditions of work and communications. Finally, trends at the micro-
level of the firm, and of production, which exert a potentially major
impact on trends at the macro-level have only recently, and only par-
tially, become an integral part of the paradigm of political economy
(Regini, 1995: 7).
Article 118 of the Rome treaty requires the EC to promote coopera-
tion between member states ‘in the social field’. In the present context
it is instructive to note that social security, the right of association and
collective bargaining between employers and employees are all among
the several policy areas specified. Similarly, Annex 1 to the Maastricht
treaty requires the Community (Article 2[1]) to support and comple-
ment the activities of member states in, for example, informing and
consulting employees. Article 2(3) mentions such items as ‘the social
protection of employees’, ‘codetermination’ and, in effect, the need to
determine common conditions of employment within the EU. Annex 1
is more popularly known as the ‘social chapter’ – from which the UK
government ‘opted out’. During the first half of the 1980s, however,
the European Court of Justice (ECJ) forced the Major government to
introduce amendments to its equal pay and sex discrimination legisla-
tion. Moreover, in 1994 the House of Lords ruled that, by EU standards,
 The German Model and European Integration 165

the UK’s effective exclusion of part-time employees from employment

protection legislation was illegal.
Admittedly, the EU standards for part-time employees had been ar-
rived at as a result of a series of German nationals appealing to the
ECJ between 1987 and 1992. Nonetheless, it can be generally shown
that the German model scores highly on all of these social policy fea-
tures. Two basic aspects of social policy in the SME can be cited in
support of this assertion. There is first a high degree of social protec-
tion and, second, there are constitutionally protected collective bar-
gaining rights, along with statutory provision for a highly developed
system of industrial democracy (Owen Smith, 1994: chs 5 and 6; 1996b).
Social protection encompasses social insurance, social security and social
welfare. Industrial democracy is defined here as employee participa-
tion in managerial decision-making. Since this is partly accomplished
by means of codetermination, consultation and the right to informa-
tion, collective bargaining between works councils and individual em-
ployers takes place at the level of the firm. As such it supplements
collective bargaining at district level by the relevant trade union and
employers’ association. Hence, both dimensions of employee partici-
pation are in evidence: specific participative machinery exists along-
side more unblurred conflicts of interest (Bean, 1994: 161–2).
Such generalisations are not, however, meant to imply that the vari-
ous social policy features of this model are the subject of perfect economic
and social consensus. There are several outstanding examples of con-
flict in what has nevertheless been a remarkably consensual society in
the post-war period. First, some of the economy’s largest employers
and their associations resorted to litigation over the property rights
implications of the 1976 Codetermination Act. Significantly, the case
was heard by the Federal Constitutional Court, and its verdict went
against the employers (Berghahn and Karsten, 1987: 124–6). Second,
in 1984, during the lengthy strike in support of the 35-hour week, the
employers and the Federal Labour Office took legal action in order to
prevent employees indirectly affected by strike action in another dis-
trict from drawing short-time benefits (ibid.: 98–9; Owen Smith et al.,
1989: 205–6). The issue here was whether the neutrality of the Office
during an industrial dispute was impaired. It duly reached the Consti-
tutional court in 1995. Whereas the court thought the contested provi-
sions acceptable at that juncture, it also envisaged their statutory revision
at some future date (Süddeutsche Zeitung, 5 July 1995). Third, in 1993
the largest employers’ association (Gesamtmetall) repudiated the agree-
ment to bring about a step-by-step equalisation of money wage rates
166 Eric Owen Smith

between eastern and western Germany, followed by its unprecedented

announcement that the wage agreement in western Germany was to be
terminated (Bastian, 1995; Sadowski et al., 1994: 533). These events
confirmed the view that trade unions were on the defensive (Silvia and
Markovits, 1995a and 1995b). Even so, some aspects of the UK’s Trade
Union Reform and Employment Rights Act (sic!) of 1993 would prob-
ably have been unconstitutional in Germany. Finally, over the last two
decades, the costs of social insurance, assistance and welfare have all
become critical policy issues (Owen Smith, 1996b). Since social in-
surance costs are principally met by equal contributions from employ-
ers and employees, unemployment among the indigenous labour force
– particularly in construction – has increased as a result of their
counterparts from member states with less developed systems not hav-
ing to meet these high non-wage costs when in Germany. This prob-
lem of social dumping is exacerbated by the lower wages paid to EU
citizens working in Germany. This latter reason lies behind the Ger-
man government’s desire to see a single market for labour whereby
local rates of pay would have to be paid by all employers. The EU
supports this initiative (TU Information Bulletin, 1/95).

ANTI-TRUST POLICIES

By 1949 it was obvious that the British and Americans – particularly

the latter – were determined to use German industrial power as a means
of strengthening the West in general against communism (Nicholls,
1994: 340). The dilemma facing the French was recognising German
sovereignty while keeping German industry from threatening the French
economy (ibid.). As early as the negotiations over the Schuman plan,
the French attempted to reconcile allied anti-cartel policies with their
anxieties about ‘German remilitarisation’ (Berghahn, 1986: 134–54).
First the allies, and later sections of the CDU and industry, insisted
that the German legislators should concentrate on cartels (ibid.: 100;
Owen Smith, 1994: 436–7). Hence, any enterprise may acquire and
maintain a market-dominating position as long as the Federal Cartel
Office cannot demonstrate that this position is being, or would be,
exploited. A notion of ‘workable competition’ is thus part of the SME.
Moreover, the courts and the federal Minister of Economics can over-
turn the office’s rulings. All such intervention is, however, of negligi-
ble significance when compared to the total merger scene (Owen Smith,
ibid. 438–43). The Minister may also permit cartels in the public interest
(ibid.: 437).
 The German Model and European Integration 167

Jean Monnet saw the ECSC treaty as the ‘first European anti-trust
law’ (Berghahn, 1986: 145). It had, in effect, emerged to accommo-
date the new German model in this field. Articles 60, 61, 65 and 66
prohibited cartels in principle, but permitted them where productivity
and distribution would be improved; similarly concentration short of
monopoly was also permitted (ibid.: 144–5). Moreover, Articles 85
and 86 of the Rome treaty, on which current European anti-trust legis-
lation is based, contained very similar provisions – with a specific
clause requiring that any abuse of a dominant position should be the
subject of an EC investigation (Morgan, 1995: 7; Owen and Dynes,
1992: 155). Finally, two issues gained prominence following the single
market treaty. The first was prompted by the increase in cross-border
mergers and acquisitions (M&As), while the second was government
subsidies to industry (state aids) (Woolcock et al., 1991: ch. 2). The
West German views on both issues were absolutely crucial. They ar-
gued for a retention of some national control over mergers, and for a
separate and politically independent competition authority. As a result
the 1990 merger-control regulation issued in 1990 was closer to the
German model than any other (ibid.: 20). Likewise, within the frame-
work of the SME, ‘industrial policy’ has negative connotations. It is
normally associated with the subsidisation of declining industries but
also has wider implications. Although all member states – including
Germany – have used such policies, they are considered by many German
observers to be more important in frustrating competition than indus-
trial concentration (Owen Smith 1994: 416–17). By implication, there-
fore, the enforcement of Article 92, which in such cases gives powers
of veto to the EU, received enthusiastic German support. After all,
although spending had decreased slightly, the aggregate level of EU
state aids during the period 1988–90 averaged ECU89 billion – ex-
cluding aid given to eastern Germany (Morgan, 1995: 10). Such a sum
again illustrates how the size of the EU’s budget places it in a disad-
vantaged fiscal policy position. Moreover, until the 1980s there had
been a reluctance on the part of the EC to challenge these aids. Dur-
ing the 1990s, Germany’s state aids averaged 2.5 per cent of the econo-
my’s GDP, but the EU average fell from 3 to 2.2 per cent (EC, 1989,
1990 and 1992). Enforcement took the form of requiring the repay-
ment of illegal aid – witness British Aerospace’s refund of a £44.4
million ‘sweetener’, plus interest, to the UK’s government. In terms of
the German model, however, the level of aid to the former GDR, and
the application of competition rules there, are portentous issues facing
the EC.
A final area is the continued divergence between the British and
168 Eric Owen Smith

German models in the retention of national ownership of key indus-

tries and services, especially as the position in other member states is
closer to the German model (Woolcock et al., 1991: 23). There is no
German policy designed explicitly to prevent foreign ownership, but
the system favours a long-term commitment to a company’s develop-
ment. Interlocking directorates, proxy voting and voting restrictions at
general meetings ([and AGMs), as well as accounting procedures, form
the basis of the system (Owen Smith, 1994: 338, 355, 455–6). Whereas
the universal banks play a crucial role in this system, there is a range
of other features which demarcate the German and Anglo-Saxon sys-
tems, not least the clear delineation of responsibilities between the non-
executive and executive boards of directors (ibid.: ch. 7). Nonetheless,
the role of banks as such has been widely researched, usually under
quite evocative titles (see for example Pfeiffer, 1993). The flotation of
Daimler-Benz on the New York stock exchange and, even more so,
the privatisation of Deutsche Telekom, may be signs of an emergent
‘shareholder value’ culture, but a crucial inference is that the princi-
pal/agent problem for small shareholders is no better resolved in Ger-
many than in Britain. In the latter case large institutional shareholders
almost always support the [single] board’s recommendations, a situa-
tion analogous to the collective use of proxy votes in the German sys-
tem. An equally important inference is that the British system explicitly
encourages the inflow of foreign capital, an inflow facilitated by per-
sistent current account deficits. In the present context, the acquisition
of Rover by BMW, and of Morgan Grenfell, Standard Chartered and
Kleinwort Benson respectively by the Deutsche Bank, Westdeutsche
Landesbank and Dresdner Bank reflect the differences between the two
systems. Ironically enough, it is the capital-market expertise of these
merchant banks which was highly sought after by their German pur-
chasers (Owen Smith, 1994: 342, 379–80, 456). Capital inflows into
Britain have not been confined to German, or even intra-EU, acquisi-
tions, of course. But this seems to emphasise even more clearly the
differences between, on the one hand, the German-type capital mar-
kets and, on the other hand, Anglo-Saxon models in which the poten-
tial threat of hostile takeover is a central dynamic (Cutler et al., 1989:
117). The German model thus creates wealth; the Anglo-Saxon system
manipulates it. For instance, privatisation flotations brought very wel-
come grist to the City of London’s mill.
 The German Model and European Integration 169

CONCLUSION

Apart from the strong political motivation underlying the German econ-
omic, monetary and social union in mid-1990, there were obvious his-
torical, cultural and geographical features which favoured integration.
Historically, Article 116 of the West German constitution accorded
German nationality to all those living within the area of the former
‘Third Reich’. In many respects, these factors bind Germany as much
to central and eastern Europe as to the western part of the continent.
Such unifying factors are almost completely absent within the EU. Indeed,
the point made at the outset about heterogeneity can be usefully sup-
plemented at this juncture. Tichy (1993) lucidly considers the optimal
conditions for European integration. Quite apart from the contrasting
logical extensions to the political, historical, cultural and geographical
arguments just made about Germany, there are many critical policy
differences. The simultaneous existence of the EU, EFTA and Comecon
bore testament to these differences. True, Scandinavian countries and
Austria also have a tradition of SMEs which, as in the German case,
has not reduced growth and efficiency (ibid.: 164). But Norway and,
even more so, Switzerland, are able to serve their economic interests
best by remaining outside of the EU. In this way, they avoid the po-
tential fiscal transfer costs which membership would incur. Moreover,
trade intensities (normalised export ratios [ibid.: 169, 177]) reveal a
closely integrated Scandinavian bloc with Britain and Ireland loosely
attached. Portugal, Spain, France, Belgium and the Netherlands are
linked consecutively but not commonly. There are central and south-
ern triangles comprising Germany, Switzerland and Austria on the one
hand, with Italy, Greece and the former Yugoslavia on the other hand.
These two triangles are bridged via France to Italy, and Austria to the
former Yugoslavia and Greece. The Yugoslavian crisis isolated Greece
in this respect. A similar degree of potential isolation could not con-
ceivably affect the Iberian peninsular. Yet one must never overlook
the relative openness of the EU (imports plus exports as a percentage
of GDP – Higgins, 1993: 29). Even the very lowest statistic (Italy
with 36 per cent, compared to Belgium’s 136 per cent) was still ahead
of the USA’s 22 per cent and Japan’s 18 per cent. In 1990, the ratio
of Germany’s exports to GDP was 32 per cent, compared to 11 per
cent for Japan and 10 per cent for the USA (Stein, 1994: 367). None-
theless, European trade intensities, the degree of intra-trade, along with
price and production structures, all suggest a variety of ‘optimal’ cus-
toms unions (Tichy, 1993).
170 Eric Owen Smith

Of greater significance in terms of the Maastricht treaty is the even

more pronounced degree of heterogeneity as far as the criteria for ‘op-
timal’ currency unions are concerned. Perhaps above all else, the above
study has demonstrated that the formidable strengths of the Bundesbank
and the DM are the features of the German model which will most
affect EMU. The titles of contributions to the policy debate in this
area are as evocative as those which address the German financial sys-
tem (Goos, 1994; Hafer and Kutan, 1994; Smeets, 1990). The facts
that these strengths had their origins in a draconian Allied currency
reform and an undervalued international exchange rate are nearly al-
ways overlooked. The contrast with GEMSU could not be greater.
Nonetheless, the emergent strong economic and political position of
the DM implies that any optimal currency union with which Germany
is associated would have to be based on strict price stability. Tichy
(1993, 172) estimates that this union could comprise Germany herself,
along with the Netherlands, Austria, probably Belgium and Switzer-
land. Presumably the exclusion of Luxembourg is an oversight. But
the inclusion of Switzerland is at once incongruous and unrealistic: its
international ‘neutrality’ and cumbersome political decision-making
process, as well as the costless benefits endowed by being an outsider
with access to EU markets, all indicate that the country will retain its
present position. In addition, Switzerland has important holdings within
the EU. France, on the other hand, has incurred high opportunity costs,
not least in terms of unemployment, in maintaining a fort franc stance.
Short of dramatic policy changes, she may qualify for this currency
union. Meanwhile, in spite of a great deal of trepidation within Ger-
many, the Maastricht criteria were virtually met in 1995–6 (BBk Re-
port, 1995: 99). True, the budget deficit reached 3.5 per cent of GDP
in 1995, mainly due to the incorporation of some shadow budget items
arising from GEMSU. For much the same reason, gross government
debt jumped from 50 to 58 per cent of GDP. But inflation and long-
term interest rates were well within the relevant criteria. It is in any
case inconceivable that the country would be left out of EMU for any
relatively minor transgression. On the contrary: the efforts to meet the
criteria notwithstanding the costs of GEMSU may prove too onerous
and consequently EMU will be postponed.
Moderate wage claims, increased productivity and under-utilised
production capacity all contributed to ‘the fight against inflation’ in
1994 (BBk Report, 1994: 103). Since this is central bankers’ code for
falling real wages accompanied by rising unemployment, it brings the
implications of the present plans for EMU into sharp relief. But the
 The German Model and European Integration 171

causal flow should surely be from the real economy to nominal vari-
ables. The bottom line is that without the addition of the German model’s
fiscal and social policies, politically stable and viable progress with
European integration and EMU will not be feasible.

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174 Till Geiger

8 Believing in the Miracle Cure:

The Economic Transition
Process in Germany and
East-Central Europe*
Till Geiger

The policy recommendations of western economists looking at eastern

Europe after the velvet revolutions of 1989 predicted a fairytale end-
ing to a story as yet untold: ‘[A former state socialist country] was
poor, then it chose capitalism, then as a result it became rich’ (adopted
from McCloskey, 1990: 26). Faced with an uncertain future, this prophecy
proved compellingly seductive. It intuitively appealed to policy-makers
confronted with the aftermath of the collapse of state socialism for a
variety of reasons. At first sight, it offered a simplistic historical inter-
pretation. In particular, its rhetorical message reflected an unquestioned
belief in the crisis of one system (Schabowski, 1992: 8). However, the
imaginary plot alluded to an existing solution without examining
the appropriateness of the proposed policy recommendations (Keegan,
1993: 1–2).
Since the heady days of the velvet revolutions, economic transition
has not stuck to the script. Indeed, the chequered history of economic
reform since 1989 has exposed the extent to which the predictions of
western economists raised false hopes. In the popular imagination, the
end of the Cold War liberated Europe from the political, economic
and social structures of the previous four decades. However, this per-
ceived radical discontinuity presented particular problems for policy-
makers. The stability of the Cold War order created a false sense of
predictable interstate relations between the two blocs and among Euro-
pean nations. With perestroika and ultimately the fall of the Berlin
Wall, this stability gave way to a period of uncertainty which is still
continuing. Western European policy-makers faced these new challenges
ill-prepared. Taken by surprise, they clung to existing institutional ar-
rangements or bowed to the inevitable turn of events. Faced with un-
certainty, policy-makers attempted to rely on some assumed ‘certainties’
implying their ability to manage economic transition.

174
 Believing in the Miracle Cure 175

In the days of the Cold War, the tensions between the two military
blocs had been partially articulated through a stylised competition be-
tween the ‘two’ economic systems. This aspect of the conflict reflected
the ideological nature of political and economic thought on both sides
of the iron curtain. The revolutions of 1989 allowed for a reunification
of language and political discourse in eastern and western Europe
(Dahrendorf, 1990: 11–12). The new unified language reinforced the
perception of a complete catharsis of the political discourse as well as
of the political, economic and social structures. However, the end of
the ideological confrontation only started the much-needed re-evaluation
of the discursive interpretations of these institutional arrangements which
emerged during the Cold War. In the immediate aftermath, the per-
ceived radical break with the past obscured reality. Indeed, the velvet
revolutions did not undermine many of the myths and ‘instant histor-
ies’ about the Cold War. These discursive structures of the Cold War
influenced, if not shaped, the transformation from state socialism to
pluralist democracies and market economies in eastern Europe. At first,
the presumed destruction of the political, economic and social struc-
tures fostered unrealistic expectations among policy-makers. For ex-
ample, many of the policy solutions adopted suggest the widespread
belief among politicians that one economic system could just be re-
placed with another like equipping a car with a new engine. Indeed,
this assumption reflects the degree to which institutional structures are
internalised. Therefore, the complexity of rearticulating and reinventing
the political, economic and social structures has been underestimated.
Developments since 1989 have shown that institution-building is a far
more cumbersome process than policy-makers and observers had as-
serted and imagined. Among the folk tales of the Cold War period,
five myths about economic development, in particular, seem relevant
to a discussion of economic transition of Germany and eastern and
central Europe:

— National reconstruction myths: In 1945 Europe lay in ruins. The

state reconstructed the economy and as a result Europe experienced
an unprecedented boom.
— Competition of ideologies: At the end of the Second World War,
there existed ideological differences between the United States and
the Soviet Union. Soon each side felt threatened by the actions of
the other. As a result both sides rearmed and engaged in economic
competition.
— European dream: In the immediate post-war period, the German
176 Till Geiger

problem dominated the agenda. Each bloc created institutional frame-

works to contain the German threat; this led to a period of relative
stability.
— Convergence hypothesis: At the beginning of the great boom, econ-
omies conformed to either the capitalist or state socialist economic
structures. Economic reforms transformed the national economies
and as a result the economic systems started to converge.
— Thatcher revolution: In the 1970s, capitalist economies stagnated.
Therefore, governments disassembled the Keynesian welfare state
and privatised nationalised industries and as a result economic per-
formance in western Europe recovered.
At various stages, these myths simultaneously articulated and influ-
enced the politico-economic relationships in the European nation states
as well as between the two economic blocs. Being interrelated, these
discursive structures reflected and moulded the institutional arrange-
ments as well as political, economic and social structures. In 1989, the
conjunction of these discursive practices fostered the conviction that
the adoption of capitalism would overcome the economic backward-
ness of the former state socialist economies. Under the influence of
these discursive practices, policy-makers adopted certain policies over
alternative approaches to the economic transition process.1
Consequently, the first section of this paper is devoted to recon-
structing the historical developments underlying these patterns. The
following section will analyse how the various stories influenced the
actions of policy-makers in the aftermath of 1989. The last section
examines the economic consequences of some of these choices.

DISCURSIVE STRUCTURES OF THE COLD WAR ERA

National Reconstruction Myths

At the end of the Second World War, Europe lay in ruins. In the im-
mediate aftermath, national governments in both east and west lacked
political legitimacy to some degree. This lack arose from the long absence
of governments in exile or from the imposition of a particular govern-
ment by the victorious liberators. Despite national differences, the maxim
‘never again’ became the leitmotiv underlying national reconstruction
policies. Governments set out to address some long-standing economic
and social problems which ministers perceived as contributory causes
 Believing in the Miracle Cure 177

Table 8.1 Growth of output

(average annual percentage changes)

GDP 1950–52 to 1967–69

West Germany 6.2 East Germany 5.7

Austria 5.0 Czechoslovakia 5.2
Italy 5.4 Hungary 4.8
Spain 6.1 Poland 6.1
Greece 6.0 Bulgaria 6.9
Portugal 5.1 Romania 7.2
Total 5.9 Total 6.0

Source: Nita Watts, ‘Eastern and Western Europe’, in European Economy:

Growth and Crisis, ed. Andrea Boltho (Oxford: Oxford University Press), 1982,
259–86.

of the world crisis of the 1930s and ultimately the Second World War.
In western Europe, national governments pursued a combination of
five policy objectives: social welfare, full employment, development
of national agriculture, economic growth, and later military security
(Milward, 1994: 21–45). Similarly, eastern European countries embarked
on ambitious reconstruction programmes directed toward rapid indus-
trialisation. On both sides of the emerging iron curtain, the state as-
sumed a more visible role in the management of the economy. As
Table 8.1 shows, national reconstruction policies resulted in rapid econ-
omic development in both eastern and western Europe in the 1950s
and 1960s. On both sides, politicians attributed the economic boom to
the restructuring of the economy and choice of economic system. These
decisions about national reconstruction policies became part of the
mythology of the new European nation states.
In the case of West Germany, the ‘economic miracle’ myth cele-
brated the currency reforms and the associated reforms creating Erhard’s
soziale Marktwirtschaft (social market economy) (Giersch et al., 1994:
xi–xiii). The success of the Monnet plan paved the way for the endur-
ing commitment of the French government to planification (Hall, 1986:
139–91; Sautter, 1982: 450–71). Even in the dying days of the Ger-
man Democratic Republic (GDR), reformist politicians defended the
achievements of state socialism. In the case of East Germany, policy-
makers proudly remembered overcoming the massive problems of the
reconstruction period (Schabowski, 1992: 37–9, 281–2). The reform-
ers of the Prague Spring saw the social-democratic reconstruction policies
pursued by the democratic coalition government between 1945 and 1948
178 Till Geiger

as a model for future economic development (see the guarded refer-

ences in Šik, 1967: 44–77).

Competition of Ideologies

During the Cold War, the ideological conflict between the superpowers
led to the primacy of the security structure. In the immediate post-war
period, the opposing ideological standpoints led each of the main players
to misperceive the other superpower’s intention which resulted in an
unprecedented military build-up in peace-time. Both the Soviet Union
and the United States embarked on policies directed towards contain-
ing the perceived expansionism of the other superpower. Once the for-
mation of two opposing blocs became inevitable, both superpowers
sponsored the creation of military alliances in Europe. By the mid-
1950s, military competition had assumed the form of exceedingly dan-
gerous posturing. To an overwhelming degree, the national security
interests of the hegemon determined the parameters of all relation-
ships between the two blocs. On both sides of the iron curtain, the
different production structures reflected the economic system of the
dominant economy. As Stalin had insisted in conversation with Milovan
Djilas during the Second World War: ‘whoever occupies a territory
also imposes on it his own social system. Everyone imposes his own
system as far as his army has power to do so. It cannot be otherwise’
(Djilas, 1963: 90).
In eastern Europe, the Soviet leadership coerced most states into
adopting the Stalinist model of central planning. In contrast, American
policy-makers mainly relied on Marshall aid to promote the American
model of capitalism (Carew, 1987). In such a climate, any attempt to
steer a middle way between state socialism and capitalism soon floun-
dered. For a time, the post-war Czechoslovak government tried to
implement an alternative socialist system. In 1947, even the commu-
nist ministers supported defying the Soviet leadership and participated
in the Marshall Plan. Under Soviet pressure, the cabinet was forced to
reconsider and soon ended its act of defiance. Indeed, this episode
paved the way for the communist putsch in February 1948 (Kaplan,
1981; Krátky, 1994: 9–25). From the early days of the Cold War, any
attempt to bridge the two systems became impossible. Any departure
from the ‘right’ economic system under the communist power mon-
opoly prompted massive coercive pressure to bring the truant state back
to the fold. As a consequence, by early 1948 the Cold War divided the
world into two rival military and economic blocs. The clearest state-
 Believing in the Miracle Cure 179

ment of the competition between the economic systems remains

Khrushchev’s 1959 boast that the Soviet economy would overtake the
American economy by 1970 or 1980 at the latest. After the launch of
Sputnik, many western observers feared the economic challenge of state
socialism (Nye, 1990: 116; Nove, 1984: 356). Western analysts made
similar claims for capitalism. The strong ideological content of such
debates is reflected in the subtitle of Walt Rostow’s influential study
on the stages of economic growth – ‘A Non-Communist Manifesto’
(Rostow, 1960). In such comparisons, each side emphasised the ad-
vantages of their system in terms of stable economic growth, employ-
ment opportunities and economic security. Far from being constructive,
this discourse reinforced the ideological nature of the economic struc-
tures underlying the Cold War.

The European Dream

On both sides of the iron curtain, the ‘German problem’ exercised

national governments worried about the re-emergence of German mili-
tary expansionism in the future. The wartime allies fiercely debated an
array of plans to guard against such an eventuality. All these plans
envisaged the division of Germany into a number of smaller states,
reparations, total disarmament, the prohibition of the production of
military equipment, and severe restrictions on many important indus-
tries. France and the Soviet Union counted on German reparations and
deliveries from current production to assist their own reconstruction
plans. In contrast, Britain and to a lesser extent the United States pro-
moted the reconstruction of their occupation zones to limit the grow-
ing financial cost of the occupation, relief and rehabilitation effort. To
assuage French concerns, American policy-makers tied German recon-
struction to the provision of Marshall Plan aid for western European
modernisation (Milward, 1984). By then, Stalin himself had abandoned
hope for a unified, state socialist Germany and proceeded to integrate
East Germany into the eastern bloc (Djilas, 1963: 119). After the Marshall
Plan paved the way for a separate West German state, the French govern-
ment sought a defence guarantee from Britain and the United States
against a future German threat. At the same time, French ministers
persisted in their quest to attain some form of international control
over the heavy industry in the Ruhr. Protracted negotiations initially
resulted in an institutional framework satisfying none of the contract-
ing parties. The Schuman Plan broke the deadlock in 1949/50 by rec-
onciling the different interests among western Europeans.
180 Till Geiger

While the European Coal and Steel Community (ECSC) failed to

create an integrated market, the rhetoric established an aura around
the project of European integration. Arguably, the liberalisation of intra-
European trade and the formation of the European Payments Union
engendered western European economic integration. The tangible bene-
fits of economic integration convinced western European policy-makers
to establish the common market (Milward and Sorensen, 1993: 1–32).
Since 1957, the member states of the European Economic Community
(EEC) continued, albeit more slowly than intended, to translate the
treaty of Rome into reality. Implementing the European dream created
its own historical dynamic. In the changed circumstances of the 1980s,
western European policy-makers adopted the Single European Act (SEA)
to revitalise a sluggish European economy. As hoped, this bold initia-
tive accelerated economic growth and seemed to cure the so-called
Euro-sclerosis which had plagued western Europe since the early 1970s.
At the same time, the single European market heightened the impetus
for European monetary union (EMU) (Altvater and Mahnkopf, 1993:
72–92). Indeed, the French government saw EMU as a means to break
the Bundesbank’s rule over western European monetary policy (Dyson,
1994: 171–2). The relative success of the SEA initiative revived the
dream of European integration as a solution to all European woes (Altvater
and Mahnkopf, 1993: 11–15).

The Convergence Hypothesis

Historians have argued that the division of the world into two rival
blocs was completed by the mid-1950s. After years of intense con-
frontation, policy-makers in east and west accepted the emerging ground
rules underlying the Cold War (Loth, 1989). The threat of mutual de-
struction convinced policy-makers of the futility of any major military
confrontation. Indeed, both sides felt that the economic burden of the
arms race had become excessive (Ambrose, 1984: 541–53). Peaceful
coexistence, however, did not imply an end to the ideologically moti-
vated competition between the two hegemonic blocs. By the 1960s,
the state had assumed a more prominent role within capitalist econ-
omies. Meanwhile, economic reformers in eastern Europe argued for
the creation of markets within state socialist economies. However, such
reforms only partially succeeded. As a consequence of these develop-
ments, some analysts argued that two economic systems were con-
verging towards a third way between capitalism and socialism. Economic
convergence would eventually remove the underlying reasons for the
 Believing in the Miracle Cure 181

superpower confrontation (Wiles, 1990: 73–6). Indeed in the 1970s,

détente created a climate of accommodation between the blocs.

The Thatcher Revolution

As a backlash against the role of the state in the west, monetarists

such as Milton Friedman blamed governments for economic stagna-
tion, rising unemployment and spiralling inflation after the massive oil
price increases of 1973 and 1979. Higher unemployment was attrib-
uted to ‘excessive’ welfare provisions and trade union powers. All
economic woes arose from expansionary fiscal and monetary policies.
Unemployment benefits and state subsidies for failing nationalised in-
dustries contributed to the rigidities in the labour market and further
increased unemployment. Based on their analysis, monetarists recom-
mended the severe pruning of public expenditures, restrictive monetary
policies, curbs on trade unions, and the liberalisation of the economy
through privatisation of the nationalised industries and public services.
In Britain after 1979, conservative politicians embraced this radical
programme as a first step to regain the competitiveness of the British
economy. Margaret Thatcher presented her programme rhetorically as
a fight against ‘socialism’ blurring the distinction between the Keynesian
welfare state and state socialism. After a decade of the Thatcher ex-
periment, some economic indicators seemed to support the idea of a
rejuvenation. The globalisation of the world market forced national
governments to pursue similar economic policies of privatisation, de-
regulation and reducing welfare. However, other western European
governments adopted quasi-Thatcherite policies more slowly. As the
Mitterrand experiment in France in the early 1980s demonstrated, the
globalisation of the world economy restricted the scope for any na-
tional expansionary programme. Moves to improve national competi-
tiveness reflected concerns about Euro-sclerosis in the early 1980s.
However, compared with Japan and the United States, western Europe
seemed to fall behind and suffer increasingly from structural unem-
ployment. Arguably, national developments persuaded politicians that
Euro-sclerosis could only be addressed through deregulation at west-
ern European level. The relative success of the SEA initiative rein-
forced the rationale underlying national deregulation policy.
As the above summary shows, the five myths about economic de-
velopment during the Cold War emerged at different times and in different
contexts. To some extent, their messages varied in importance and
changed over time. Individual myths overlapped and enhanced one
182 Till Geiger

another, but they also contradicted and excluded other assumptions.

This raises the vital question: how did these myths – the national
reconstruction myths, the competition of ideologies, the European dream,
the convergence hypothesis, and the Thatcher revolution – influence
the policy choices of policy-makers during the early stages of the econ-
omic transition process in Germany and east-central Europe?

NEW UNCERTAINTIES, OLD CERTAINTIES AND THE

ECONOMIC REFORM PROCESS

In 1989, the velvet revolutions accomplished the unforeseen. With re-

markable ease, the collapse of state socialism occurred through the
surrender of the East European regimes first in Poland and Hungary,
later in East Germany and Czechoslovakia. Even more striking is the
fact that the rapid demise of state socialism remained an unforeseen
contingency for policy-makers in both east and west, even on the very
eve of the respective revolutions. Unprepared, policy-makers relied on
the relative certainties of the Cold War structures when confronted
with the uncertainties of the politico-economic aspects of the post-
Cold-War world. Western analysts and statesmen, in particular, fol-
lowed events from the sidelines in stunned surprise. State socialist
politicians did not fare any better in dealing with the unpredicted turn
of events. On both sides, policy-makers miscalculated their responses
under the pressure of constantly changing developments.
The question, as to why no one accurately predicted the demise of
state socialism and the centrally guided economies in eastern Europe,
has exercised many social scientists since.2 One possible explanation
is that the inaccurate expectations of the policy-making community
reflected recent historical developments. Paradoxically, the collapse of
the convergence hypothesis reinforced assumptions about the stability
of the Cold War structures in the 1980s. In addition, the ability of
both economic systems to overcome repeated economic failures cre-
ated the impression of the reformability of the economic structures in
the east as well as in the west.
How did policy-makers interpret the unpredicted? Far from ques-
tioning the failure of past theories, political discourse immediately
historicised the events within the context of the Cold War structures.
Policy-makers, who had come of age in a world of ideological compe-
tition, naturally interpreted the sudden demise of state socialism as the
victory of capitalism and western democracy. Taking this interpretation
 Believing in the Miracle Cure 183

to an extreme, Francis Fukuyama heralded the events by claiming that

modern societies had reached the ‘end of history’ (Fukuyama, 1992).
In eastern Europe, meanwhile, politicians suggested that the new de-
mocracies had returned to Europe. Having shaken off the Russian yoke,
little in their eyes separated the emerging civil societies in eastern
Europe from their western neighbours (Dahrendorf, 1990: 93–100).
Beyond instant history, the Cold War’s discursive structures shaped
the aspirations of policy-makers, élites and the public. The long years
of ideological competition contributed to the apprehension about the
‘reintroduction’ of capitalism among many eastern European intellec-
tuals. In their eyes, the end of Soviet domination would not only speed
the end of state socialism but also open the floodgates to the worst
excesses of capitalism. In 1985 György Dalos summed up this am-
bivalence in the following ominous conclusion, about what would happen
if a modernising Soviet leader wanted to reduce the massive expendi-
ture of its vast Empire:
[After] the Soviet troops have been seen off with marching music
and flowers . . . the countries of the former eastern bloc will create
parliamentary institutions, they will open their borders and guaran-
tee individual rights including a sensibly regulated right to private
property. Everything else – the McDonald’s chain, unemployment,
and peep shows – will emerge by itself. (Dalos, 1991: 185)
Faced with this nightmare senario, many on the left in eastern and
western Europe expected (or hoped) that the new democracies would
adopt a ‘third way’ – an economic system between state socialism and
capitalism (Lipp, 1989: 5–7). To some extent, this support for a ‘third
way’ reflected the admiration that many intellectuals felt for the ex-
periment of ‘socialism with a human face’ in the Prague Spring of
1968. Hoping to preserve the cultural credo of the underground, these
dissident intellectuals expected the implementation of Ota Šik’s hu-
mane economic democracy to pave the way to a more egalitarian so-
ciety (Dahrendorf, 1990: 53–69; Engler, 1991: 48–75). These discussions
soon fizzled out due to the lack of a coherent blueprint for such an
alternative economic model (Nuti and Portes, 1993: 1). Moreover, existing
models were themselves flawed to varying degrees. For example, Šik’s
vision of a ‘third way’ overburdens the democratic process with de-
tailed economic allocation decisions. To be operable, the system would
have to rely heavily on state intervention. Therefore, this blueprint
would lack the legitimacy of an alternative model of economic reform
in eastern Europe where state institutions were thoroughly discredited
184 Till Geiger

(Geiger, 1995). Adopting an alternative economic system would have

clashed with the desire of many eastern Europeans for an early ‘return
to Europe’ and ruled out their integration into a wider European Com-
munity (Sachs, 1993: 3–26).
The twin objectives of a rapid transition to democracy and early
membership of the European Union almost necessitated the switch to
a market economy (Przeworski, 1991: 8). Against this background, eastern
European policy-makers attempted to model a post-reform economic
system on western European mixed economies. To legitimise their reform
programmes, policy-makers borrowed from the treasure trove of his-
torical examples. In 1989, the Polish prime minister Tadeusz Mazowiecki
sought to appoint the Polish Ludwig Erhard to spearhead the new govern-
ment’s radical economic reforms (Sachs, 1993: 83–7). By associating
the ‘Balcerowicz Plan’ with Erhard’s radical reforms in 1948, Mazowiecki
created the impression that the future path of Polish economic devel-
opment would evolve along the lines of the West German post-war
miracle – the Wirtschaftswunder. West German politicians made a similar
mental link drawing a direct parallel between post-war reconstruction
in West Germany and economic unification of post-Cold War Ger-
many. Through the currency reform and the introduction of the market
economy in former East Germany, German economic, monetary and
social union (GEMSU) would trigger another economic miracle at a
single stroke (Heilemann and Jochimsen, 1993: 14–16). In the case of
Germany, the national reconstruction myth proved politically potent
despite the tarnished recent record of the West German economy. The
questionable historical analogy notwithstanding, the Wirtschaftswunder
myth became a source of inspiration for the unification process (Carlin,
1992: 335). In Poland, another western myth influenced the initial for-
mulation of policy. The Thatcher government’s sell-off of nationalised
industries and public services provided the framework for the first Polish
privatisation law. Perceived success in the west recommended the British
model to Polish policy-makers. In their initial judgement, policy-makers
ignored the totally different scale of privatising the state sector in eastern
Europe (Sachs, 1993: 83–7).
These examples show that policy-makers in east and west sought
refuge in the reassuring security of established political discourses.
Through these rhetorical allusions, policy-makers plotted for themselves
and their electorates the path to a ‘better future’. Armed with reassur-
ing economic advice from western economic advisers, policy-makers
boldly faced the future under the banner of ‘democracy, market, Eur-
ope’. The search for a paradigm for political and economic transition
 Believing in the Miracle Cure 185

in the former state socialist countries stood in the way of understand-

ing the institutional barriers to implementing the policy-makers’ dream
for a brighter future (Hirschmann, 1970: 329–43). Initially, the rhet-
oric deflected from the fact that once the iron curtain had been perfor-
ated, the post-Cold War era would quickly turn into a policy-maker’s
nightmare. Confronting this nightmare, old certainties offered solutions,
albeit illusory ones to the unanticipated and as yet unknown problems
of political, economic and social transition.
Evolving discursive practices quickly narrowed the potential for change
by defining and limiting the political agenda. During the velvet rev-
olutions, events also dictated, shaped and altered the options for policy-
makers. A dramatic example of the rapidly changing agenda remains
the East German street demonstrations. On the streets, the initial call
for change, associated with ‘we are the people’, soon evolved into the
demand for unification, expressed by ‘we are one people’ after the fall
of the Wall (Heilemann and Jochimsen, 1993: 57; Engler, 1991:
48–75). As the fog lifted, the emerging but still shifting agenda pointed
in the direction of an uncertain and indeterminate future driven by the
aspirations, imagination and rhetoric of the velvet revolutions. In this
context, the role of policy-makers became crucial in translating the
agenda of the street into a coherent political and economic programme.
However, how far did these discursive structures not only shape the
perceptions of policy-makers but also influence their actual behaviour
and policy response? The velvet revolutions marked the beginning of
an historically unique period of social change. This uniqueness im-
plies that the eventual result of redefining political, economic and social
relationships is ex ante not only uncertain but indeterminate. This dif-
ference is vital. In an established democracy, the outcome of a deci-
sion might be uncertain, yet, the process by which decisions are reached,
implemented or contested is constrained by an institutional framework.
However in eastern Europe, these institutions have not yet been firmly
embedded within society. After all, the eastern European experiments
of transition to democracy might well end in renewed authoritarian
rule. In this situation, economic development could be an important
element to ensure the future social cohesion of a new democracy
(Przeworski, 1991: 10–40).
In an historically unique situation, certain discursive practices may
not be appropriate. For example, the discursive practice of economists
rests on the assumption that economic laws apply everywhere, even in
different cultural settings or in exceptional circumstances. Their opti-
mism regarding the universal applicability of economic laws represents
186 Till Geiger

the proverbial straw which western economic advisers are offering to

policy-makers to grasp (Adams and Brock, 1993: 21–43). Initially, these
economists seemed to ignore the antagonism between their universal
rules and the historical uniqueness of economic transition (Hirschmann,
1970: 329–43). Tainted by the deceptive simplicity of their economic
models, economists exclude political complexities from their discus-
sion of the economic transition process (Adams and Brock, 1993:
103–17; the missionary zeal of economists is often reflected in the
titles of their works, see for example Kornai, 1990; Sachs, 1993). For
many economic advisers, policy-makers should take decisive action to
rearticulate all economic relationships according to the blueprint of
western market economies while ignoring the cost involved. Indeed, a
sense of historical occasion seemed to breed its own unique bravado
among policy-makers. Policy-makers trusted their own historical meta-
phors rather than their customary caution regarding institutional change.
In this context, the imperative for decisive change crowded out the
incremental nature of institutional change in times of normal politics
(Dahrendorf, 1990: 71–108). However, such trust may lead to hasty
solutions which will prove defective in the long run.
Together with existing institutional structures, historical discourses
contributed to the historical uniqueness of the velvet revolutions. How-
ever, discursive structures are just one element among a number of
independent factors ‘over-determining’ the course of history (Hirschmann,
1970: 329–43). In different historical circumstances, a post-communist
government would in all likelihood have received different economic
advice. In the immediate post-war period and in the 1960s, Keynesian
economists might well have counselled a more gradual approach. Today,
economists favour a big bang and a radical approach to economic re-
form which reflects the dominance of neoclassical and monetarist ideas
in the profession. Despite overwhelming support among economists,
such ideas might not have appealed to post-communist governments
under different circumstances. Through the Thatcher revolution, a
monetarist policy regime acquired around 1989 the kudos of knowing
the recipe for economic success. The World Bank spread this message
by claiming that a diminished role for of the state would engender econ-
omic development after the Cold War (World Bank, 1991: 109–47).
Therefore, discursive structures matter, because they shape percep-
tions, set the agenda and determine the choices of policy-makers.
 Believing in the Miracle Cure 187

RÉGULATION IN A MOMENT OF HISTORICAL UNIQUENESS

The emerging discourse of instantaneous history resumed the ‘as yet

untold story’ of the economic reform process and its ‘fairytale ending’
by investing the story with new meanings: ‘In a former state socialist
country, the old political system collapsed. The process of economic
transition freed society and reintroduced the (universal) economic in-
centives of a market economy, then as a result the country became
rich.’
Elements of the five discursive structures outlined at the beginning
of this chapter projected a homogeneity onto the events of 1989. The
past did not just explain events, but neatly fitted them into established
discourses. According to the script of the ‘untold story’, economic success
depends on putting in place a catalogue of ‘freedoms’ (the right to
own private property, to trade, to contest markets, to enforce contracts,
to compete, etc.) (Dahrendorf, 1990; Kornai, 1990). In surrendering
the mind (state intervention), the body (society/market economy) will
follow. However, the assumption that it is best to leave economic de-
velopment to the automatism of market mechanisms is one of the myths
of our age (i.e. a crucial element of the Thatcher revolution) (Laclau,
1990: xi–xv). It ignores the fact that these fundamental elements are
only given meaning as the articulation of economic relations in a par-
ticular social context. In the end, the ‘untold story’ ignores the discur-
sive nature of the reform process itself.
This analysis has treated myths as a reflection of how communities
(i.e. policy-makers, economists, citizens, the Atlantic ruling class, the
nomenklatura) construct social identities by identifying elements of
political or economic developments as defining moments. These moments
in concrete discourses (particular stories, specific myths) are perpetu-
ated through articulatory practice (Bertramsen et al., 1991: 55–7). Through
discursive practice, any concrete discourse is constantly renegotiated
and constructed. In this open-ended process, the meanings of moments
are reinterpreted as the discursive practice changes. In the case of West
Germany, economic prosperity (the result of the Wirtschaftswunder)
became a defining moment of citizenship (Habermas, 1990: 209). To
some extent, this discursive practice ignores major elements and the
material basis of the West German mode of régulation (i.e. the articu-
lation of economic relations and institutional structures).3 While for-
gotten in discursive practice, these elements underpin modes of régulation
potentially outlasting a concrete discourse. In a situation of unique
change, concrete discourses offer meaning to developments in their
188 Till Geiger

own logic until new social identities have been renegotiated. While
any concrete discourse can inform social action (our myths influencing
governments’ policy agenda), only through discursive practice can so-
cial identities be renegotiated and constructed redefining the relation-
ship and structure of state, economy and society.
In the field of economic reform, three myths proved particularly
influential: the economic competition between the two economic sys-
tems, the ‘return to the market’ battle-cry of the Thatcher revolution,
and the Wirtschaftswunder myth. These concrete discourses interpreted
the reform process in terms which equated the transition of establish-
ing institutional forms with the defining moments of these three dis-
cursive structures (capitalist economic development, privatisation and
deregulation, political stability of the social market economy). In an
historically unique situation, the discursive practices of the revolution-
ary force may be influenced by established stories offering concrete
articulations of their aims (e.g. to establish a civil society, human rights,
economic freedom and prosperity). In a revolutionary situation, the
persuasiveness of concrete discourses lies precisely in the fact of their
concreteness compared with the yet undefined new social identities.
The process of transition from one mode of régulation/development
to another requires the discursive renegotiation of economic relation-
ships. However, the institutional economic and political structures cannot
be changed within a short period of time (Bertramsen et al., 1991:
193–5). Even in circumstances of normal economic development, changes
of production methods trigger a difficult and lengthy adaptation of the
economic arrangements governing wage determination, forms of com-
petition, financing of investments, nature of state, degree of openness
of the economy and international trade (Boyer, 1993: 7–80; Boyer,
1992: 55–103).
The structural limits to discursive practice or decisive intervention
redefining the mode of régulation are substantial in East Germany and
east-central Europe. For example, the industrial base is outdated, the
infrastructure in serious disrepair and the service sector underdevel-
oped. While the legitimacy of the central planning authorities and the
nomenklatura has been eroded, the arrangements governing worker
representation and/or management of state enterprises in Poland and
Hungary remain virtually unaffected by the collapse of communist party
rule. By 1989 institutional arrangements had already weakened the control
of the state over economic relationships in both countries. The public
demand for a radical break with the past was loudest in East Germany
and Czechoslovakia, where state control had been the tightest (Frydman
 Believing in the Miracle Cure 189

and Rapaczynski, 1994: 141–67). East Germans opted to transplant

the existing arrangements of another system. Only in the Czech Re-
public did the unique opportunity materialise to start with a clean slate
as far as economic management was concerned (Kosta, 1991: 301–25).
In this model, the state is a crucial, but not the only, determinant of
the mode of régulation. Despite the collapse of state socialism, exist-
ing interest groups who have a vested interest in current institutional
arrangements may resist change. The reform process may be histori-
cally unique, but its inner dynamics are shaped by past arrangements
which survived the collapse of the old system. The ability of societies
to redefine an appropriate mode of régulation will determine whether
the transition from a state socialist economy to a market economy will
be successful. By extension, this theoretical approach rejects the no-
tion of a universal economic policy regime (or mode of régulation).
Societies have to find an ‘appropriate’ mode of régulation which ac-
commodates its institutional structures and changes in the economic
arrangements. Only a sufficient degree of flexibility to social change
will engender harmonious economic development (Altvater, 1992:
50–68).
The reform process is a subject of constant debate. Compared with
the detailed economic advice offered to western governments, many
policy proposals are characterised by uncharacteristic fervour (given
the normal discursive practices among economists). The policy pro-
posals are very essentialist, focusing on the major tasks of renegotiat-
ing economic institutions and arrangements. This discourse demands
an ‘end to state control’ and a ‘return to the market’. As these econo-
mists realise, decisive action to establish competitive market structures
requires determined state intervention on a massive scale. Consequently,
only a strong government will end the uncertainty about a return to
state socialism (Sachs, 1993; Kornai, 1990). In east-central Europe,
state socialism thoroughly undermined the legitimacy of government.
The new governments will need time to acquire a sufficient degree of
legitimacy to risk unpopularity. At the same time, the government has
to strike a balance between the programme of radical reform and pur-
suing economic stability (full employment, low inflation, sustainable
economic growth) (Dahrendorf, 1990: 71–108). For example, to avoid
price reform leading to hyperinflation, the government has to negotiate
with other agents to contain inflation. In economic theory, it might be
sufficient to adopt a restrictive monetary policy regime limiting mon-
etary growth and bank lending. Beyond this theoretical discourse, state
intervention alone is not enough as managers and trade unionists will
190 Till Geiger

have to exercise wage restraint as well. Such cooperation might be

difficult to achieve or maintain because in the past firms circumvented
wage restrictions by borrowing from other state enterprises. As long
as state enterprises cannot go bankrupt, managers would rather agree
to the wage demands of their employees in response to price rises. In
Poland, the expansion of informal credit between enterprises has at
times undermined the government’s anti-inflation policy (Calvo and
Coricelli, 1992: 176–226).
Therefore, policy-makers have to renegotiate new discursively con-
structed arrangements and institutional structures to facilitate coopera-
tion between all economic agents and to achieve longer-term economic
stability. In this process, the government will meet opposition, if other
groups feel their interests are threatened. Thus, to ensure political ac-
ceptability of the economic reform process, governments have to ad-
dress social concerns and reform the welfare system. The government’s
discursive strategy should take account of the fact that all transition
strategies require a massive leap of faith across all sectors of society.
As any policy choice might have lasting implications for the emerging
mode of régulation, policy-makers have to find a discursive strategy
which will attract sufficient consent.
If economic transition is an intensely discursive process, then the
debates over key elements in the reform process will be marked by the
clash of differing discursive practices. For example, the debate over
the conversion rate of the East German currency (Ostmark) shows the
process of renegotiating economic relationships while failing to con-
struct a unifying discourse around the decision. In early 1990, the Euro-
pean Commission outlined the conundrum faced by policy-makers:
[a] crucial point will be the conversion rate(s) of East German marks
into Deutschmarks. The choice of the rate(s) must hold the balance
between the need to avoid creating excessive purchasing power, weak-
ening the competitiveness of East German enterprises and causing
unemployment as a result, and the need to take account of the Ger-
man Democratic Republic population’s expectations that wages and
pensions will catch up with West German standards. (EC Commis-
sion, 1990: 11)
Chancellor Kohl seized the opportunity and intervened decisively.
Concentrating on the historical task of unification, Kohl emphasised
meeting the expectations of the East German population. Without con-
sulting his cabinet and the Bundesbank, Kohl offered the principle of
an 1:1 exchange rate for most money and small savings (Marsh, 1993:
 Believing in the Miracle Cure 191

206–17). This surprise move reflected Kohl’s ambition to achieve an

early settlement of the terms of unification. To justify the 1:1 conver-
sion rate, Kohl and his ministers drew a discursive link between the
1948 currency reform and the 1990 currency conversion suggesting
that the introduction of the West German currency into the GDR
(D-Mark) would result in another Wirtschaftswunder (Schmieding, 1991:
189–211).
Given the discursive practice linking citizenship with West Germany’s
economic strength, any other exchange rate would have amounted to
excluding East Germans from full participation in the West German
state. Moreover, the chancellor’s agreement to the favourable terms of
GEMSU should be interpreted as a move to prevent the potential mass
migration of East Germans to the west, undermining the existing insti-
tutional arrangements underpinning the West German economy
(Rothschild, 1993: 259–66). The chancellor’s action established a mo-
ment in unification discourse. However, this decision flew directly in
the face of the advice given by the Bundesbank or professional econo-
mists. Their discursive practice focused much more on the future com-
petitiveness of East German industry and potential implications for
unemployment resulting from choosing the wrong rate. Kohl’s politi-
cal choice did not reflect either the black market rates for the eastern
Mark (7:1 to 11:1) (Sinn and Sinn, 1993: 67) or the official rates for
commercial transactions4 or tourists (2 : 1 to 5 : 1) (Deutsche Bundesbank,
1991: 128–9) at the time. After GEMSU, purchase power comparisons
have shown that the 1 : 1 exchange rate did roughly reflect the correct
rate (Sinn and Sinn, 1993: 65–72). However, as the East German of-
ficial rates extremely overvalued the currency in terms of international
competitiveness, East German export industry could no longer com-
pete in eastern European markets, industrial production collapsed, and
unemployment rose to unexpected levels (Priewe and Hickel, 1991:
56–81). Despite this structural spanner in the works of Kohl’s discur-
sive promise of a bright future, a political U-turn to take account of
the misgivings among Bundesbank officials and sceptical economists
became impossible. Once the offer had been announced publicly, any
adjustment to ease the consequences for the competitiveness of East
German industry or reduce the financial implications for West Ger-
many could not be contemplated. The open disagreement between the
Bundesbank and the Kohl government soured and altered the relation-
ship between the two, as would become visible again over EMU (Dyson,
1994: 348–51). In the context of domestic politics, the Kohl govern-
ment appeased West Germans by promising nothing would change and
192 Till Geiger

East Germans by offering economic prosperity as symbolised by the

D-Mark. According to the chancellor’s rhetoric, the settlement offered
unification without tears as a fitting end to the years of ‘unnatural’
division (Offe, 1993: 282–301).
The terms of GEMSU ruled out alternative economic strategies or a
more gradual transition. Kohl’s discursive practice suggested that West
German economic institutions and arrangements could be simply trans-
ferred. However, as the East German example shows, institutional ar-
rangements do not transfer easily or adjust as flexibly as past experience
would suggest. The collective wage-bargaining arrangements in the former
West Germany were renowned for the ability of both employers and
trade unionists to accommodate economic change. The conversion rate
for the East German Mark had disastrous consequences for East Ger-
man industry, raising their unit wage costs above West German levels.
With a different conversion rate, this problem would have been avoided.
To correct its mistake, the Kohl government called for wage restraint.
Accepting the political inevitability of unification and the terms of
GEMSU, economists started to preach similar wage restraint. In line
with the government’s optimistic rhetoric, economic advisers now claimed
that the healthy state of West German public finances would enable
the government to finance the implications of unification by increased
borrowing. The extent of this self-deluding optimism is revealed by
the assumption that the additional public expenditure could be met by
the peace dividend.5 West German politicians and government econ-
omic advisers constructed a new unifying discursive practice proclaiming
that the Aufschwung Ost (Upswing East) was just around the corner
provided everyone pulled together. To many East and West Germans,
this discursive practice seemed designed to whip up courage while
blithely ignoring the reality of unemployment and deindustrialisation
(Priewe and Hickel, 1991: 195–8). This differing interpretation became
obvious over the issue of wage restraint. Where in the past unions
might have heeded such an appeal, trade unionists now resisted the
government’s attempts to shift the economic cost of unification on to
the workforce. Within the trade union movement, the radical nature of
economic change led to divisions over a national wage strategy rather
than to solidarity among workers (Altvater and Mahnkopf, 1993:
185–214; Busch, 1994: 188–91). While demanding wage restraint, the
discursive strategy of politicians to ‘rebuild one nation’ assumed new
additional financial commitment, such as moving the seat of the federal
government from Bonn to Berlin (Dornbusch and Wolf, 1992: 235–72).
The government’s line on unification assumed that solidarity would
 Believing in the Miracle Cure 193

emerge spontaneously and ignored the growing rift between the dis-
cursive practices in East and West Germany (Offe, 1993: 282–301).
The government’s discursive strategy over unification raised a few
eyebrows abroad. During the negotiations of GEMSU and political
unification, Kohl asserted the primacy of his domestic political mis-
sion. Later, the government would argue that given the unstable nature
of Russian politics a speedy settlement had to be found in order not to
miss this unique opportunity for unification (Rothschild, 1993: 259–66).
This imperative, however, does not excuse the hair-raising manner in
which Kohl bulldozed through the unification settlement at European
and international level (Habermas, 1990: 205–06). After all, Kohl might
have been expected to inform, if not consult, his friend François
Mitterrand over the conversion rate before making his infamous offer
(Dahrendorf, 1990: 127–8). As the chancellor normally likes to por-
tray himself as a staunch believer in the European dream, ignoring the
legitimate interests of the FRG’s neighbours reinforced the apprehen-
sion of West Germany’s EC partners about unification. The Cold War
discursive practice of decrying the iron curtain and the division of
Germany now made it hard for the western European countries to ob-
ject to unification. From the start of the unification process, the other
EC partners (in some cases reluctantly) accepted that East Germany
represented a special case for accession to the Community.6 As pay-
master of the Community, the Kohl government could, to some extent,
disregard the objections of other western European governments to
unification. Despite this turn of events, the legal hairsplitting of the
Kohl government over the terms of unification did little to improve
the legitimacy of the settlement domestically or at European level (Offe,
1993: 282–301).
Since the formation of the European Coal and Steel Community, a
defining moment in the European dream had been the construction of
an institutional framework not merely as a basis for peaceful coopera-
tion but also as a safeguard against future German expansionism. Even
NATO and the common market never offered more than this rhetorical
guarantee for continued cooperation on the basis of good neighbourli-
ness. The primacy of the domestic agenda seemed to push the Euro-
pean dream off the West German policy agenda adding to the suspicions
that a unified Germany would become a bully rather than remain the
trusted partner within the EC. Believing in the stabilising nature of
European integration, the EC members decided to deepen the economic
union at Maastricht. By drawing the unified Germany deeper into the
institutional framework, the French government believed the potential
194 Till Geiger

threat could be contained (Dyson, 1994: 12). To assuage its western

European partners, the Kohl government signed up for the next stage
in the integration process, the European monetary union (EMU). De-
spite the initial tensions, the discussions among EC members renego-
tiated the European dream to accommodate German unification in the
Maastricht treaty. In the member states, the new discursive consensus
among policy-makers did not necessarily meet the support of the elec-
torate. Despite the efforts of the Mitterrand government to persuade
the public, French voters came close to rejecting the Maastricht treaty.
The attempt to reassure western European partners similarly backfired
on Kohl as (West) German taxpayers increasingly resented the tax increases
resulting from the government’s largesse over the EC budget. More-
over, the Bundesbank, having lost the argument over currency conversion,
openly defied the German government’s commitment and actively under-
mined the EMU process (Eichengreen and Wyplosz, 1993: 109–13).
Another challenge to the new European élite consensus came from
the declared desire of the new democracies in east-central Europe to
join the EU. Early EC membership came to be seen as a ‘return to
Europe’ by many policy-makers in east-central Europe, stabilising the
achievements of political revolution and modernising their economies
through participation in the European dream. The rapid modernisation
of Spain after the death of Franco seemed to confirm the benefits of
economic integration into the European market (Sachs, 1993: 3–26).
Western policy-makers responded to this plea for admission into the
fold of the EC with some scepticism about the ability of eastern Euro-
pean states to adhere fully to the acquis communautaire.
While sharing this view, leading politicians close to the Kohl govern-
ment argued in a policy document on European policy that unless the
EU accepted a major role, ‘ . . . Germany might be called upon . . . to
try to effect the stabilisation of eastern Europe on its own and in the
traditional way’ (Schäuble and Lammers, 1994: 3). This discursive
practice fuelled the apprehensions in east-central Europe about Ger-
many’s future role in Europe (Dahrendorf, 1990: 114–28). Without the
experience of the extensive dialogue between the EC member states,
such fears reflect the unhealed scars of previous German attempts to
control the region through economic imperialism in the 1930s and the
Second World War. During the years of Cold War confrontation, rec-
onciliation proved difficult since both sides lacked any shared discourse
through which to confront the past constructively (Ibid., 10–13). After
the revolutions of 1989, West German politicians did not treat the cease-
less demands for reassurance of its peaceful intentions with the required
 Believing in the Miracle Cure 195

sensitivity. The initial refusal to guarantee Poland’s western border

and entertain compensation claims reeked of an emerging
D-mark imperialism (Habermas, 1990: 205–6). Since then, German poli-
ticians have become the leading lobbyists for a financial aid package
for east-central Europe. This reflects the growing awareness that Ger-
many should not contemplate assisting east-central Europe without support
from its EC partners. As the other member states lacked Germany’s
direct security interest, the EC aid effort has remained a trickle com-
pared to the need for another Marshall Plan (Cox, 1993).
From the perspective of the new market economies, the objective of
gaining access to the EU internal market acquired paramount impor-
tance. The ‘trade not aid’ rhetoric fell foul of the protectionist outlook
of some EU member states (Inotai, 1994: 139–65). One of the major
concerns is the economic impact from certain ‘sensitive’ imports from
the new market economies in the east. In the case of full membership,
members would lose the existing degree of protection from these im-
ports and the financial support from the structural fund. To some ex-
tent, the European Commission mitigated these protectionist inclinations
of member governments in the negotiations of the Association Agree-
ments with the east-central European states (Nicolaïdis, 1993: 196–
245). The Commission thus pursued a ‘dual’ strategy and was in favour
of member states constructing a Europe of concentric circles. While
continuing the process of economic integration, the association agree-
ments failed to reduce the EU’s trade barriers sufficiently despite the
EU’s rhetorical commitment to trade liberalisation (Busch, 1992: 323–6).
The half-hearted approach of the association agreements bars the east-
central European market economies from full integration into the world
economy. Rather than interpreting the original provisions of the agree-
ments restrictively, the EU countries should liberalise trade relations
further. Such a strategy would be mutually beneficial improving western
European competitiveness in the world economy (Inotai, 1994: 139–65;
Schumacher and Möbius, 1993: 113–75).
The EU’s invidious reluctance to open its markets to ‘sensitive’ imports
from eastern Europe, calls into question the wisdom of the economic
advice that openness to the global economy will speed the modernisa-
tion of domestic industry. Under pressure from the protectionist mem-
ber states, the EU has been reluctant to grant immediate access to
east-central European imports of agricultural products, basic materials,
semi-manufactured goods and textiles (see Inotai, 1994: 146). Trade
liberalisation rules out any attempt to pursue a strategic trade policy
which affords domestic industry a degree of infant industry protection.
196 Till Geiger

At the same time, east-central Europeans cannot in the short term earn
enough foreign currency through exports to finance the modernisation
of industry. Therefore, east-central Europeans rely on a rescheduling
of the existing external debt, massive capital imports and foreign direct
investment from the west (Houbenova-Dellisivkova, 1994: 217–32;
Vincentz, 1994: 175–95). Western economic advisers justified their
rhetorical adherence to openness by insisting that imports will increase
internal competition and curb the monopoly power of large state en-
terprises before their privatisation (Sachs, 1993: 47–52; Adams and
Brock, 1993: 58–9). In the end, this rhetorical strategy recognised that
the government can decide to open the economy in concert with financial
assistance from abroad, but the mass privatisation of state enterprises
needs to be discussed more fully (a survey of the privatisation policies
in the various east-central European countries can be found in Frydman
et al., 1993; the merits and disadvantages of the various approaches
are discussed in Bornstein, 1994: 233–58).
The debates over privatisation have focused on whether state enter-
prises should be sold off to the highest bidder or distributed through
vouchers to the general public or to the employees of state enterprises.
The crucial issue remains the establishment of a system of corporate
governance which ensures competitive behaviour by the newly priva-
tised firms (Frydman and Rapaczynski, 1994). While any settlement
has to safeguard the interests of employees and the public in an equi-
table distribution of the national wealth, the state should maximise the
potential revenue to help finance economic transition (Bolton and Roland,
1992: 275–309). In this respect, the greatest threat to social stability is
the process of spontaneous privatisation whereby managers sell com-
pany assets below price and acquire them for their newly formed com-
panies (Frydman and Rapaczynski, 1994: 141–67). The gradual progress
of economic reform in east-central Europe (Poland, Czech Republic,
Slovakia and Hungary) reveals that, contrary to economic advice, price
and macro-economic stabilisation are by themselves insufficient to achieve
the transition to a market economy (Portes, 1993). To transform the
system, governments will have to attach more importance to privatisa-
tion and trade liberalisation (Welfens, 1993: 319–44). Such progress
will only be possible in dialogue between all interests in society and
at a European level. Maybe the time has come to consider a more
gradual conversion which preserves social stability and prevents a re-
distribution of social wealth to the old nomenklatura in east-central
Europe. But even gradualism needs a strategy, rather than become a
third way by default.
 Believing in the Miracle Cure 197

CONCLUSION

In the new Europe, political stability depends to a large extent on se-

curing economic prosperity in the medium term. At present, existing
domestic and intra-European institutions are under great strain. The
current problems require reform of existing agreements or new, possi-
bly more flexible, institutional arrangements. Only open dialogue among
all Europeans can find new solutions to recast the current European
order. Among the alternatives, further and wider economic integration
might offer the best route to attaining economic and political stability
at the doorstep of the European Union (Buzan et al., 1990: 202–28,
253–60). The multilateral institutions created in the post-war period
provide useful models for such efforts (Ruggie, 1993: 3–47). Intergovern-
mental cooperation (e.g. in a reformed EU) depends on assuring indi-
visibility of benefits (east-central European states should become full
members), generalised organising principles (acquis communautaire),
and diffuse reciprocity. This programme demands that EU members
abandon their current dual strategy and adopt a more flexible approach
to the integration of east-central Europe. Given the political will, the
European dream should be opened to aspiring members to renegotiate
and construct the European house of the future. Within the current
institutional framework, east-central Europe will have to wait until its
economies converge with those of the current members. To serve the
wider European community, old discursive structures should themselves
be rethought and replaced as a part of finding new institutional ar-
rangements appropriate for a new Europe. In an atmosphere of good
neighbourliness, Europe would be more likely to thrive if the strains
and costs of economic transition could be better accommodated. This,
in turn, would ensure Europe’s economic and political security.

NOTES

* I would like to thank Niamh Early and Michelle Twoomey for their useful
criticisms of an earlier draft of this paper. I am grateful to Hilary Owen for
reading the final draft and making some invaluable suggestions. All mistakes,
however, are entirely my own.

1. This analysis defines discourse as an ‘open and decentred structure in which

meaning is constantly renegotiated and constructed’; see Bertramsen et al.,
198 Till Geiger

1991: 55–6. Stories and myths form part of concrete discourses established
through articulatory (or discursive) practices and reflect how communities
define their social identity. Discursive structures refer to the structural re-
lationship between these five privileged discursive practices in a wider sense.
See also the discussion in the final section of this chapter.
2. For the reasons of this failure to predict the collapse of the Soviet empire,
compare Collins and Waller, 1993: 302–25; Waldrauch, 1994: 433–45.;
Gaddis, 1993: 5–58; Cox, 1994: 29–44.; Ticktin, 1994: 45–58. Even the
most critical analysts did not predict that the centrally planned economies
faced such an immediate end; compare Winiecki, 1986: 543–61.
3. In the French régulation theory approach, the concept régulation refers to
the institutional structures and arrangements governing the economy in-
cluding the government, the representation of industry, and trade unions.
The mode of régulation refers to the national articulation of the institu-
tional accommodation of economic relationships. On this point, see the
translator’s note to Boyer, 1979: 99–118. For a critical survey of this ap-
proach, see Boyer, 1986.
4. The GDR’s State Trade Bank (Deutsche Aussenhandelsbank) often oper-
ated with a myriad of different exchange rates depending on the transac-
tion. For an indication of the various rates, see Marer et al., 1992: 144–5.
Under state socialism, both east-central European countries and East Ger-
many sustained their over-valued exchange rates by carefully managing
their foreign trade through state trading organisations.
5. For an optimistic assessment of economic transition by a senior economic
adviser to the Kohl government, see Siebert, 1991: 289–340. On the peace
dividend, see Dornbusch and Wolf, 1992: 235–72. For an openly critical
assessment of such suggestions, see Deutsche Bundesbank, 1992: 5–6.
6. Article 23 of the West German Basic Law provided for the accession of
the former East German states to the Federal Republic. If the two German
states had chosen the alternative route to unification enshrined in article
146 of the Basic Law, the procedure might have been more difficult from
the perspective of the EC; see EC Commission, 1990: 9–10.

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9 Germany’s Security Policy
Dilemmas: NATO, the WEU
and the OSCE
Adrian Hyde-Price

More than half a decade after unification it is appropriate to assess

Germany’s changing role in the European security system. What has
been the response of the Bundesrepublik Deutschland (BRD) to the
new responsibilities placed on it by the ending of the east–west con-
flict and with it, of the ‘short’ twentieth century (Hobsbawm, 1994)?
What is the wider significance for Europe of post-war Germany’s for-
eign and security policies? Bonn’s evolving security policy must be
seen not only in the light of changes since 1990, but also in terms of
Germany’s troubled history and its unique geopolitical situation.
The concern of this chapter is thus to assess the main trends, direc-
tions and dynamics of Germany’s security policy since unification in
1990, and to situate them in their historical and geopolitical context.
The chapter begins by considering the implications of the ‘German
problem’ for European security, and goes on to assess the implications
of Cold War bipolarity for West German security policy. It then seeks
to identify the distinctive features of German security policy since 1990,
and to assess the implications of the Federal Republic’s (FRG) secur-
ity policy for European international relations and the changing nature
of global politics in the late twentieth century. What emerges from
this study is that Bonn’s security policy cannot be understood in terms
of clear-cut choices and distinct strategies, but rather as a series of
policy dilemmas. They revolve around three international organisations
(NATO, the WEU and the OSCE, formerly the CSCE) and three capi-
tals (Washington, Paris and Moscow). These dilemmas cannot be re-
solved, only managed. Consequently, the task facing Bonn in the 1990s
is to manage its security dilemmas in ways which contribute to the
consolidation of the European integration process and a lessening of
tensions and conflicts in the wider continent – in short, to lay the
foundations for a Europe ‘whole and free’.

203
204 Adrian Hyde-Price

GERMANY AND EUROPEAN SECURITY BEFORE 1990

German security policy is inextricably bound up with reference to three

decisive factors: geography, economics and politics. This trinity pro-
vides the key to understanding Germany’s role in the modern states
system. Germany has long been the fulcrum of the European balance
of power. At the time of the formation of the modern European states
system (a long and complex process given legal expression in the 1648
treaty of Westphalia1 ), Germany – in the shape of the Holy Roman
Empire – was a weak and divided land. The weakness of the Holy
Roman Empire left the plethora of German principalities and statelets
as the pawns in the wider struggle for mastery between Europe’s great
powers. It was only in 1871 that Germany emerged as a powerful and
united state – a European great power in its own right.
From the start, the Bismarckian Reich – created through ‘blood and
iron’ under Prussian hegemony – posed a challenge to the established
system of European international relations. Simply put, Germany was
too big, and too centrally located, to fit easily into the European states
system. From this was born the ‘German problem’: the problem, in
other words, of how to integrate – or at least contain – the prodigious
economic strength and military potential of a united German state, situated
at the very heart of the European continent. It was the failure to re-
solve this conundrum that led to the two world wars of the twentieth
century.
It is important to note that the German problem derived not from
some intrinsic character flaw in the German people, but rather from
the geography, economics and politics of the German state. To begin
with, Germany’s central geographical location – its Mittellage (or cen-
tral location) – has given it a pivotal role in European affairs. Few
countries have as many neighbours as Germany. Situated at the heart
of the European continent, straddling its two major waterways (the
Rhine and the Danube) and standing at the crossroads between Latins
and Slavs, Germany has long been destined to play a central role in
Europe’s international relations. On the positive side, its Mittellage
gives Germany economic and cultural interests in both east and west.
On the negative side, Germany ‘was born encircled’ (Calleo, 1978:
206), its Mittellage creating a difficult and demanding geopolitical
situation in which the nightmare of a war on two fronts was an ever-
present danger.
Germany’s central geographical location would not have been so
much of a problem for its neighbours if it were not also for Germany’s
 Germany’s Security Policy Dilemmas 205

size, its vibrant economy and its authoritarian political character. ‘What
is wrong with Germany’, A.J.P. Taylor once wrote, ‘is that there is
too much of it’ (Taylor, 1967: 21). With unification in 1871, Germany
became the largest state in central and western Europe. Only Russia in
the east was larger, both geographically and in terms of population.
But in contrast to Russia, the German economy since the late nine-
teenth century has been arguably the most dynamic and productive in
Europe. Industrialisation transformed the German economy into the
manufacturing and financial powerhouse of Europe. Germany, in the
words of John Maynard Keynes, became the central support around
which the rest of the European economy grouped itself, and ‘on the
prosperity and enterprise of Germany the prosperity of the rest of the
continent mainly depended’ (quoted in Wallace, 1990: 15). It also gave
the Berlin government the wherewithal to build up a formidable mili-
tary machine, harnessing Prussian militarism to the productive capac-
ity of the Ruhrgebiet, the country’s foremost industrial region.
At the same time, Germany has been a problem for European secu-
rity not just because of its structural position within the international
system (i.e., its geopolitical location and economic potency), but be-
cause of its political character. Domestic political considerations are
often discounted by realist or neo-realist theorists of international rela-
tions when analysing the functioning of the states system. Yet in the
case of Germany, this is patently absurd. The unified Germany forged
by Bismarck, upon which Hitler constructed the national socialist state,
was characterised by a propensity towards authoritarianism, militarism,
intolerance and economic protectionism (see the controversial book by
Blackbourn and Eley, 1984). The domestic political complexion of
Germany has thus long been an issue of crucial importance for Euro-
pean peace and stability.

THE BUNDESREPUBLIK AND COLD WAR EUROPE

With the exception of the ill-fated Weimar Republik, security policies

of successive German states prior to 1945 tended towards militarism
and an aggressive assertiveness. The comprehensive military and pol-
itical defeat of the ‘Third Reich’ in May 1945 provided a historic
opportunity to break with this self-destructive pattern of behaviour.
Early post-war hopes of building a new democratic and peaceful Eur-
ope were thwarted by the onset of the Cold War. Yet the Cold War
also gave the West Germans the opportunity to redeem themselves by
206 Adrian Hyde-Price

integrating into western multilateral structures and acting as a bulwark

for western democracy. Moreover, the bipolar division of Europe, with
the division of Germany and Berlin at its heart, meant that Germans
were increasingly seen not as the recent perpetrators of aggression,
but as the hapless victims of Soviet perfidy.
The Cold War also changed the geopolitics of what was now a div-
ided Germany. Germany was no longer at the heart of European af-
fairs, pursuing its own Sonderweg (‘special path’) between east and
west, and playing a pivotal role in shaping the future of the continent.
Instead, Germany found itself forming the front-line in a new global
struggle between east and west. The fault-line of the east–west con-
flict ran through the heart of Germany, and was epitomised by the
division of Berlin – a division given concrete form on 13 August 1961
when the Berlin Wall was erected. The Cold War led to the division
of Germany into two new states, each of which was from the very
start firmly integrated into their respective alliance systems, and aligned
closely with their respective superpower patron. Germany thus became
the focus of the Cold War in Europe. As such it constituted what a
British Foreign Office memorandum of the time referred to as the ‘pawn
which both sides wished to turn into a queen’ (quoted in Moreton,
1987: 32).
This division of the former German Reich into two rival states, each
laying claim to Germany’s democratic and humanist traditions, was a
brutal and ultimately unsustainable violation of the national and demo-
cratic rights of the German people. Yet at the same time, it also seemed
to have ‘provided a solution, inadvertently, to the problem which the
countries of Europe had faced and failed to master since 1890: the
place of a too-powerful Germany in a European system which could
not of itself preserve the independence of its members in the face of
German strength’ (DePorte, 1986: 116). In both east and west, the
division of Germany was thus often quietly accepted as a pragmatic
solution to the problem of integrating German power in Europe. One
oft-quoted example of this is the aphorism of François Mauriac, who
declared that ‘I love Germany so much that I rejoice at the idea that
today there are two of them’ (quoted in Moreton, 1987: 76).
The changed political and strategic environment in which post-war
West Germany found itself necessitated a dramatically new approach
by the Bonn government to its defence and security policy. From the
very start, German security policy – indeed, its foreign policy in gen-
eral – was characterised by a pronounced commitment to multilateralism.
The Bonn government, conscious of the lingering suspicion harboured
 Germany’s Security Policy Dilemmas 207

by its neighbours and former enemies, sought to pursue its own na-
tional interests through multilateral cooperation with its new western
allies. Indeed, Westbindung became part of the very raison d’état of
the FRG (Juricic, 1995: 111–12). West Germany subsequently became
one of the firmest supporters of both the European integration process
and the Atlantic Alliance. Multilateralism also provided the means for
the country to regain its sovereignty in the post-war period, and has
subsequently become deeply internalised in the contemporary German
mind. As Jeffrey Anderson and John Goodman have argued, precisely
because ‘the Federal Republic was a semi-sovereign state operating
within a bipolar system, the country was forced to rely almost entirely
on international institutions to achieve its objectives’. Yet despite the
instrumental origins of its commitment to multilateralism and institu-
tional cooperation, the FRG has developed ‘a reflexive support for in-
stitutions’ which has become ‘one of the principal legacies of the Cold
War period’:
Over the course of forty years, West Germany’s reliance on a web
of international institutions to achieve its foreign policy goals, born
of an instrumental choice among painfully few alternatives, became
so complete as to cause these institutions to become embedded in
the very definition of states interests and strategies. (Anderson and
Goodman, 1993: 24, 60)
Post-war West German security policy itself was built on three key
planks. First, a transatlantic alliance with Washington, and integration
into NATO. The FRG joined NATO in 1955, and since then the alli-
ance has provided the bedrock of West German security. Second, a
West European alliance with Paris, and integration into the European
Economic Community (EEC) and the Western European Union (WEU).
The Franco-German axis was formally institutionalised in the 1963
treaty of friendship and cooperation, and Paris and Bonn have consist-
ently coordinated their Europapolitik in order to further their shared
commitment to European integration. Third, a policy of détente to-
wards the Soviet Union and the Warsaw Pact countries, including East
Germany – a policy which became most pronounced with the adoption
of Ostpolitik in the late 1960s and 1970s, and which achieved institu-
tional expression in the Conference on Cooperation and Security in
Europe (CSCE) (Ash, 1993). From the late 1960s, the tensions be-
tween these three policy orientations became increasingly more obvi-
ous. The policy of close alliance with Washington and commitment to
NATO was not wholly compatible with Franco-German ‘tandem’ in
208 Adrian Hyde-Price

Europe, given French aspirations to create a more autonomous West

European defence identity. Similarly, tight integration into the western
alliance made the pursuit of détente with the East more difficult. None-
theless, these underlying tensions were largely suppressed given the
overarching security imperatives of the east–west conflict.
While the Adenauer government was laying down the key planks of
a new security policy, the Bundeswehr, purged of Prussian militarist
values and imbued with the spirit of innere Führung, was being fully
integrated into NATO’s military command structures. It was also for-
bidden by the Grundgesetz (the West German federal constitution) from
acting outside the area covered by the 1949 Washington treaty. These
political and constitutional changes, along with the experience of the
war, gave rise to a very distinctive post-war West German ‘strategic
culture’. Painful memories of the Nazi era and trauma of defeat and
national division led many West Germans to reject militarism and ad-
vocate peaceful modes of international intercourse. Post-war West
Germany emphasised deterrence rather than defence. The aim of the
German security policy was to prevent rather than to fight a war. As
Peter Stratman has argued,
Since the 1950s nearly all aspects of defence, i.e., objective condi-
tions and requirements of military operations in case of war, have
been fundamentally eradicated from the security consciousness of
the West German population. This eradication was an understand-
able political reflex in view of the fact that the Federal Republic
can expect to be secure only if war is entirely prevented. Confronted
with the conventional and nuclear offensive and destructive poten-
tial of the Soviet Union, it would be meaningless for this tiny, densely
populated and highly-industrialised country, which might be the po-
tential battlefield, to seek security in the capability for successful
defence . . .
Under these circumstances there was a gradual development of a
studied amilitary, i.e., purely political, understanding of security policy.
The interpretation of NATO strategy as a political means to avoid
war by the threat of nuclear retaliation was portrayed positively in
contrast to ‘war-fighting strategies’, which were declared to be out-
of-date in the nuclear age . . . In the popular version of this argu-
ment, the mission of the Bundeswehr would be seen to have failed
as soon as the first shot was fired. (Stratman, 1988: 97–8)
This amilitary strategic culture contrasts starkly with Germany’s pre-
1945 strategic culture, and reflects the far-reaching changes that have
 Germany’s Security Policy Dilemmas 209

taken place in West German society and politics. The terrible legacy
of Nazism and the trauma of defeat in war, coupled with the ‘civilis-
ing’ impact of a rising standard of living and a social market economy,
led to a widespread rejection of militarist values and substantial sup-
port for neutralist and even pacifist sentiments. This amilitary strategic
culture continues to exert a profound influence on contemporary Ger-
man security thinking, and colours Bonn’s approach to the post-Cold
War security agenda in Europe and the wider international system.

POST-WAR WEST GERMANY AND THE TRANSATLANTIC

‘SECURITY COMMUNITY’

The evolution of contemporary German security policy cannot be un-

derstood without reference to one further development in the post-war
period – the emergence of a ‘pluralist security community’ embracing
the North Americans and the West Europeans. Although post-war hopes
for a new democratic and peaceful Europe were thwarted by the onset
of the Cold War, the bipolar divide had the unintended result of stimu-
lating new forms of cooperation and integration in western Europe. In
1949 the NATO alliance was created. In 1951, the European Coal and
Steel Community (ECSC) was formed. This in turn was subsumed within
the European Economic Community, established in 1957. The long-
term political and economic vision underpinning these last two bodies
was ambitious: it was to ‘lay the foundations of a destiny henceforth
shared’, and to make war between its diverse peoples both politically
unthinkable and economically impossible. At the heart of this integra-
tion process was the process of Franco-German rapprochement – a
development which has proved of major consequence for the stability
and security of Europe (for a discussion of these and related aspects
see Jopp et al., 1991).
The process of formal integration and institution-building in west-
ern Europe was both facilitated by, and helped stimulate and channel,
processes of informal integration. The processes of informal integra-
tion – by which is meant ‘those intense patterns of interaction which
develop without the intervention of deliberate governmental decisions,
following the dynamics of markets, technology, communications net-
works and social exchange, or the influence of religious, social or political
movements’ (Wallace, 1990 : 54) – have acquired a pronounced import-
ance in contemporary western Europe. The emergence of a regional micro-
economic division of labour, transnational corporations, cross-border
210 Adrian Hyde-Price

production systems, global financial markets, rapid communications and

transportation systems, constant technological innovation, transnational
social movements and political forces – these developments have cre-
ated a new Europe characterised by complex interdependence and
globalisation.
At the same time, the nature of western European societies has changed,
with the development of social market economies, pluralist civil so-
cieties and democratic polities. Throughout western Europe, a broad
consensus has emerged around shared values and principles, particu-
larly as regards human rights, liberal-democracy and basic social wel-
fare provisions. These developments, together with the emergence of a
dense institutional complex and a high degree of economic and social
interaction, have had a profound impact on the nature of international
relations in the region. As Karl Deutsch has written, a ‘pluralistic se-
curity community’ has emerged embracing the North Americans and
the West Europeans (Deutsch et al., 1957). Within this pluralistic se-
curity community, the threat and use of force plays no part in inter-
state relations. War is no longer a rational instrument of policy in
relations between states in the transatlantic community (for an inter-
esting perspective on this see Coker, 1992 : 189–98). In Hedley Bull’s
terms, an ‘international society’ has developed within the transatlantic
states system, in which cooperation and ‘sociability’ between states
has largely superseded traditional Realpolitik instincts (Bull, 1977).
This constitutes a dramatic and far-reaching change in the nature of
contemporary West European politics – a change which has profound
implications for the European security system. Prior to Cold War bi-
polarity, Europe’s great powers were locked into a multipolar balance
of power arrangement. These states jealously guarded their sovereignty,
and engaged in power politics based on Realpolitik calculations. Within
these Realpolitik considerations, military assets constituted the key ele-
ment in the assessment of relative power relationships. It was in the
context of this anarchical international system that the rise of Ger-
many proved so destabilising to the prevailing balance of power.
However, post-war social, political, economic and institutional de-
velopments have radically changed the nature and functioning of in-
ternational relations in western Europe and North America. As William
Wallace has argued in the case of western Europe, ‘[i]nteractions be-
tween governments, economies and societies . . . have moved well be-
yond the traditional model of relations among nation-states’ (Wallace,
1990 : 21). The very structural dynamics of the Westphalian states system
have been altered, given the emergence of an ‘international society’
 Germany’s Security Policy Dilemmas 211

embracing the mature industrial pluralist democracies of the trans-

atlantic community. Within this international society, relations are con-
ducted on the basis of international law within a complex institutional
ensemble. The states within this community share common normative
values, associated primarily with human rights, liberal democracy and
market economics (Hanson, 1993 : 28–41). Most significantly, relations
between them are no longer conducted against the background of a
threat to resort to force. This is the most startling and most positive
change: after centuries of internecine warfare, the peoples of the trans-
atlantic area now enjoy peaceful interstate relations. In this part of the
world at least, Kant’s dream of a ‘pacific union’ has at last become a
reality.2
The emergence of the pluralist security community has tremendous
significance for German security policy, and Germany’s place in the
new post-Cold War Europe. Prior to 1945, the ‘German problem’ –
namely how to incorporate a country as large and dynamic as Germany
into the established European states system – had proved an insoluble
problem for European security. The power of the German nation-state
had been fatally destabilising for the European balance of power. With
the end of Cold War bipolarity and the unification of Germany some
have feared that German power will once again destabilise Europe.
However, complex interdependence, economic globalisation, institution-
alised multilateral cooperation and the consolidation of stable liberal
democracies have transformed the nature of sovereignty and state power
in the late twentieth century. This has affected the nature of German
power in four significant ways and made possible a resolution of the
age-old ‘German problem’.
First, the power of a united Germany will be not be concentrated in
the hands of a centralised government as it was during the Wilhelmine
or ‘Third’ Reich because substantial state functions and responsibili-
ties have been devolved downwards to the Länder and local govern-
ment level. Second, Germany is integrated into both the European Union
and NATO, and this means that some power has been devolved up-
wards, particularly to the EU. Third, the rise of transnational corpora-
tions, strategic corporate alliances and cross-border mergers means that
economic power no longer accrues directly to the nation-state, but is
diffused outwards, beyond the confines of the nation-state. Finally, the
political culture and social structure of contemporary Germany is fun-
damentally different from what it was in the first half of the century.
Germany today has a democratic and liberal ethos, in which, if any-
thing, pacifism, not militarism, is the concern of its allies. As Alfred
212 Adrian Hyde-Price

Grosser has commented, ‘Germans today are different from those who
supported Hitler. They have accepted democratic values. They have
done everything possible to demonstrate their good faith’ (quoted in
Newsweek, 26 February 1990 : 10; see also Enzensberger, 1989 : 100–1).
The changing nature of German power is related to changes in the
nature of power in the wider international system. The end of the Cold
War, the advent of an increasingly globalised economy and the emer-
gence of a transatlantic security community have changed the currency
of power. In the new pattern of international relations in Europe, mili-
tary force is of declining utility in contrast to the economic and politi-
cal indices of power (Luard, 1988). The changed nature of power is
reflected in the debate on European security, where a broad consensus
has emerged that security is much more than a problem of weapons: it
is increasingly tied up with economic, political, social and environ-
mental issues (Buzan, 1983 : 253). This is particularly significant for
the FRG, whose international power is primarily based on its economic
dynamism and the overall attractiveness of its society, culture and way
of life, rather than its military capabilities (Garton Ash, 1993 : 381–3).
Associated with the changed nature of power in the modern Euro-
pean security system is a shift in the meaning and content of ‘sover-
eignty’. Sovereignty was the constitutive principle of the Westphalian
states system, and generations of Germans have fought wars, first to
achieve sovereignty, and later to defend it. But the Bundesrepublik, as
a member of the European Union, has ‘pooled’ certain sovereign rights
and prerogatives in a body which has been described as ‘a union of
states without a unity of governments’ (Brewin, 1987 : 1). Conceptual-
ising the European Union is a notoriously difficult task, given its sui
generis nature: the EU is neither an unambiguously supranational or-
ganisation nor simply an intergovernmental body. Murray Forsyth has
argued that the EU should be regarded as a ‘federal body’.3 A more
nuanced approach has been taken by Lisbeth Aggestam, who has sug-
gested that the EU should be seen as a form of ‘cooperative federal-
ism’, given its hybrid decision-making process combining both
intergovernmental and supranational dimensions (Aggestam, 1997). What-
ever concepts one uses to categorise the nature of EU decision-making,
few would deny that it has transformed the meaning and content of
sovereignty for its members. In the German case, European integration
has become such an integral part of the FRG’s raison d’état and so
deeply embedded in popular political culture, that a ‘postmodern con-
ception of sovereignty’ has emerged in the country. Moreover, ‘if
Germany were to realize its vision of Europe, it would emerge as a
 Germany’s Security Policy Dilemmas 213

consequential but semi-sovereign member of a supranational authority’

(Anderson and Goodman, 1993 : 62).

BEYOND THE COLD WAR: GERMANY’S CHANGING

SECURITY AGENDA

The post-war transformation of West European politics and interna-

tional relations – with political democratisation, economic interdepend-
ence, multilateral integration and the emergence of a pluralist security
community – has fundamentally and irrevocably changed the nature of
German security. It has also changed the geopolitical context within
which German security policy is made. Germany’s traditional geopol-
itical dilemmas arose from its central geographical location within a
European balance of power between the continent’s great powers. The
emergence of a pluralistic security community has made redundant such
traditional balance of power considerations within the West European
context. Today, the dilemmas of Germany’s Sicherheitspolitik derive
from the country’s position on the eastern edge of the transatlantic
security community: Germany is an integral member of this security
community, but borders on the zone of incipient conflict and instabil-
ity in the east. It is this new geopolitical landscape which has pro-
duced the current foreign and security policy dilemmas of the Bonn
government – dilemmas which are only superficially similar to those
of the Bismarckian Reich or the Germany of the interwar years.
With the end of the Cold War, the reunited Germany faces a radi-
cally different security agenda from that which faced the Bundesrepublik
for nearly forty years. Until the late 1980s, West German security
concerns were focused on the perceived threat posed by the concentra-
tion of Soviet and Warsaw Pact armoured forces forward-deployed in
Eastern Europe. This ‘Soviet threat’ provided the rationale for the
Bundeswehr itself, and for the FRG’s alliance commitments within NATO
and the WEU. The demise of the east–west conflict has thus called
into question the very purpose of Germany’s armed forces and the
fundamental underpinnings of its foreign and security policies.
The break-up of the Soviet Union and the unfreezing of the Cold
War divide has left the FRG in a historically novel and uniquely privi-
leged international situation. Germany today has no obvious enemies,
and faces no clear and specific security ‘threat’. As former president
Richard von Weizsäcker observed, ‘[f]or the first time [in history] we
Germans are not a point of contention on the European agenda. Our
214 Adrian Hyde-Price

uniting has not been inflicted on anybody: it is the result of peaceful

agreement’ (Joffe, 1991 : 84). In contrast to Bismarck’s policy of ‘blood
and iron’, German unification in 1990 was brought about following
peaceful popular demonstrations for national self-determination in East
Germany, along with democratic elections and the ‘two plus four’ inter-
national negotiations agreed at the open skies conference in Ottawa in
February 1990. German security policy is thus being framed and con-
ducted in a uniquely benign international environment, in which the
Bundesrepublik is in the fortunate situation of having no enemies on
or near its borders.
Nevertheless, although Germany today enjoys a relatively benign
security environment, violent conflict remains endemic in the wider
international system, while in Europe new security problems have arisen.
The Bonn government recognises that it cannot exist as an isolated
island of peaceful prosperity and liberal-democratic stability in an other-
wise turbulent world. United Germany is therefore having to confront
a radically different security agenda. This security agenda is new in
that it is no longer dominated by one single, overriding security ‘threat’:
rather, it is composed of a series of potential ‘risks’ and ‘challenges’.
Moreover, not only are these new security concerns increasingly dif-
fuse, multifaceted and intangible, they are also often concerned with
the non-military dimensions of security. In other words, they are nei-
ther military in nature nor amenable to military solutions: rather, they
are economic, social, political or environmental in character (on this
wider security agenda see Kolodziej, 1992 : 421–38).
The first of these potential security ‘risks’ and ‘challenges’ comes
from the residual military arsenal of the former Soviet Union. The
Russian Federation itself remains a major military superpower with
substantial conventional and military assets. Even though the opera-
tional effectiveness of the Russian army has been called into question
by the conduct of its campaign in Chechnia, Russia’s military strength
continues to cast a long and dark geopolitical shadow over the Euro-
pean continent. This, coupled with the continuing political instability
of many post-Soviet republics and the dangers of nuclear proliferation,
will be a major security concern for the Bundesrepublik until well into
the twenty-first century.
Second, there are the security problems generated by the resurgence
of ethno-national conflict in much of eastern Europe and the Balkans.
The collapse of communism, and the socio-economic costs created in
transforming authoritarian communist systems into democratic market-
orientated societies, has fuelled long-suppressed historical animosities
 Germany’s Security Policy Dilemmas 215

and kindled new patterns of ethnic, religious and national conflict. As

the bitter fighting in the former Yugoslavia and around the fringes of
the former Soviet Union demonstrates all too vividly, ethno-national
conflict has emerged as one of the most pressing concerns on the post-
Cold War European security agenda. Bonn’s worry is not only that
such intercommunal conflict could spread across the often arbitrarily
delineated borders in the post-communist east, but that such conflict
will encourage further waves of refugees seeking security and pros-
perity in Germany’s social market economy.
Third, there are security concerns arising from developments in the
wider international system. The FRG is a major trading nation, and
cannot but be concerned about potential threats to supplies of vital
raw materials, markets and maritime trade routes. Technological de-
velopments also mean that the international system is increasingly subject
to global security concerns, above all the spread of ballistic missile
technology coupled with the proliferation of chemical, biological and
nuclear weapons. On top of this, Germany remains concerned with the
problems of international terrorism (especially state-sponsored terror-
ism); with economically motivated immigration from North Africa, the
eastern Mediterranean and Asia; and with the instability generated by
the appalling levels of poverty and underdevelopment in many coun-
tries in the south. Many of these international security concerns are
focused on the emerging southern ‘arc of crisis’, which stretches from
the Balkans and the eastern Mediterranean, through the Middle East
and the Persian Gulf, to the Mahgreb and the North African littoral.
Germany thus faces a radically changed security environment. Al-
though the FRG is no longer confronted by any identifiable enemies
or direct security threats, it nonetheless has to address a security agenda
constituted by a series of diffuse and multifaceted security ‘risks’ and
‘challenges’. As the newly united Germany struggled to come to terms
with the new demands and responsibilities placed upon it by the end
of the Cold War, it was confronted by the need to respond to the first
major test of the ‘new international order’ – the Gulf War. This was a
test which, in the eyes of many both inside Germany and without,
found Bonn severely wanting (Thies, 1991 : 89–90). Constrained le-
gally and politically from deploying Bundeswehr forces outside the
NATO area, Germany was left in the secondary role of paymaster and
diplomatic cheerleader for the allied coalition in the Gulf. Since then,
Germany has faced growing domestic and international calls to make
a more positive contribution to the maintenance of international secur-
ity in an increasingly turbulent and uncertain world. At the same time,
216 Adrian Hyde-Price

German foreign and security policy-makers are operating within a dis-

tinctive political environment, marked by a largely amilitary strategic
culture and widely held pacifist and neutralist sentiments. As Karl Kaiser
has written,
A united Germany free of the East–West confrontation on its soil
and now one of the world’s wealthiest democracies, must face a
novel and difficult task: to reconcile its foreign policy traditions with
the new responsibilities that inevitably accompany its enhanced po-
sition and require the – sometimes unpopular – use of its political,
economic and military resources in partnership with others to pre-
serve peace on an unstable globe. (Kaiser, 1991 : 205)

GERMANY AND EUROPE’S SECURITY ‘ARCHITECTURE’

As Germany continues to work out its response to the new demands

and responsibilities placed upon it by the end of the Cold War, it is
doing so within a firmly multilateral framework. As we have already
noted, the post-war Bundesrepublik has consistently pursued its for-
eign and security policy within multilateral frameworks. This commit-
ment to institutionalised multilateral cooperation continues to permeate
the assumptions and approaches of Germany’s political class. Bonn’s
post-Cold War Sicherheitspolitik is therefore being pursued within a
dense institutional framework consisting of a series of regional, Euro-
pean and international organisations. These include the Council of Europe,
the Council of Baltic Sea Cooperation, the Schengen Group and the
European Union: however, the three key organisations for German security
policy are NATO, the WEU and the OSCE (formerly the CSCE).
As a new, post-Cold War security ‘architecture’ evolves, many of
Germany’s allies and partners favour a distinct hierarchy of organisa-
tions. The Americans, British and Dutch, for example, favour a privi-
leged role for NATO; the French and Belgians, on the other hand,
would like to see the Western European Union play a leading role,
functioning as the defence arm of the EU; meanwhile, the Russians
would like to see both NATO and the WEU subordinated to a pan-
European collective security system based on the OSCE. The current
Bonn coalition, however, favours a Verflechtung (a network) of insti-
tutions without any distinctive and overarching hierarchy between them.
This approach was summed up by Helmut Kohl when he declared that
in the security field, ‘I am against “all or nothing”; I am in favour of
 Germany’s Security Policy Dilemmas 217

“but also”’ (quoted in the Financial Times, 31 May 1991). In policy

terms, this approach has been clearly evident from Bonn’s resolutely
ambiguous stance on the WEU, describing it both as the ‘European
pillar’ of NATO and as the ‘defence arm’ of the European Union. 4
Such a network of multiple, overlapping and interlocking institutions,
it is felt, would provide Germany with the best framework for manag-
ing the dilemmas of its foreign and security policy.
Although German security policy since 1990 has sought to create a
network of overlapping and interlocking institutions, post-war West
German Sicherheitspolitik was based first and foremost upon NATO.
The NATO alliance provided the indispensable bedrock of West Ger-
man security, and NATO remains central to post-Cold War security
policy. It is thus appropriate that we begin our discussion of contem-
porary German security by focusing first on Bonn’s policy towards
and within NATO.

NATO AND GERMAN SICHERHEITSPOLITIK

From its very first hours, the fledgling FRG was reliant on the trans-
atlantic alliance for its security and territorial integrity. After becoming
a member of NATO in 1955, the Bundesrepublik played an increas-
ingly important role in the alliance, both as a base for forward-deployed
NATO forces, and as a major contributor to the conventional military
strength of the sixteen nation alliance. Although the Bonn government
has collaborated with France in seeking to develop a European de-
fence and security identity, and has also been keen to see the develop-
ment of a more cooperative European security system based on the
CSCE/OSCE, this has not yet resulted in any significant weakening of
Germany’s commitment to NATO. Even with the end of the Cold War,
the NATO alliance remains the bedrock of German security policy.
There are four main reasons why the Bonn government remains so
resolutely committed to NATO. First, the alliance provides an invalu-
able security guarantee against a resurgent and revanchist Russia. It
also offers an insurance policy in the event of instability in the former
Soviet Union generating large-scale military conflict in the east. Sec-
ond, German participation in NATO’s integrated military command
provides a very visible demonstration of its continuing Westintegration
and its commitment to multilateral defence cooperation (Wettig,
1991 : 15). Third, the German government enjoys a close relationship
with the USA (as ‘partners in leadership’), and remains convinced that
218 Adrian Hyde-Price

a strong US military commitment to Europe is essential for the peace

and security of the continent. Finally, NATO is seen as a tried and
tested alliance based on democratic principles, and one which makes a
vital contribution to the security and stability of the wider European
continent. Although there are some Germans who favour the develop-
ment of a common European defence and security policy, or an OSCE-
based collective security system, most are unwilling to risk giving up
an established bulwark of security until a more viable security struc-
ture has been created.
Yet while NATO remains the bedrock of German security policy, a
broad consensus has developed since unification that the alliance must
significantly reform its structure and functions if it is to remain rele-
vant to the changed security environment of post-Cold War Europe.
To begin with, there is broad agreement in Germany that NATO must
become a more European organisation. The belief that the Europeans
need to assume a greater responsibility for their own defence is widely
held on both sides of the Atlantic. The German government has there-
fore supported the idea of a stronger ‘European pillar’ within the al-
liance, based primarily on the WEU. The problem with this, however,
is that building a more cohesive ‘European pillar’ risks undermining
America’s self-styled ‘leadership role’ within NATO. The worry is that
by strengthening the political cohesion and operational effectiveness
of the WEU – which also serves as the ‘defence arm’ of the European
Union – Washington may increasingly feel marginalised within the North
Atlantic Council, and may therefore lose interest in maintaining a sub-
stantial commitment to European security. Managing the tension be-
tween the transatlantic alliance and the development of a common
European security and defence policy has been a major concern of the
Bonn government in recent years, and is an issue to which we will
return below.
The second set of changes to NATO championed by the Germans
concern the alliance’s relationship with the countries of the former
communist east. The Bonn government was a prime mover behind
NATO’s ‘London declaration’ of July 1990 which, amongst other im-
portant changes, offered to extend ‘the hand of friendship’ to its former
enemies in the Warsaw Pact. Since then, the Germans have actively
encouraged the development of a more complex network of bilateral
diplomatic and political links between NATO on the one hand, and
the new democracies of the former Soviet Union and eastern Europe
on the other. For example, in October 1991, the then foreign minister
Hans-Dietrich Genscher, in a joint initiative with his American counterpart,
 Germany’s Security Policy Dilemmas 219

James Baker, proposed the creation of an institutionalised forum for

regular high-level consultation and discussion between the NATO six-
teen, the USSR, the three Baltic states and the countries of eastern
Europe (for details see Kurt Kister in Süddeutsche Zeitung, 4 October
1991). This US–German initiative was formally endorsed by the Rome
NATO summit in November 1991, which agreed to establish a ‘North
Atlantic Cooperation Council’ along the lines of the Baker-Genscher
plan. By strengthening political dialogue across the former east–west
divide, the German government hopes that greater mutual understand-
ing and tolerance can be fostered. This is something very much in the
interests of Germany, given its geographical proximity to potentially
unstable countries in the former communist east (Rühe, 1993 : 135).
In the spring and summer of 1993, influential voices from within
the ruling coalition could be heard arguing for the selective expansion
of NATO eastwards. In particular, it was suggested that the countries
of east-central Europe should be offered early membership of the al-
liance in order to bring greater security and stability to the region
(Garton Ash, 1994 : 65–81). This caused growing anxiety in Moscow
(thereby undermining Bonn’s other security interest, namely the con-
struction of an OSCE-based pan-European system of cooperative secur-
ity), and was coolly received in a number of other NATO capitals.
Instead of offering either firm security guarantees or the promise of
early membership of the alliance to the east-central Europeans, a new
initiative was launched. This was the ‘partnership for peace’ scheme,
formally inaugurated in January 1994. The ‘partnership for peace’ strategy
offered individual countries from the former communist east tailor-
made packages of bilateral military cooperation with NATO. It was
designed to prepare some of the new democracies for membership of
NATO, and to consolidate the emerging patterns of functional military
cooperation and security dialogue the alliance had been advocating since
the end of the Cold War (for the relevant documents and commentar-
ies see Nato Review, 1994). The ‘partnership for peace’ scheme was
warmly embraced by the Germans, who have been fully involved in a
series of joint military exercises with the cooperation partners from
the east, as was the NATO–Russia Council established in May 1997.
The third set of changes sought by Germany within NATO have
been to the organisation’s military strategy and force structure. Ger-
many played an important role in shaping NATO’s far-reaching ‘stra-
tegic review’, a review made necessary by the withdrawal of Soviet
troops from central and eastern Europe and the disbandment of the
Warsaw Pact. The ‘strategic review’ was completed in late 1991, and
220 Adrian Hyde-Price

subsequently NATO’s ‘new strategic concept’ was adopted at the No-

vember 1991 Rome summit. This advocated a greater reliance on re-
inforcements in the event of war, and smaller, more mobile stationed
forces configured in multinational corps (Weisser, 1992 : 51–68). The
subsequent creation of a rapid reaction corps was welcomed by the
German government, although the leading role assigned to British forces
within it was the source of some contention. Of considerable import-
ance for German domestic opinion, was the statement in the ‘London
declaration’ of July 1990 defining nuclear weapons as ‘weapons of
last resort’ and the call for the negotiated elimination of all ground-
launched nuclear forces of the shortest range. The new strategic con-
cept also reduced the emphasis attached to maintaining a robust ladder
of nuclear escalation. This removed what had been a major bone of
contention between Germany and some of its NATO allies (particu-
larly France and the USA), and helped diffuse one of the most divi-
sive aspects of NATO’s military strategy and force posture. Today,
the issue of most concern to both German public opinion and German
policy-makers is not NATO’s nuclear strategy, but rather the risks of
nuclear proliferation arising from the disintegration of the former So-
viet Union.

TOWARDS A EUROPEAN DEFENCE AND SECURITY

IDENTITY?

While NATO remains the bedrock of German security policy, the Bonn
government is also a firm proponent of a more pronounced ‘European
defence and security identity’. The precise meaning of this phrase re-
mains institutionally ambiguous and politically contentious. Nonethe-
less, for the ruling coalition, it means the fostering of a more consistently
multilateral approach to foreign and security policy issues by EU mem-
bers, and the gradual development of an operational European military
capability. Chancellor Kohl has consistently pursued this line since
late 1989. He joined with French President Mitterrand to advocate an
accelerated transition to political union within the European Commu-
nity (in joint initiatives issued on 18 April and 6 December 1990), and
called repeatedly for the development of a common European defence
and security policy. This was reflected in the Maastricht treaty, which
announced the formation of a ‘common foreign and security policy’,
which may in time include defence. The treaty also recognised the
WEU as ‘an integral part of the development of the European Union’,
 Germany’s Security Policy Dilemmas 221

which may ask the WEU ‘to elaborate and implement [the Union’s]
decisions and actions . . . which have defence implications’. A decla-
ration on the WEU attached to the treaty also noted the member states’
intention to ‘build up the WEU in stages as the defense component of
the Union’ (Treaty on European Union, 1992; Dinan, 1994 : 472). In
the course of the preparation for the 1996–7 intergovernmental confer-
ence (IGC) with the task to review the Maastricht treaty, the Bonn
government has made it clear that it would like to see a further strength-
ening of the EU’s common foreign and security policy, ‘of which a
common European defense policy and defense force must form an in-
tegral part’ (Seiters, 1995 : 6). Germany, in tandem with France, is
also the driving force behind the ‘Eurocorps’, a multinational force of
35 000 which became operational in 1995.
The German government recognises that these ‘europeanist’ initia-
tives have caused unease in Washington, London and other more ‘pro-
atlanticist’ capitals. Bonn has had to work particularly hard to convince
the Americans, British and Dutch that the Eurocorps is not a threat or
rival to NATO. Chancellor Kohl believes that the tensions between
these two seemingly contradictory approaches to European security –
Atlanticist and Europeanist – can be finessed through the medium of
the WEU, which he envisages as the bridge between NATO and the
EU (Kohl, 1991 : 40). For this reason, the Germans have welcomed
the NATO decision of January 1994 to create ‘combined joint task
forces’ (CJTF). These will be command and control structures within
NATO’s integrated military command structure which will be ‘separa-
ble but not separate’. It is planned that these CJTF could then be placed
under a WEU operational command in order to allow the WEU to
conduct humanitarian and peacekeeping operations (the so-called
‘Petersberg tasks’ defined by the June 1992 WEU Petersberg declaration).
The German government thus hopes that by formulating ambiguous
statements on the role of the WEU, and encouraging the formation of
the CJTFs (a development which is proving very difficult to realise in
practice) it can overcome the tensions between its commitment to NATO
and its desire to see a more coherent and effective European defence
and security entity. But this position will prove increasingly hard to
sustain in the medium to long term. As the Americans have pointed
out, the decisive issue is where security decisions are taken: in the
Atlantic Alliance (which would leave the United States as primus in-
ter pares), or in the EU/WEU (which would exclude the USA, along
with non-EU NATO members like Norway and Turkey) (Neue Zürcher
Zeitung, 5 May 1991). At some stage in its development, therefore, a
222 Adrian Hyde-Price

robust security and defence dimension within the EU would inevitably

undermine the current centrality of NATO to German security.
For some in Germany, this would be a very welcome development.
Although the dominant school of thought within the German security
community has been Atlanticist, there has been a significant minority
of German ‘Gaullists’ who have advocated an unambiguously ‘euro-
peanist’ approach. These Europeanists can be found on both sides of
the political spectrum, from anti-Americans in the SPD to leading poli-
ticians in the CDU. They would like to see NATO replaced by an
autonomously European security organisation, analogous to the failed
European Defence Community (EDC) of the early 1950s.
Although there is undoubtedly broad support for a robust common
European foreign and security policy (including defence) in Germany,
such overtly Europeanist perspectives remain marginal to the security
debate. The central aim of the current Bonn government is to manage
the dilemmas of its security policy, which aspires to be both Atlanticist
and Europeanist at the same time. While NATO remains the only tried
and tested collective defence alliance, and the role of the WEU con-
tinues to be shrouded in a studied ambiguity, these dilemmas will be
easy to manage. But if transatlantic relations were to deteriorate seriously,
or if European integration were to result in an effective common foreign
and security policy including defence, then the dilemmas at the heart
of German security will become virtually impossible to conceal. At
that point, the Bundesrepublik will be forced to confront some tough
decisions concerning the very foundations of its security policy.

THE OSCE AND A COOPERATIVE SECURITY SYSTEM?

The Organisation for Security and Cooperation in Europe began life in

1975 as the CSCE (Conference on Security and Cooperation in Eur-
ope). Since its formation in Helsinki at a time of blossoming détente
in Europe, the Bundesrepublik has been one of the staunchest support-
ers of the CSCE process. From Bonn’s perspective, the CSCE pro-
vided an ideal pan-European framework for regulating the east–west
conflict, and provided a welcome multilateral forum for pursuing its
Ostpolitik.
With the end of the Cold War, the CSCE acquired a new lease of
life. In Germany there was a widespread feeling that, freed of the de-
bilitating effects of the east–west conflict, the CSCE would finally be
able to fulfil its promise as the institutional setting for new forms of
 Germany’s Security Policy Dilemmas 223

pan-European cooperation and interaction (Bernt Conrad in Die Welt,

28 March 1992). Hans-Dietrich Genscher, the long-serving foreign
minister at this time, was a determined advocate of the CSCE, and
strongly believed that the CSCE could provide an invaluable frame-
work for integrating the former communist states into a new, more
cooperative security structure. He also saw the CSCE as ‘a framework
for stability for the dynamic, dramatic and sometimes revolutionary
developments in Eastern Europe and the Soviet Union’ (quoted in At-
lantic Council Policy Paper, 31 October 1990). Thus, following the
end of the Cold War, Genscher played an important role in outlining
ideas for the ‘institutionalisation’ of the CSCE. This was achieved at
the Paris summit of CSCE heads of state and government in Novem-
ber 1990. As well as providing the CSCE with a number of permanent
institutional structures, the grandly named ‘Paris charter for a new Europe’
also codified a series of principles for the conduct of interstate rela-
tions and human rights.
The Paris charter reflected the mood of tremendous optimism which
swept Europe in the wake of the collapse of communism. However, as
ethno-nationalist conflicts erupted in the Balkans and around the fringes
of the former Soviet Union, this mood of optimism gave way to a
deepening sense of Angst and foreboding. This was reflected at the
CSCE summit in Helsinki in the summer of 1992, which issued a more
sober-sounding document called ‘the challenges of change’. Since then,
the CSCE has focused primarily on early warning, preventive diplo-
macy and crisis management. The established place of the CSCE in
Europe’s post-Cold War security architecture was acknowledged in
December 1994 at the Budapest summit when the CSCE was renamed
the Organisation for Security and Cooperation in Europe (OSCE).
Throughout the years since the end of the Cold War, the German
government has been a consistent supporter of the CSCE process, and
has encouraged the institutionalisation of the CSCE/OSCE. For Bonn,
the OSCE provides a forum for developing new forms of cooperative
security, and offers an institutional framework for addressing the legit-
imate security concerns of Russia. The FRG is unwilling to counten-
ance Russian plans for establishing a collective security regime which
would subject NATO and the WEU to OSCE decisions, but it does
believe that the OSCE fulfils five key functions. First, it provides a
forum for promoting and codifying common standards, values and norms
of behaviour, particularly in the sphere of human rights and the peace-
ful resolution of conflicts; second, it offers a series of mechanisms for
the continuous monitoring of human rights, both for individuals and
224 Adrian Hyde-Price

for national minorities (Dalton, 1994 : 99–111; Huber, 1993 : 30–36);

third, it acts as a forum for promoting military transparency, arms controls,
and confidence- and security-building measures, thereby ‘reducing dangers
of armed conflict and of misunderstanding or miscalculation of mili-
tary activities which could give rise to apprehension’ (Helsinki Final
Act, 1975); fourth, it provides a framework for pan-European multilat-
eral diplomacy across a comprehensive range of issues; and finally, it
is developing instruments for preventive diplomacy, conflict avoidance
and crisis management (Huber, 1994 : 23–30; Höynck, 1994 : 16–22).
Thus the mainstream German view is that the OSCE constitutes an
important supplement to NATO and the EU/WEU, within a pluralist,
non-hierarchical and multidimensional European security system. There
is, however, a minority school of thought, which finds its adherents
among radicals on the political left. This minority envisages a much
more ambitious role for the OSCE as the institutional basis of a pan-
European system of collective security, replacing the Atlantic Alliance
and making a European defence and security entity superfluous. Thus,
for example, Egon Bahr has called for the transformation of the OSCE
into a regional equivalent of the United Nations, with a European ‘se-
curity council’ (capable of taking decisions on the basis of qualified
majority voting) and European peace-keeping forces to intervene when
necessary (Rotfeld and Stützle, 1991 : 79).
Such a far-reaching transformation of the nature and purpose of the
OSCE is unlikely in the foreseeable future, given the vested national
interests involved. This leaves the OSCE without the necessary decision-
making procedures or enforcement mechanisms that a robust and viable
system of collective security would need. The dominant German view
is therefore to support the further institutionalisation and development
of the OSCE as a forum for cooperative, rather than collective, secur-
ity, within a multifaceted and non-hierarchical European security ar-
chitecture. This approach was embodied in the German-Dutch proposal
for the agenda of the then CSCE summit in Budapest which called for
the further institutionalisation of the CSCE with the aim of creating a
‘common CSCE security area’ (Europa-Archiv, 1994 : D440–D442).

CONCLUSION: GERMAN DILEMMAS AND EUROPEAN

SECURITY

The changed nature of late twentieth-century European international

relations has left Germany in a uniquely favourable situation. For the
first time in its often troubled history, Germany is at peace with its
 Germany’s Security Policy Dilemmas 225

neighbours, and has no clear and identifiable enemies. With the end of
the Cold War Germany has also, at long last, become a ‘normal’ nation-
state (Gordon, 1994 : 225–43). Yet Germany still faces a complex for-
eign and security policy agenda. As the above discussion illustrates,
Germany’s external relations involve a series of dilemmas: Bonn’s special
relationship with Paris sometimes conflicts with its special relation-
ship with Washington; its commitment to the European integration process
is in tension with its commitment to NATO; ‘widening’ the EU may
well complicate its ‘deepening’; and developing close relations with
east-central Europe could cause friction in bilateral relations with Russia.
The essential point to note when considering these dilemmas is that
they are not the same dilemmas as faced by Germany in 1871 or 1918.
They are dilemmas arising from the unique historical conjuncture that
Germany and Europe find themselves in on the eve of the twenty-first
century.
As one surveys the various dilemmas facing contemporary German
security policy, a consistent theme emerges. Germany, perhaps more
than any other major world power, remains committed to a multilat-
eral approach. Bonn has undoubtedly become more assertive in de-
fending and advancing its national interests in international fora, but it
has rarely opted for a unilateralist approach – in stark contrast to Eur-
ope’s other great powers. There are a number of competing German
views on the future external orientation of the FRG, but no mainstream
political force has been calling for the ‘renationalisation’ of Germa-
ny’s foreign and defence policies. The Bundesrepublik thus remains
firmly committed to multilateral diplomacy in the framework of the
EU, NATO and the OSCE. This is of tremendous significance, for as
Wolfgang Schlör observes,
Germany has internalized the Cold War era’s restrictions on its for-
eign policy and these limits appear to continue in people’s minds,
even though they have been formally lifted. The Germany of today
contradicts the predictions of many realists – it is as yet both unable
and unwilling to follow the pattern of maximising its power and
influence in the international system (Schlör, 1993 : 63).
Yet this commitment to multilateralism may also be generating new
security policy dilemmas for Bonn. The new Germany has been asked
by its allies and partners to accept a greater share of the responsibility
for international peace and security. At the same time, organisations
like NATO, the WEU and the OSCE are also beginning to play a
more interventionist role in international and intercommunal conflicts
which were previously regarded as lying outside their geographical
226 Adrian Hyde-Price

ambit or functional responsibility, while the UN itself is developing

more robust forms of military peace-keeping and peace-enforcement.
Bonn has acknowledged that its economic strength and political influence
demand a greater international presence, but it has been unwilling to
join America in policing China, Korea, Afghanistan, and other coun-
tries, as requested by the US ambassador in 1991. Instead Germany’s
energies have primarily been focused on the domestic task of reunit-
ing the two halves of Germany. For this reason, along with Germany’s
amilitary strategic culture and the widespread popular aversion to military
force, Bonn has been in no hurry to give up its role as a ‘civilian
power’ and begin projecting its military capabilities overseas (Ropers,
1992 : 217–39). Yet this is generating a new security policy dilemma
for Germany, for as Schlör notes,
multilateral organizations are becoming increasingly associated with
military commitments, which Germans are reluctant to undertake.
The German public’s aversion to military involvement might lead it
to reject the multilateralization of German security policy as well.
Thus, the feared nationalization of German security policy may take
a quite different form from what many observers expect: rather than
returning to power politics, Germany may abdicate its ambitions to
play a role in international security matters, concentrating instead
on solving its domestic problems and avoiding the divisive debate
on a greater security role (Schlör, 1993 : 65).
It may well be that the increasing military commitments associated
with the multilateral organisations to which Germany belongs will ul-
timately weaken Germany’s commitment to multilateralism in general.
On the other hand, it could be that Germany’s membership of interna-
tional organisations might lead to a weakening of the population’s
amilitary and pacifist impulses. This is certainly the favoured solution
of the Kohl government. Over recent years, Bonn has been gradually
involving the Bundeswehr in more overseas peacekeeping operations,
from Iran to Somalia. The legal constraint on the use of German mili-
tary power outside the NATO area was finally removed in the land-
mark decision by the Federal Constitutional Court on 12 July 1994.
This ruled that the German armed forces could be used in multilateral
actions within the framework of those organisations of collective secur-
ity or collective defence to which Germany belongs, as long as they
were orientated towards maintaining peace. Legally, therefore, the way
has been cleared for German troops to contribute to peace-keeping and
peace-enforcement actions. Politically, however, the issue remains highly
 Germany’s Security Policy Dilemmas 227

contentious, particularly within the opposition Social-Democratic Party.

Whatever domestic political decisions are taken on the overseas de-
ployment of the Bundeswehr, no one should doubt the generally posi-
tive role played by the new Germany in Europe’s post-Cold War security.
The newly united Germany has certainly begun to demonstrate a new
self-confidence, even assertiveness, and Bonn is less willing than in
the past to compromise its national interests in order to avoid antago-
nising its traditionally more nationalistically inclined western partners.5
Yet this does not presage the birth of a ‘Fourth Reich’ as some have
rather obscenely suggested (Cruise O’Brien, 1989; Scruton, 1989), nor
does it indicate an imminent return to traditional balance of power
politics in Europe as some neo-realists have argued (Mearsheimer,
1990 : 5–56). Democracy, economic interdependence, robust multilat-
eral institutions and the emergence of a pluralistic security community
have provided the historical solution to security dilemmas arising from
the ‘German problem’. What remains is a ‘European problem’: namely,
the problem of how to overcome Europe’s continuing economic, social
and political divides, and build a continent at peace with itself and
with the outside world. Creating such a europäische Friedensordnung
(a European peace order) is the historic task facing Germany, in coop-
eration with its allies and partners, on the eve of the twenty-first century.

NOTES

1. ‘The Treaty of Westphalia organised Europe on the basis of particularism.

It represented a new diplomatic arrangement – an order created by states,
for states – and replaced most of the legal vestiges of hierarchy, at the
pinnacle of which were the Pope and the Holy Roman Emperor.’ Westphalia
thus led to ‘the creation of a pan-European diplomatic system based on the
new principles of sovereignty and legal equality . . . and a balance of power
that would prevent drives for hegemony’. It also ‘paved the way for a
system of states to replace a hierarchical system under the leadership of
the Pope and the Habsburg family, that of the Holy Roman and Spanish
Empires’ (see Holsti, 1991 : pp. 25–6).
2. This is of tremendous significance for our understanding of the nature of
sovereignty in the modern era, for as Chris Brown has suggested, ‘if physical
violence is no longer a serious option then in practice sovereignty has
been seriously weakened, whatever the legal position. In the absence of an
effective right to resort to force, sovereignty is, it seems, a very amor-
phous notion’ (Brown, 1995: p. 195).
3. ‘The key feature which distinguishes the European Community from an
228 Adrian Hyde-Price

international organisation and places it within the spectrum of federal bod-

ies may be summed up as follows. The institutions of the Community have
the right and power, accorded to them by a treaty concluded for an unlim-
ited period, to make directly applicable law within a broad sphere of com-
petence, law which takes precedence over the law of the member states.
There are thus two levels of government, properly so called, in the Com-
munity, and this is the very heart of what makes a federal system’ (Forsyth,
1994: p. 57).
4. General Klaus Naumann has also argued that ‘[w]e need a broad political
approach and a flexible system of international politics. A suitable security
architecture must therefore include both European and the transatlantic
institutions in the process’ (Naumann, 1994 : 8–13).
5. This can be seen from both the establishment of formal national control
over the Bundeswehr and the request that the German language be used
more widely in the institutions of the EU.

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10 ‘Present at Disintegration’:
The United States and
German Unification
Michael Cox and Steven Hurst

To this day historians continue to debate the origins of Germany’s

division after World War II, and whether or not it was the inevitable
and logical consequence of the war itself, the product of communist
intransigence or, as has recently been argued, the result of an ‘Ameri-
can decision’ to secure the more important Western part of the country
against Soviet influence (Eisenberg, 1996). What they do not seem to
question however is that once the country had been divided, there seemed
to be little inclination thereafter to undo what had been done in the
critical years between 1945 and 1949. Indeed, each time it looked as
if the new status quo was under threat – as it certainly appeared to be
in 1953 when workers rose up in the East, and then later in 1961
when East Germany began to haemorrhage badly – the Western powers
appeared to be far more concerned to shore up the situation than to
challenge it. Of course, as John Lewis Gaddis has pointed out, there
were a number of reasons why the main powers were unwilling or
unable to reunite Germany, one being the logic of the superpower conflict
itself (Gaddis, 1997: 113–51). However, there were also historical con-
siderations. While Germany’s division could easily be explained
and justified in terms of Cold War realities, policy-makers privately
agreed that underlying their attachment to the new arrangement was a
concern to prevent Germany rising up again and threatening the peace.
Some policy-makers did not even bother to hide their true feelings,
and at times influential Americans such as Dean Acheson, George Ball
and Henry Kissinger openly conceded that Germany’s division and West
Germany’s integration into NATO was the only basis upon which to
build a new European order; and those like George Kennan who chal-
lenged this essential truth were simply utopian schemers with little
understanding of the real world.
Naturally, America’s attachment to the status quo was neither un-
conditional nor principled. After all, the logical corollary of Germany’s
division was Soviet domination of Eastern Europe – something no US

231
232 Michael Cox and Steven Hurst

leader could seriously contemplate as a permanent option. Furthermore,

whatever American politicians might have thought in private, they had
to adhere to the official position of a Europe united and free. To have
done otherwise during the Cold War would have been political sui-
cide. That said, the real, as opposed to the ostensible American posi-
tion towards Germany before 1989 was to secure its loyalty to the
West and Western institutions like NATO and the European Community,
and if this reinforced its division then it was a price worth paying to
keep Europe stable and nervous allies reassured (DePorte, 1979).
In this chapter we shall be looking at the ways in which the Bush
administration in particular came to terms with the upheavals caused
by the quite unexpected retreat of Soviet power from Eastern Europe
during 1989 and the even more unexpected unification of Germany.
Based on new memoir material as well as other important primary
sources, the argument advanced here is a simple but important one:
that in spite of serious reservations at the highest level, the American
administration not only came to terms with massive changes in Germany’s
status but played a critical – some would argue indispensable – role in
ensuring that these enhanced European security rather than undermin-
ing it. Here we agree with the conclusion arrived at by a former Bush
official, Robert Hutchings – director for European affairs at the National
Security Council between 1989 and 1992. Though in no way seeking
to detract from what he calls Bonn’s ‘masterful role’ (Hutchings, 1997:
91), Hutchings shows, convincingly in our view, that US support for
Bonn was absolutely vital, ‘not so much for German unification itself,
but for ensuring that the process came out right’ with all of Europe,
including the Soviet Union ‘accepting and supporting this outcome’
(ibid., 90; Bortfeldt, 1997; Küsters and Hofmann, 1998). What he also
demonstrates is the critical part played by diplomacy in the transition.
Unification might have happened anyway, but the fact that it happened
in the particularly benign way that it did, had a lot to do with the
manner in which the American administration in general (and George
Bush in particular) dealt with the issue. Large scale changes in the
international system and in the character of Soviet power may have
determined the direction in which history moved after 1989. But it
still required the decisions of certain men and women to ensure that
German unification could be managed effectively.
To make good our claim we have divided the chapter in the follow-
ing way. In the first part we look at the initial caution displayed by
the Bush administration towards the Gorbachev phenomenon. In the
second part we look at the way in which it began to take the initiative
 The United States and German Unification 233

and tried to set its own European agenda, a move undertaken in the
spring of 1989 (and importantly some time before the Berlin wall came
tumbling down a few months later). In part three we then look at the
diplomacy of German unification in some detail. We focus in particu-
lar on the delicate three-way negotiations between the US, the USSR
and the Kohl government. In the concluding section we reflect on the
longer term results of German unification and the US–German relation-
ship during the 1990s. We argue that while both countries clearly do
have something close to a new ‘special relationship’ (some have even
suggested that Germany has replaced the UK at the centre of Ameri-
can affections) this should not lead us to the naive conclusion that
unification has not caused the United States some concerns, nor that
the two nations agree about everything. But one thing both can agree
on: that when Germany needed the United States after 1989, the United
States was there to give more than just a helping hand. This more than
anything else will stand US–German relations in good stead as we
move into the twenty-first century.

BEWARE GORBACHEV

When George Bush was inaugurated as President of the United States

in January 1989 there were few hints, and even fewer expectations, of
the radical changes that were to sweep over Europe in the following
two years. The Bush administration’s attitude towards the changes under
way in superpower relations was one of cautious optimism tempered
with scepticism. While Bush himself believed that Soviet leader Mikhail
Gorbachev was ‘sincere in his desire to change the Soviet Union and
superpower relations’, others in his administration questioned both
Gorbachev’s goals and his ability to achieve them (Bush and Scowcroft,
1998: 9, 13; Gates, 1996: 473–4).
The Bush administration’s instinctive caution was highlighted by the
first major test of relations between the US and West Germany during
its term of office. The question of a replacement for NATO’s ageing
LANCE missile system had been on the table for some time when
Bush came to office and had become a source of increasing tension
within the alliance. The government and people of West Germany had
never evinced great enthusiasm for nuclear weapons that could only
be fired far enough to kill other Germans. The thawing of the Cold
War only served to reinforce those doubts. When Gorbachev offered
first to reduce Soviet armed forces in Eastern Europe by 500 000 and
234 Michael Cox and Steven Hurst

then to remove all Soviet short-range nuclear weapons (SNF) by 1991

if the US would do likewise, West German resistance to the deploy-
ment of a follow on to LANCE (FOTL) hardened considerably.
As far as the Bush administration was concerned Gorbachev’s pro-
posals contained as many threats as they did promises. NATO’s SNF
had always been justified by the need to offset the Warsaw Pact’s massive
advantage in conventional forces. A cut of 500 000 Soviet troops would
not remove that imbalance and the elimination of both alliances’ SNF
would thus weaken NATO’s position vis-à-vis the Warsaw Pact.
Gorbachev’s proposals thus looked to Washington to be both self-serving
and dangerous.
The FOTL issue threatened to become highly divisive and to drive a
wedge between Washington and Bonn (Bush and Scowcroft, 1998: 65–
71). Recognising the danger, the Bush administration began to work
hard to find a solution to the question and to shore up alliance unity.
This was achieved by the development of a two-pronged strategy re-
vealed at the NATO summit in Brussels at the end of May 1989. With
regard to FOTL, the administration crafted a proposal that promised
negotiations on SNF with the aim of a ‘partial’ rather than a total
removal of those weapons. In addition, a final decision on deployment
of FOTL would be postponed until 1992 and taken ‘in the light of
overall security developments’ (Department of State Bulletin, 1989).
The proposal thus bridged the gap between those in the Alliance who
wished to abandon FOTL and those who desired its deployment by
putting off the divisive decision.
In addition, and in order to prevent a recurrence of the arguments of
1989 in 1992, the Bush administration crafted new proposals for the
ongoing talks on Conventional Forces in Europe (CFE). In particular,
the administration proposed that the US and USSR agree to an equal
ceiling on troop levels in Central Europe of 275 000 and do so by
1992 or 1993 rather than 1997 as currently planned (ibid.: Declaration
of Heads of State and Government, 20). The great advantage of this
proposal was that it helped to neutralise the FOTL question. If the
USSR agreed to it there would be no need to deploy FOTL since the
crucial conventional imbalance between the two alliances’ forces would
have been eliminated. If they rejected it then the NATO allies would
rally behind deployment in the face of Moscow’s intransigence.
 The United States and German Unification 235

SEIZING THE INITIATIVE

Skilful US diplomacy thus served to head off serious divisions within

NATO and between Washington and Bonn. Nevertheless, the FOTL
issue served as a timely warning of the dangers of inaction in the face
of adroit Soviet diplomacy: it also reinforced the growing perception
within the Bush administration that it was vital to begin setting the
agenda rather than reacting to the initiatives of others.
A key area in which the administration believed that it was possible
to seize the initiative was Eastern Europe. Gorbachev had already hinted
that the USSR was prepared to acknowledge the right of self-determi-
nation for that region in his speech to the UN in December 1988 (Wash-
ington Post, 8 December 1988, A32; Gorbachev, 1995: 683–6) and the
National Security Council staff now suggested that the US should be-
gin putting such promises to the test (Bush and Scowcroft, 1998: 40,
15–16). The appeal of that idea was reinforced by concrete evidence
of real reform in Eastern Europe, particularly in Poland and Hungary.
When the Polish government and the opposition Solidarity movement
agreed terms for elections in April 1989, Bush seized the opportunity
to declare his administration’s ‘vision of the European future’. It was
now possible, he declared
to dream of the day when East European peoples will be free to
choose their system of government and vote for their party of choice . . .
If we are wise, united and ready to seize the moment, we will be
remembered as the generation that helped all of Europe find its des-
tiny in freedom (Public Papers, Bush: 17 April 1989).
The implications of this vision for Germany were not lost on the
Bush administration. In the process of formulating the new policy,
National Security Adviser Brent Scowcroft told Bush that the adminis-
tration must now give serious thought to German unification as part of
its overall objectives and, moreover, that it should be supportive of
that goal. Such a belief was reinforced by considerations arising from
the FOTL issue and the need to shore up the Washington–Bonn axis
(Zelikow and Rice, 1995: 28–9). Accordingly, on 31 May 1989 in the
West German city of Mainz, Bush publicly stated that the unification
of Germany was now an explicit goal of his administration. Declaring
that ‘the Cold War began with the division of Europe. It can only end
when Europe is whole’, he said that ‘we seek self-determination for
all of Germany and all of Eastern Europe’ (Public Papers, Bush: 31
May 1989).
236 Michael Cox and Steven Hurst

Thus, for all its initial caution, the Bush administration proved to be
bolder and more visionary in its contemplation of the European future
than either Gorbachev or its European allies, including the govern-
ment in Bonn. Bush’s readiness to embrace such radical change was,
in turn, strongly informed by his implicit confidence in the stability of
West German democracy. Unlike many European leaders, Bush was
possessed by none of the atavistic fears which characterised their re-
actions to the idea of German unification. That much was implicit in
his remarks in Mainz, but later in 1989 he spelled it out quite explicitly.
I think there’s been a dramatic change in post-World War Two
Germany. And so, I don’t fear it [unification] . . . I think there is in
some quarters a feeling – well, a reunified Germany would be detri-
mental to the peace of Europe . . . and I don’t accept that at all,
simply don’t (Public Papers, Bush: 18 Sept. 1989).
Both Bush’s early acceptance of German unification as a realistic
policy objective and his lack of qualms about its implications would
prove vital to his administration’s successful manipulation of the uni-
fication process.

GERMAN UNIFICATION: AMERICAN CALCULATIONS

Thus, by the time Bush’s rhetorical call for the freedom of Eastern
Europe became a dramatic reality in the second half of 1989, his ad-
ministration was already psychologically and politically prepared to
address the consequences. But one other crucial individual deserves
mention here. As the crisis in East Germany had unfolded, Chancellor
Helmut Kohl of West Germany had begun to see emerging before him
the opportunity to achieve the ultimate political prize for any West
German Chancellor. When the Berlin Wall came down on 9 November
1989, Kohl rushed to Berlin to call for the right to self-determination
for ‘all Germans’ and to proclaim that the road ahead now lead to
‘unity, right and freedom’ (Zelikow and Rice, 1995: 103). He forma-
lized his goal in a speech to the Bundestag on 28 November in which
he outlined a ten point plan for gradual unification by means of first
establishing a confederation between the two German states (German
Information Center, 1989; Diekmann and Reuth, 1996: 157–211; Larres,
2000a: 52–3).
This open call for unification caused consternation, not only in Moscow,
which saw the chief prize of its victory in World War II and the key-
 The United States and German Unification 237

stone of its western security system threatened, but also in most of the
capitals of Western Europe – where governments which had always
publicly supported unification in the secure knowledge that it was never
going to happen – now had to contemplate the uncomfortable prospect
of a united Germany dominating Europe once again. Thus, not only
was it Gorbachev who claimed that German unification was ‘no issue
of current policy’ (Hutchings, 1997: 95), Prime Minister Margaret
Thatcher of the United Kingdom similarly declared that ‘the question
of borders is not on the agenda. They should stay as they are.’ (ibid.,
96; Thatcher, 1995, 790–806)
The one exception to the general reluctance to contemplate German
unification was the government of the United States, and George Bush
in particular – possibly the first in his own administration to back
unification unequivocally. More generally, and ‘alone among leaders
of the Western Alliance and the Soviet Union’ according to his Deputy
National Security Advisor, he really did believe that the Germans had
changed and was ‘prepared to gamble a very great deal on that faith’.
Hence it was no surprise when the day after Kohl announced his plan
for unification to the Bundestag, Bush called him personally to ex-
press his support (Gates, 1996: 484).
There were a number of reasons for the Bush administration’s swift
embrace of Kohl’s plan. The first quite clearly was Bush himself who
sensed – correctly as it turned out – that after nearly 40 years West
German democracy had become so deeply entrenched that any change
in Germany’s international status could do little to upset Germany’s
and the German people’s attachment to democratic norms and pro-
cedures. Bush also had a good deal of faith in NATO and the European
Community. Again he calculated that West Germany’s political class
had everything to gain, and much to lose, if it abandoned the very
institutions which had brought it security and prosperity – and so long
as the new Germany remained securely integrated into both there was
nothing to fear. Indeed, given these realities, unification would repre-
sent a clear victory for western policy and would end the division of
Europe on western terms.
There was also a more pragmatic consideration. Despite Bush’s faith
in Kohl, there were still nagging fears that, if necessary, Bonn would
do a deal with Moscow in order to attain unification and that the price
of such a deal might be German neutralism and the consequent col-
lapse of NATO (Larres, 1996). This fear was exacerbated by the popu-
larity of Mikhail Gorbachev in West Germany in the late 1980s. Within
the German government, the Foreign Minister, Hans-Dietrich Genscher
238 Michael Cox and Steven Hurst

in particular, was seen by some in the Bush administration as overly

enthusiastic about Gorbachev and his reforms (Pond, 1993: 165–6; Bush
and Scowcroft, 1998: 195). The emergence of unification as a real
possibility made the fear of ‘Genscherism’ much more tangible. The
nightmare scenario for the US was one in which Gorbachev agreed to
German unification but only if a united Germany was neutral (Zelikow
and Rice, 1995: 154). In such a scenario, faced with the choice of
unity or NATO, the German people were bound to choose the former
over the latter. Moreover, American insistence on a united Germany’s
membership of NATO would mean that it, and not the USSR, would
be perceived by the German people as the obstacle to unification. The
crucial objective of American diplomacy, therefore, was to ensure that
Bonn insisted that both unity and NATO membership were non-
negotiable. Such an insistence would, in turn, make Moscow’s demands
for German neutrality the perceived obstacle to unification.
Thus, when the administration quickly recognised in November 1989
that unification was becoming inevitable, it became vitally important
to be on the inside, shaping the policies that would bring unification,
rather than on the outside, opposing it. As State Department Counsel-
lor Robert Zoellick observed, ‘our strong support for the process would
make it more likely that the German people would voluntarily stay
within western structures’ (Pond, 1993: 161). In addition, there was
also the question of the impact of German unification on Gorbachev’s
domestic position to consider. Once again, being in a position to influ-
ence the process was in the United States’ best interests (Baker, 1995:
165; Bush and Scowcroft, 1998: 190).
The administration’s desire to shape the process of German unifica-
tion was evident in the speed and nature of its response to events. By
mid November 1989, even before Kohl’s speech to the Bundestag, the
State Department’s Policy Planning Staff had come up with an ap-
proach to German unification emphasising four central principles:
1. The United States should support German self-determination with-
out endorsing a specific outcome.
2. Unification must be consistent with German membership of NATO
and the European Community.
3. Movement towards unification should be peaceful and gradual.
4. On the question of postwar boundaries, the terms of the Helsinki
Final Act should be observed (Zelikow and Rice, 1995: 113; Public
Papers, Bush: 4 Dec. 1989).
 The United States and German Unification 239

Of the four the second was obviously the Bush administration’s chief
concern. By moving this early it clearly hoped to set the terms of the
debate.
Besides keeping Germany inside NATO, the other essential role of
US diplomacy was to try and persuade both the Soviet Union and the
Western Europeans to accept German unification. Because of the unique
nature of the US–Soviet relationship and America’s central role in NATO,
the United States was in the prime position to perform both tasks.
Bush accordingly informed President Gorbachev at the December 1989
Malta summit that he would not seek in any way to exploit the Ger-
man question (Gates, 1996: 484; Gorbachev, 1995: 692–9) and per-
suaded the NATO summit of the same month to endorse German
reunification over British opposition.

THE DIPLOMACY OF GERMAN UNIFICATION: TWO PLUS

FOUR

The key questions now for American diplomacy were the pace of uni-
fication and the nature of the process. In early 1990 even Chancellor
Kohl did not envision unification taking place for four or five years.
Within weeks, however, both he and Washington had changed their
minds. The reason for this was the accelerating decline of East Germany.
The East German regime was bankrupt, its government powerless to
act and its people increasingly saw their future in a united Germany.
Put crudely, East Germany was falling apart; it was not going to last
another four or five years and unification was going to have to come
sooner rather than later. In fact, this prospect was far from unattractive
to the Bush administration since it calculated that the longer the pro-
cess took the greater would be the opportunities for Moscow to find
ways to obstruct it. At present Moscow was clearly off balance and
uncertain as to how to respond to events that threatened to overwhelm
it. A rapid unification process might serve to keep things that way and
present Moscow with a fait accompli (Zelikow and Rice, 1995: 160).
But the administration was not of one mind. The National Security
Council staff (like the West German government itself ) was in favour
of unification being negotiated solely between the two Germanies. The
NSC staff in particular saw no reason to allow the USSR a role and
believed that unification would occur most quickly if left to the Ger-
mans alone (ibid., 167–8). Secretary of State James Baker, however,
felt that an attempt to exclude the USSR, not to mention the UK and
240 Michael Cox and Steven Hurst

France, was ‘a recipe for a train wreck’ should one of those three
attempt to obstruct the process. The State Department, moreover, was
looking at the problem in the wider context of US–Soviet relations
and believed that the USSR had to be offered some form of face-saving
role, both in order to win its acceptance of unification and to protect
Gorbachev against his own domestic hardliners (Baker, 1995: 198; Bush
and Scowcroft, 1998: 234–5).
The procedure the State Department Policy Planning Staff proposed
to achieve this task became known as ‘2+4’. Under this process the
details of German unification would be decided by the two Germanies
plus the four occupying powers (US, USSR, UK and France). Thus,
‘2+4’ would be a mechanism for unification, not a forum for arguing
for or against it, and all matters of substance relating to unification
would be decided by the two Germanies alone. The only formal role
of the four occupying powers would be to surrender their occupation
rights. The NSC staff opposed the idea right up until its formal accep-
tance at the Ottowa summit in February 1990 but Baker and the State
Department eventually won the argument (Baker, 1995: 215; Zelikow
and Rice, 1995: 167–8; Pond, 1993: 180).
The NSC staff were not the only people who had to be persuaded of
the virtues of ‘2+4’. Moscow had also to be cajoled into accepting the
plan; and the goal of the Bush administration was to give the Russians
a role that would prevent their humiliation but which would not allow
them to throw a spanner in the proverbial works. The great fear was
that, given the crucial importance of East Germany to the USSR, both
in strategic terms and as a symbol of the victory over Nazi Germany,
its loss could precipitate a hardline backlash against Gorbachev which
might even remove him from power. Thus American thinking on Ger-
many was always ‘cast in terms of how it would affect the continued
process of reform throughout Eastern Europe and the Soviet Union’
(Bush and Scowcroft, 1998: 190). Gorbachev and his advisers had come
round to the idea of a six-nation process independently before Baker’s
visit (Boll, 1996–97: 113; Gorbachev, 1995: 714–17). The US sought
a means to lessen the pain of the loss of East Germany; ‘2+4’, it was
hoped, would serve this purpose. It would give Moscow the dignity of
appearing to play a part in the unification process without giving it
any real power over the substance of the matter.
In early February 1990 Baker flew to Moscow to try and persuade
Gorbachev of the virtues of ‘2+4’. As part of his effort to woo Gorbachev
he suggested that a united Germany inside NATO, denuclearised and
tied to the US, would pose less of a threat to the Soviet Union than an
independent, non-aligned Germany which might feel the need to acquire
 The United States and German Unification 241

nuclear weapons. Gorbachev admitted that he had also been toying

with some form of six power structure and agreed that ‘2+4’ was a
‘suitable’ way forward. Even more significantly, he declared that Ger-
man unification was ‘nothing terrifying’ and that while he remained
opposed to a unified Germany being inside NATO he could see that
the continued presence of US troops ‘could have a constructive role’
(ibid., 205; Gates, 1996: 490; Zelikow and Rice, 1995: 182–4).
Nor was it only Moscow which had to be persuaded of the merits of
‘2+4’. On 31 January 1990 Genscher gave a speech at Tutzing in which
he spoke out against four power structures and said that unity should
be negotiated by the two Germanys alone. Furthermore, according to
Genscher, after unification, NATO (and the Warsaw Pact) would only
become ‘elements’ of new Europe-wide security structures and the
Conference on Security and Cooperation in Europe (CSCE) would play
a strengthened role (Hutchings, 1997: 111). Genscher’s remarks, in
particular those about future European security structures, were greeted
with some anxiety in Washington. The Bush administration was ada-
mantly opposed to any dilution of NATO’s role or any absorption of
it into the talking-shop of the CSCE (Bush and Scowcroft, 1998: 236–
7; Genscher, 1995: 709ff.). Moreover, with Kohl due to fly to Moscow
in a few days, it was imperative that Washington and Bonn were as
one on the key questions in order to prevent the Russians exploiting
divisions between them.
Genscher’s concerns about four-power interference were easily laid
to rest when he met with Baker in Washington on 2 February. Once
Baker assured him that ‘2+4’ was designed to prevent four-power ob-
struction rather than facilitate it Genscher was amenable to the idea
(Baker, 1995: 199–200). Following that, Bush wrote to Kohl in order
both to express his absolute support for unification and US readiness
to resist Moscow’s efforts to obstruct that process in any way. He also
used the opportunity to reiterate US preferences concerning the pro-
cess and above all the imperative need for a united Germany to remain
in NATO (Bush and Scowcroft, 1998: 240–1). Kohl later described
this letter as ‘one of the most important documents in the history of
US–German relations’ (Hutchings, 1997: 117).
With the Bush administration’s views on the unification process thus
absolutely clear in his mind, Kohl was able to go to Moscow and
present Gorbachev with a united US–West German front. With Kohl
also pledging significant economic aid for the USSR and accepting
that NATO troops would not be deployed on the territory of the former
East Germany, Gorbachev said that he was prepared to accept unifica-
tion as a matter for the German people to decide (Zelikow and Rice,
242 Michael Cox and Steven Hurst

1995: 188). The joint Soviet–German communique released after the

meeting between the Soviet leader and Chancellor Kohl declared that:
the Germans themselves must resolve the question of the unity of
the German nation and themselves decide in what kind of state sys-
tem, in what time frame, at what speed and under what conditions
they want to bring about this unity (New York Times, 11 February
1990: A1, 21; Pond, 1993: 179).
But, importantly, not in which alliances they would be members.

BRINGING IN THE RUSSIANS

It thus seemed clear that by the middle of February 1990 Gorbachev

was finally prepared to accept unification (we now know from his own
memoirs that at a small meeting with his advisers in January 1990, he
had come to the conclusion that unification was almost certainly inevi-
table). This was then confirmed at the Ottowa conference on ‘Open
Skies’ at which Baker was able to secure the agreement of all six
relevant parties to the ‘2+4’ process. The announcement of this agree-
ment clearly stated that the two Germanies would discuss all internal
aspects of unification while the four powers would discuss only the
external aspects. It was also made clear that while the ‘2+4’ could
discuss anything, it could only formally negotiate the ending of four
power rights in Berlin. The scope of the talks was thus tightly circum-
scribed to curb Russian leverage. More interestingly, the announce-
ment also stated that, on unification, Germany would have full sovereignty
and no limitations on its choice of alliance (American Foreign Policy:
Current Documents, 1990: 348).
The Ottowa announcement thus implied that Moscow was now ready
to accept all of the West’s terms for unification, including NATO
membership. A month later however Gorbachev appeared to reverse
course, declaring on 6 March 1990 that ‘we cannot agree to [a united
Germany being in NATO]. It is absolutely ruled out’ (Baker, 1995:
235). This shift was confirmed at the first meeting of ‘2+4’ officials on
14 March when the Soviet delegation denounced moves towards rapid
unification and demanded a far broader mandate for the ‘2+4’ process
than had been announced at Ottowa, including discussion of the ques-
tion of NATO membership (Zelikow and Rice, 1995: 225).
This kind of reversal would prove to be characteristic of Moscow’s
diplomacy on the question of German unification. There would be a
 The United States and German Unification 243

series of false dawns, such as Ottowa, when the USSR would appear
to concede Western demands only to retract that concession in their
next public announcement. This vacillation was a product of two factors.
In the first place, it is clear that the speed of the unification process
took the Soviet leadership utterly by surprise. Baker realised this in
his meeting with Soviet Foreign Minister Eduard Shevardnadze in Ottowa,
when the latter at one point said ‘we are trying to think things out, to
find variants and solutions, I just don’t know.’ (Baker, 1995: 209)
The other reason for the confusion in the Soviet position was dom-
estic politics. While Mikhail Gorbachev and Eduard Shevardnadze wanted
to pursue a policy of interdependence and co-operation with the West,
both were aware of the enormous symbolic and strategic importance
of East Germany. In the Soviet Union the division of Germany was
seen as the great prize of World War II, the tangible reward for the
terrible sacrifices of the Soviet people in that conflict and an assurance
that the German menace would never arise again. To accept unifica-
tion – moreover unification within NATO – was bound to be more
than many could bear. In fact, Shevardnadze told Baker at Ottowa that
at the recent Plenum of the Communist Party of the Soviet Union
Politburo member Yegor Ligachev had talked of ‘a new Munich’, and
warned that the conservatives were seeking to use Bush’s support for
Gorbachev against the reformers (ibid., 208–9).
The Bush administration understood this and responded accordingly.
The key issue was NATO. It was German unification inside NATO
which was the real problem. The absorption of the keystone of the
Warsaw Pact into its main military opponent was a bit much to swallow
– even for proponents of the ‘new thinking’. Given that German mem-
bership of NATO was a non-negotiable issue as far as Washington
was concerned, the administration was faced with a very clear but
immensely difficult task, namely, to persuade Moscow that German
membership of NATO was not a threat to the USSR. The obvious way
to do this was to adapt NATO structures and goals in such a way as to
make the institution itself appear less of a threat to Soviet security
interests.
In early 1990 the Bush administration therefore decided that a major
overhaul of NATO strategy was required. In February it put together
an interdepartmental group, under the chairmanship of Robert Gates,
to analyze the question of NATO’s future role (Bush and Scowcroft,
1998: 262). Following this, Bush announced in early May that he would
be ‘calling for an early summit of all NATO leaders’ in order to ‘launch
a wide-ranging NATO strategy review for the transformed Europe of
244 Michael Cox and Steven Hurst

the 1990s’. The review would focus on four key areas: NATO’s politi-
cal role in Western Europe; conventional defence; nuclear defence and
the future role of the CSCE (Public Papers, Bush: 4 May 1990). In
making such a declaration Bush was taking a significant risk. He was
promising to achieve a major reform of NATO before he had consulted
his alliance partners as to whether they were prepared to go along
with it. He was clearly driven to take this risk by the importance of
finding some form of quid pro quo for Russian acceptance of German
unification inside NATO.
Another part of this strategy of reassurance was the so-called ‘in-
centives package’. This stemmed from a list of ‘seven questions’ which
Shevardnadze had first raised in a speech to the European parliament
on 19 December 1989. These ‘questions’ included; recognition of existing
borders; the future status of the German armed forces and other troops
stationed on German soil; the place of a united Germany in Europe’s
‘military–political’ structures, and the national security interests of other
states (Hutchings, 1997: 106). The ‘questions’ effectively constituted a
list of concerns which Moscow required to be addressed before German
unification could be contemplated. Bush and Kohl consequently agreed
to work on a combination of unilateral concessions delivered by Bonn
and a number of pledges by NATO that Washington would seek to
deliver which would address those concerns. A preliminary version of
this package was revealed to the Soviets by Baker when he visited
Moscow in mid May. The key points were:
1. A united Germany would not develop or possess nuclear, chemical
or biological weapons.
2. German borders must be settled on unification.
3. Soviet troops would be allowed to remain in the former East Germany
for a number of years.
4. NATO troops would not be deployed on East German territory for
a transitional period.
5. There would be a ceiling on the size of the German armed forces
as well as on those of other central European countries, to be for-
malised in a CFE 2 treaty.
6. NATO would review and revise its strategy.
7. NATO would agree to negotiations on SNF.
8. NATO would agree to an upgrading of the role of the CSCE.
9. Development of Soviet–German economic relations and the fulfil-
ment of all GDR economic obligations to the USSR (Baker, 1995:
250–1; Bush and Scowcroft, 1998: 273–4).
 The United States and German Unification 245

The US and West Germany were thus engaged in a policy of ‘trying

on two levels to bribe the Soviets out of Germany’. The Germans were
offering a range of financial and economic sweeteners while the US
sought to make unification inside NATO more palatable (Gates, 1996:
492). There was no indication in the Soviet response, however, of any
readiness to give ground in return. They said that any ceiling on the
armed forces of a united Germany must be fixed by the ‘2+4’ and not
wait for a CFE 2 and, crucially, that NATO membership was not an
option. Baker returned from this visit convinced that Gorbachev and
Shevardnadze were under severe pressure not to compromise on this
issue (ibid.; Baker, 1995: 251).
The first indication of a softening of the Soviet position came at the
US–Soviet summit in Washington at the end of May 1990. When the
question of German unification was raised for discussion, Bush reiter-
ated the US position that a united Germany must be a member of
NATO. He also presented a slightly revised version of the incentives
package and told Gorbachev that the US intended to unveil a reformed
NATO at a summit now scheduled for early July. In response, Gorbachev
initially reiterated the standard Soviet line but then, after further dis-
cussion, suddenly declared to the visible consternation of his own ad-
visers that it should be up to the German people to decide what alliances
they wished to join (Bush and Scowcroft, 1998: 281–3; Zelikow and
Rice, 1995: 278–9; Baker, 1995: 253; Gorbachev, 1995: 721–3, 728–
36). When the Soviet delegation accepted the insertion of a similar
form of words into the final summit communique, Washington at last
had a direct acceptance of German unification inside NATO (Public
Papers, Bush: 3 June 1990).
Domestic political pressures, however, continued to shape Gorbachev’s
attitude to unification. On 12 June Gorbachev told the Supreme Soviet
that he would accept a united Germany as a member of NATO provid-
ing there was a transitional period during which military forces in the
former East Germany retained ‘associate membership’ of the Warsaw
Pact (New York Times, 13 June 1990, A1, A18). That was a qualification
that Washington was not prepared to accept but nevertheless Moscow
appeared to have made the main concession (Zelikow and Rice, 1995:
304–6).
At the 22 June ministerial meeting of the ‘2+4’, however, it ap-
peared that the Washington summit had been yet another false dawn.
The Soviet position at this meeting was that the ‘2+4’ settlement should
merely be an interim agreement. Four Power rights should remain in
place until 1992, when a further convening of the ‘2+4’ would occur
246 Michael Cox and Steven Hurst

to assess German behaviour in the intervening period and to decide

whether to relinquish Four Power rights. In addition, all the GDR’s
international commitments, including its membership of the Warsaw
Pact, should be maintained for five years after unification. In effect,
the Russians were declaring that if they could not halt unification, then
they insisted on major constraints on the sovereignty of a united Germany.
This was as hardline a stance as they had taken since their initial re-
fusal to contemplate the possibility of unification at all. In a private
meeting after the ministerial meeting James Baker asked Shevardnadze
what was going on. The Soviet foreign minister admitted that his state-
ment had been dictated by domestic political concerns and manoeuverings.
He told Baker that if the US wanted unification within NATO then the
forthcoming London NATO summit must produce an outcome that
allowed Gorbachev to declare that NATO was no longer a threat (ibid.,
300; Baker, 1995: 257).
The London summit thus became a crucial moment. If Bush could
deliver on his promise to initiate a major review of NATO strategy he
would provide Gorbachev with the means to accept German unifica-
tion despite the Soviet hardliners. With this in mind, Bush decided to
short-circuit the normal NATO decision-making process of submitting
proposals to the NATO bureaucracy and instead circulated his pro-
posed reforms directly to the NATO heads of government for their
approval. Despite considerable disquiet about both method and con-
tent, Bush was able to get his way with the forceful backing of the
Germans and, with minor modifications, the summit approved the Bush
proposals (Bush and Scowcroft, 1998: 293–4).
The resulting ‘London Declaration on a Transformed Atlantic Alliance’
outlined a radical overhaul of NATO strategy and structure. NATO
would invite the Warsaw Pact governments to establish diplomatic liaison
missions at NATO and to work with NATO on matters of common
concern. There would be a move away from the strategy of Forward
Defence towards one stressing mobility. Moreover, the strategy of the
early first use of nuclear weapons would be abandoned in favour of a
policy of ‘minimum deterrence’. There was also a commitment to future
negotiations on SNF and to seek further deep cuts in conventional
forces in a CFE 2 negotiation. Finally, there was a pledge to upgrade
the role of the CSCE with the creation of a secretariat and parliament
and a crisis management centre (NATO Review, 1990: 32–3). Essentially
the message being sent was that NATO was acknowledging the decline
of the Soviet threat and moving away from an aggressive military posture.
The USSR would be assured of a full role in future debates on European
 The United States and German Unification 247

security by its membership of the CSCE and through direct contact

with NATO.
The London declaration proved to be a decisive event. Eduard
Shevardnadze would later write that ‘without the decisions passed by
the NATO council in London, membership of Germany in NATO would
have been unacceptable to us’ (Shevardnadze, 1991: 145). Now they
were able finally and decisively to lay the matter to rest. When Chan-
cellor Kohl visited Moscow in mid July he and Gorbachev agreed that
a united Germany would be a member of NATO; that once unification
was completed Four Power rights would end and Germany would have
full sovereignty; that Soviet troops would be allowed to remain in the
former GDR for 3–4 years; that for that period NATO troops would
not be stationed in the former East Germany, though units of the Ger-
man armed forces not integrated into NATO could be, and that NATO
commitments to common defence would apply to the whole of the
united Germany. Germany would also commit itself to a ceiling on its
armed forces of 370 000 at the time of the completion of a CFE treaty
and would not possess or develop nuclear, chemical or biological weapons
(New York Times, 18 July 1990, A1, A4; Zelikow and Rice, 1995:
341–2). With these agreements the way was finally clear for unifica-
tion to go ahead.

CONCLUSION: UNIFICATION AND GERMAN–AMERICAN

RELATIONS IN THE 1990S

The American contribution to German reunification was thus enormous.

As even Genscher later admitted; ‘if America had so much as hesi-
tated, we could have stood on our heads and gotten nowhere’ (Pond,
1993: 186; Borinski, 1997). And in every key external aspect of the
unification process the role of the Bush administration was crucial.
Bush’s unequivocal support for Kohl in particular helped drive the
process forward and reinforced the latter’s vital commitment to mem-
bership of NATO. It was that same unswerving US support which forced
even reluctant Western European allies such as the UK into line be-
hind unification. Finally, it was the ability of the US to drive through
NATO reform which ultimately led to Soviet acceptance of German
unification on western terms. Thanks in large part to the diplomacy of
the Bush administration, a development with the potential to uproot
structures and relationships developed over the previous 40 years
occurred with barely a ripple.
248 Michael Cox and Steven Hurst

The unification of Germany proved to be the high point of US–

German relations and for a while at least it seemed that Bush’s decla-
ration at Mainz that the two were now ‘partners in leadership’ would
be fulfilled (Public Papers, Bush: 31 May 1989). Certainly, Bush’s
successor – Bill Clinton (1993–2001) – viewed the new Germany in
this way; and indeed many felt that Washington in the 1990s had made
a quite conscious decision to abandon the special relationship with
London in order to create a new one with Bonn. There was perhaps
some truth to this. The new Germany after all (unlike the United King-
dom) did stand at the heart of the new European economic and politi-
cal order and, moreover, was likely to play a far more central role in
Central European and Russian affairs. But to pose the question in this
either–or way is far too simple. As Clinton himself revealed over a
whole series of issues (from NATO expansion to EMU) in the end the
United States did not have any special relationship with one specific
country but a series of interests in Europe – which could only be served
if it had good relations with all its allies. Furthermore, close relations
with the new Germany did not of itself eliminate every single differ-
ence between Germany and the United States, as disputes over Euro-
pean agricultural reform, Bosnia, Kosovo, Franco-German defence
co-operation and the Middle-East revealed only too clearly. The US
was particularly incensed by what it saw as Germany’s inept handling
of the situation in the former-Yugoslavia in the early 1990s. The Kohl
government’s almost unilateral action in recognising Croatia in 1991
led to a severe crisis in the western alliance and German–American
relations (Libal, 1997). Washington was equally concerned by Ger-
many’s blank refusal to adopt a more belligerent stance towards both
Iran and Iraq.
It would be wrong, however, to suggest that these various frictions
– irritating though they undoubtedly were to both sides – amounted to
any kind of significant crisis in bilateral relations. The fact remains
that if Germany continued to need the United States, the United States
continued to need Germany. This reality is clearly demonstrated in the
centrality of Germany to the two institutions, NATO and the EU, which
form the core of US interests in Europe. No other country plays such
a vital role in both institutions. While France is a driving force in the
EU, it remains cautious about NATO and American dominance of that
organisation. The UK, in contrast, while ardently committed to NATO,
remains outside the core of the EU, even under the more Euro-friendly
labour government of Tony Blair (Larres, 2000b).
 The United States and German Unification 249

Germany, in contrast, is equally committed, and vital, to both insti-

tutions. Thus, as the Clinton administration seeks to deepen its eco-
nomic integration with the EU and expand that relationship into a global
partnership – as for example demonstrated by the signing of the New
Transatlantic Agenda in December 1995 – so the US–German partner-
ship remains as vital as ever. Moreover, the successful eastern expan-
sion of NATO with the inclusion of Poland, Hungary and Czech Republic
in April 1999 was a project about which Germany had been noticeably
more enthusiastic than either France or the UK and it thus contributed
to the further cementing of German–American relations in the post-
cold war era. With Germany also central to the third key US goal in
Europe, encouraging the development of democracy and free markets
in Russia and the CIS, the US–German partnership looks set to remain
a vital one in the twenty-first century.

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Index
The index excludes such terms as Germany, West and East Germany, FRG, GDR,
West and East Berlin, German Question, German Unification as well as scholars men-
tioned in the text but not actively involved in the activities under consideration. German
political parties and some well known institutions/organisations have been listed under
their German names.

Acheson, Dean, 10, 14, 231 Bidault, Georges, 11

Adenauer, Konrad, 12–15 Biedenkopf, Kurt, xliv, 28
Afghanistan, 226 Bisky, Lother, xlvii
Albania, lii Bismarck, Otto von, 204–5, 213, 214,
Allianz 90, 24 225
Allianz für Deutschland, 24, 55, 89, 91 Bizone, 11
Allied Control Council, 11 Blair, Tony, xxi, 248
Allied Powers, 9, 13–14, 17–19, 25, Blockparteien, 88, 89, 90, 92, 93
26–7, 33, 55, 153, 154, 166, 179, Blücher, Franz, 13
207, 211, 216, 225, 227 Blüm, Norbert, 27
Andrejewa, Nina, 41 Bohley, Bärbel, 28
Arendt, Hannah, 35 Bosnia, li–lii, 248
Arms controls, 224 Brandt, Willy, xxxviii, 16–19, 21, 24,
Asylum law, 135, 141, 143–4 27, 36, 37, 53
Asylum seekers, xlvi, 3, 95, 96, 99, Brentano, Heinrich von, 13
131–2, 133, 134, 136, 137–8, 143–4 Breuel, Birgit, 74, 75
Atlantic Alliance, see NATO Brezhnev Doctrine, see Brezhnev, Leonid
Attlee, Clement, 9 Brezhnev, Leonid, 40, 41, 45
Austria, 22, 44, 47, 152, 169, 170 Bulgaria, 19
Bund Freier Deutscher (BFD), 92
Bahr, Egon, 16, 37, 224 Bundesbank (BBk, German Central
Baker, James, 23, 52, 218–19, 239–40, Bank), xxxiv, 64, 66, 67, 71, 151,
241, 242, 243, 244–5, 246 152, 153, 154, 156, 159, 161, 162,
Balance of power, 210–12, 213, 225, 163, 170, 180, 190, 191, 194
227 Bundesrat (German Parliament, Upper
Balkans, liii, 214, 223 House), xxviii, xxxv, xxxvi, xli,
Ball, George, 231 xlix, 27, 85, 109, 110, 117, 118
Baltic states, 219 Bundestag (German Parliament, Lower
Bank deutscher Länder (BdL. House), xx, xxviii, xxxiv, xxxix,
predecessor of Bundesbank), 151, xlvi, xlviii, 26, 27, 79, 88, 93, 94,
153, 154 98, 99, 109, 143
Barschel Affair, 95 Bundeswehr (Federal German Army),
Basic Law, 3, 18, 26, 27, 109, 110, 114, xxvii, xxx, xxxi, lii, liv–lvi, 208,
116, 117, 118, 133, 141, 143–4, 213, 215, 226–7, 228
157, 169, 198, 208 Bündnis 90 (Die Grünen), xxxix, xlii,
Benelux countries, 152, 154–5, 169, 170, 55, 93, 94, 98, 99, 101, 104
216, 221, 224 Bush, George, lvii–lviii, 23, 40, 52, 53,
Berlin wall, xlix, 1, 16, 17, 20, 22, 28, 232, 233–41, 243–8
33, 34, 37, 42, 45, 51, 52, 53, 89, Byrnes, James, 10–11
102, 120, 130, 140, 174, 184, 206,
233, 236 Canada, 19, 26
Bevin, Ernest, 9, 11, 12 Carter, Jimmy, 35

252
 Index 253

Cash, Frank, 16 peaceful coexistence, 180

Ceausescu, Nicolae, 46 Potsdam Agreement (1945), 9
Central Europe, see Eastern and Central reparations, 10, 153, 179
Europe Six Power Conference London (1948),
CFE (Conventional Forces in Europe) 12
Treaty, liv, 244, 245, 247 sputnik satellite, 179
Chechnia, 214 Strategic Defence Initiative (SDI), 36
China, 21, 44–5, 49, 226 See also German integration with the
Christlich Demokratische Union/ West
Christlich Soziale Union (CDU/ Confederation plans between FRG and
CSU), xx–xxvi, xxviii, xxxiv, xxxvi, GDR, 22, 52, 53, 236; see also
xxxvii–xlvi, xlvii, lvi, 3, 12, 18, 19, Kohl
20, 24, 26, 27, 37, 55, 73, 88, 89, Conference for Security and Cooperation
90, 91–2, 93, 94, 95, 97, 99, 100, in Europe (CSCE), see OSCE
102, 104, 141, 143, 166, 222; see Constitutional changes and reforms,
also Adenauer; Erhard; Kohl 110, 113, 121, 123; see also Basic
Churchill, Winston, S., 13, 15 Law
Citizenship, xl, xlviii, 13, 117, 129, 144, Contact Group, liii
187, 191 Council of Baltic Sea Cooperation, 216
Civil rights movements in GDR, 33, Croatia, 248
34, 36, 43, 46, 47, 55, 89, 90; Czechoslovakia (CSSR), xxx, l, 12, 18,
see also Demonstrations; 28, 47, 48, 57, 161, 178, 182, 188,
Immigration and Mass Migration; 189, 195, 249
Intellectuals; Fortieth Anniversary Prague Spring, 177, 183
Celebrations Czech Republic, see Czechoslovakia
Civil service, 84, 85, 92, 120
Clay, Lucius D., 10 Demokratie Jetzt (Democracy Now), 23,
Clement, Wolfgang, xlv 33, 43, 46
Clinton, Bill, xxvi, 248, 249 Demokratische Freiheit (Democratic
Coch-Weser, Caio, xxvi Freedom), 34
Cohen, William, 211 Demokratischer Aufbruch (Democratic
Cold War, 1, 4, 9, 12, 14, 21, 37, 40, Awakening DA), 43, 91
45–6, 134, 174, 175, 178–9, 180, Demonstrations in former GDR, 22, 26,
182, 183, 186, 193, 203, 205, 207, 33, 42, 43, 45, 46, 47, 48–9, 50,
209, 210, 211, 212, 213, 215, 216, 53–4, 185, 214
217, 222, 223, 225, 231–2 dissidents, 20–1, 35
contractual agreements with FRG Dresden, 34, 48, 77, 136
(1950–5), 12–14 Leipzig, 22, 26, 34, 38, 46, 49, 51
Council of Foreign Ministers (CFM), Nikolai Church, 46
11, 12 See also Immigration and Mass
Cuban Missile Crisis (1963), 17 Migration; Intellectuals; Fortieth
ideology of the Cold War, 4, 175, Anniversary Celebrations
178–9, 180–3 Détente, 17, 19, 181, 207, 208, 222
intermediate-range nuclear missiles Salt 1 Treaty (1972), 17; see also
(INF), 19 Ostpolitik and Helsinki
Iron Curtain, 175, 177, 178, 179, 185, Agreement and Conference
193 Deutsche Alternative (DA), 140
London Treaty (1953), 163 Deutsche Forums Partei (DFP), 92
Marshall Plan, li, 12, 178, 179, 195 Deutsche Reichs Partei (DRP), 132
myths of the Cold War, 175, 176–82, Deutsche Soziale Union (DSU), 91,
184, 186, 187, 188, 198; see also 100
Discursive Structures Deutsche Volksunion (DVU), xlii, xliii,
national security state, 178 xlvi, 140, 141–2
occupation period, 9–12, 115, 179 Diepjen, Eberhard, xliv
254 Index

Discursive Structures, 174–98; see also 111, 112, 113, 122, 123–4, 125, 134,
Cold War 135, 151–2, 174, 176, 182, 186, 187,
Djilas, Milovan, 178 188, 189, 190, 191–2, 195
exchange rate problems, 25, 152–3, 154,
Eastern and Central Europe, xlix–li, lvii, 160, 162, 163, 190, 191, 198
4, 16, 17, 19, 20, 21, 33, 35, export markets, 67, 69, 80, 83, 84, 86,
38–41, 43, 45, 79, 86, 130, 131, 160, 161, 169, 191
134, 144, 156, 169, 174–97, 214, financial state transfers, 70, 71, 78,
218–19, 223, 225, 231, 234, 240; 82, 120, 151, 156, 159, 161, 169
see also names of individual fiscal equalisation, 110, 111, 113,
countries 114, 119, 120–1, 152, 156–9,
Economic, financial and monetary 165–6
Issues: industrialisation, 177, 196, 203
Bretton Woods System, 162 inflation, xxii, xxxii, 24, 66, 67, 69,
budgetary and payment deficits and 70, 71, 82, 85, 153, 154, 161–2,
debts, 70, 71, 83, 122, 153, 155, 170, 181, 189–90
161, 162, 163, 196, 198 interest rates, 64, 71, 79, 154, 161–2,
see also Bundesbank; Bank deutsche 170
Länder investments in GDR, 28, 65, 70, 72,
cartels, 78, 166 73, 74, 75, 76, 78–9, 80, 84, 162
capitalism, 23–4, 34, 43, 50, 51, 55, job creation schemes, xxii, 73, 82,
176, 178, 179, 182, 183, 187 134, 156
Comecon markets, 69, 75, 77, 160, Keynesian economics, xxxv, 72, 123,
161, 169 176, 181, 186, 205
competitiveness of German Economy, market forces & laissez faire
63, 65, 66, 69, 72, 74, 76, 77, economics, 63–4, 71, 72, 73, 79,
82–6, 157, 160, 167, 181, 188, 80, 81, 83, 84, 151, 155, 164,
189, 190, 191, 195, 196 186, 188, 189
currency reform of 1948, 71, 153, Mittelstand (medium-sized businesses),
163, 170, 184, 191 xxxvi, 75
deindustrialization process in former neo-liberalism, xx, xxi
GDR, xxviii, 71–6, 172 oil crises of the 1970s, 83, 131, 162,
deregulation, xxi, 63, 71, 81, 83, 181, 181
187 Ostmark (OM), 64–5, 66, 69, 160,
Deutschmark (DM), xxxii, xxxiv, 24, 190, 191, 192
64–5, 66, 67, 69, 81, 84, 151, property disputes in former GDR, 65,
153, 154, 155, 160, 161, 162, 70, 79, 163, 164, 165
163, 170, 190, 191, 192, 195 retraining, 73, 82, 161
economic growth, xx, xxii, xxxiii, 63, Social Market Economy (SME), 85,
64, 67, 69, 71, 78, 82–3, 111, 89, 151, 154, 155, 160, 161, 163,
124–5, 130, 132, 135, 162, 169, 164, 165, 166, 169, 177, 184,
177, 180, 189, 192, 212 187, 188, 209, 210, 211, 214–15
economic laws, 184–5 state intervention in the economy, 72,
economic miracle, 71, 175, 177, 184, 79–80, 107, 122, 123, 125, 167,
187, 188, 191 183, 187, 188, 189–90
economic productivity, 66, 67, 68, 69, subsidisation, 79–82, 85, 123, 124,
70, 78, 79, 81, 83, 84, 160, 161, 152, 155, 160, 163, 167, 181
164, 170, 191 tax increases, 24, 26, 67, 70, 71, 83,
economic recession, 2, 63, 64, 67, 71, 194
73, 74, 76, 83, 84, 111, 130, 132, tax rates and revenues, xxxvi, 112,
134, 135, 144 154–60, 161, 163
economic reconstruction and tax reform, xxvi, xxxvi–xxxvii, xl
restructuring of former GDR, 2, 4, trade liberalisation, 180, 195, 196; see
28, 37–8, 54, 63–86, 95, 99, 100, also welfare state; EC/EU
 Index 255

Eden, Anthony, 13–15 Employers’ Association, 165–6, 192; see

Eichel, Hans, xxii, xxv, xli, lvi also Trade Union
Eisenhower, Dwight D., 14 End of Cold War, see Cold War
Elbe River, 10, 11 Engholm, Björn, 80, 97
Elections: Environmental concerns, 36, 38, 43, 69,
five-per-cent hurdle, 88, 96, 98, 99 75, 76, 82, 83, 112, 212, 214
free-all-German elections proposed Erhard, Ludwig, 177, 184
during the cold war, 13, 15, 45, Estonia, xxx
50, 88, 90 Ethnic conflicts in post-Cold War world,
1949 general elections in FRG 88, 214–15, 223
154 Ethnic Germans, 3, 129, 130, 131, 132,
1951 regional elections in Lower 134, 143
Saxony, 132 European Community/European Union
1969 general election in FRG, 132 (EC/EU), xxix–xxx, li, 3, 4, 52, 53,
1986 regional elections in Bavaria, 142 55, 64, 65, 70, 85, 108, 116–17, 123,
1987 general elctions in FRG, 95 126, 134, 141, 152–3, 154, 155, 161,
1989 March Congress of People’s 162, 163, 164–5, 166, 167, 168, 169,
Deputies elections in USSR, 44 170, 180, 184, 193–4, 197, 198, 207,
1989 May general elections in GDR, 209, 211, 212, 216, 217, 220–2,
44–5, 55 224–5, 227–8, 232
1989 European elections, 140, 142 Agenda 2000, xxix
1989 local and regional elections, 141, Agriculture and Common Agricultural
142 Policy (CAP), xxix, 152, 155–6,
1990 March general elections in GDR, 177, 195
24, 25, 33, 54, 55, 89, 91, 92, anti-trust legislation, 153, 166–8
93, 97 Committee of the Regions, 118
1990 May local elections in GDR, 91 Common European Security and
1990 December first all German Defence Policy, 218, 220–4; see
general elections since 1933, also European security
xxxix, 2, 26, 55, 70, 71, 91, 92, Council of Europe, 216
93, 95, 96, 97, 98, 99, 100, 104, Council of Ministers, 116, 118
142, 161 defence matters, xxxi–xxxii
1991–96 regional elections, 94, 95, enlargement, xxx, l, 155–6, 157, 161,
96, 98, 99, 100–1, 102, 140, 142 194, 195
1994 May presidential elections in Euro, xxi, xxix, xxxiii–xxxiv, 152–3
FRG, 96, 100–1 European Central Bank, xxii, xxxiv,
1994 European elections, xlii, 96, 100, xxxvi, 152, 153, 154, 155
102 European Commission, 125, 195
1994 October second all German European Coal and Steel Community
general elections since 1933, (ECSC), 116, 166–7, 179–80, 193,
xxxix, 26, 70–1, 94, 95, 96, 98, 209
99, 100–1, 102, 103–4, 140, 142 European Court of Justice (ECJ), 164–5
1998 September general elections, European Exchange Rate Mechanism
xxxv, xxxviii–xlvii (ERM), 64, 70, 162, 163
1999–2000 European and regional European Integration, xxvi, xxix, lvii, 3,
elections, xxii–xxiii, xxv, xxvii, 4, 12, 13, 53, 107–8, 115, 116, 117,
xxxvii–xlvii 118, 119, 123, 126, 151–71, 179–80,
Emigration, escapes, expulsions and 193, 194, 195, 197, 203, 206–8, 209,
visits of GDR citizens to the West, 210, 211, 212, 220–5
19, 20, 21, 22, 33, 38, 42, 43, 44, European Monetary System (EMS), 163
46, 47, 48, 50, 51, 54, 56, 57 European Monetary Union (EMU), xxvi,
embassy occupations in 1989, 46–8 xxxiv, 3, 53, 67, 85, 152–3, 154,
see also Demonstrations; 155, 156, 157, 160, 162, 163, 170,
Immigration and Mass Migration 171, 180, 191, 194
256 Index

European security, 203–27 Fischer, Joschka, xxx, xxxii, xlv, lii,

EU/EC structural policies, 123, 125, 126 liii–liv, lvii, 98
German presidency, xxix–xxxi Fortieth Anniversary Celebrations of
Intergovernmental Conference of GDR (October 1989), 22, 43, 48
1996–97 (IGC), 221 Four Powers, see Allied Powers
Maastricht Treaty, xxiv, xxxiv–xxxv, Four-Power talks, 10, 12, 13
70, 83, 108, 116, 117, 118, 119, Fourth Reich, see German Reich
126, 151, 153, 164, 170, 193, France, xxx, xxxiv, lii, 4, 11–13, 22, 23,
194, 220, 221 25, 33, 52, 53, 152, 155, 166, 169,
regional economic policy, xxx, 104, 170, 177, 179, 180, 181, 193–4,
108, 112, 123–6 207–8, 209, 216, 220, 225, 240,
Rome Treaties for the Establishment 248, 249; see also Transatlantic
of the EEC, (1957), 116, 164, relations, EC/EU
167, 180 Treaty of Friendship and Cooperation
Schengen Group, 216 between FRG and France (1963),
single currency, xxxiii–xxxv 207
Single European Act (SEA) and single Franklin, A.A.E., 11
market, 81, 85, 116–17, 118, 123, Friedman, Milton, 181
154, 164, 166, 167, 168, 180, 181 Fukuyama, Francis, 183
Social Chapter, 151, 164–6
unemployment, xxi–xxii Gates, Robert, 243
European Defence Community (EDC) Genscher, Hans-Dietrich, 19, 21, 23, 26,
1950–4, 13, 222 27, 48, 52, 96, 218–19, 223, 237,
European Free Trade Association 241, 247
(EFTA), 169 Gerhard, Wolfgang, 97
European Political Union (EPU), 163, 180 Gerlach, Manfred, 92
German Economic and Monetary Union
Financial Issues, see Economic, financial (GEMSU) July 1990, 2, 3, 25, 54,
and monetary issues 55, 64, 65, 66, 72, 81, 112, 113,
Freie Demokratische partei (FDP), xx, 117, 151–2, 154, 155, 156, 157–8,
xxix, xxxiv–v, xxxix–xliv, xlvi–xlvii, 160–4, 169, 170, 184, 191, 192,
12, 18, 19, 37, 88, 90, 92, 93, 96–7, 193
98, 100–1, 102, 104 German foreign and security policy, 4,
Freiheitliche Deutsche Arbeiterpartei, 203–27
(FAP) 140 German integration with the West, 12, 14,
Federation, see Federal Government 16, 17, 207, 217; see also Cold War
Federal Constitution Court, 109, 111, German military expansion, see German
165, 226 rearmament
Federal Government, 3, 107, 108, 109, German model, 3, 151–71
110, 111, 112, 113, 114, 115, German neutralisation, 2, 12–16
116–17, 118, 119, 120, 121, 122, German political and strategic culture,
123, 124, 125, 126, 154, 157 208–9, 211, 212, 216, 226
Federal legislation, 108, 109, 110, 117, German rearmament, 12, 14, 166, 179,
118, 119, 120, 121 193
Federal Office for the Protection of the German Reich, 10, 22, 204, 205, 206,
Constitution, 139 211, 213, 225, 227
Federal System of the FRG, 107–26 German Remilitarisation, see German
Centralisation, 107, 108 rearmament
Cooperative Federalism, 3, 108, 110, German Unity Fund, 72, 113, 156, 159
111, 112, 113, 114, 115, 117, Globalisation, 181, 210, 211, 212
118, 123, 124, 126; see also Gorbachev, Mikhail, l, lvii, 19–20, 21,
Länder and Federal Government 22, 23, 25, 35, 38, 39, 40, 41, 42,
Finland, xxii 44, 45, 48, 49, 50, 53, 56, 57, 232,
Fischer, Andrea, xxviii 233–45, 247
 Index 257

glasnost, 21, 39, 41, 43 Husak, Gustav, 46

perestroika, 21, 38, 39, 40, 41, 43, 174 Hutchings, Robert, 232
Götting, Gerald, 91
Grass, Günther, 23 Immigration and Mass Migration,
Great Britain, xxi, xxix, xxx, liii, 9–15, xxvii–xxviii, xlvi–xlvii, 3, 66, 81,
22, 23, 25, 33, 52–3, 133, 139, 144, 129, 130, 131, 132, 135, 137, 138,
155, 161–2, 164–8, 169, 181, 184, 143–4, 160, 161, 191
206, 216, 220, 221, 233, 240, 247, Initiative for Peace and Human Rights,
248, 249 36
British Foreign Office, 9, 11, 15, 206 Intellectuals in GDR and FRG, 23–4,
House of Lords, 164 36, 182–3, 227; see also
pound sterling, 162 Demonstrations; Immigration and
Westminster System, 88; see also Mass Migration
Thatcher, Transatlantic Relations; Interest groups, 189, 190
EC/EU International Monetary Fund (IMF),
Greece, xxxiv, 131, 155, 169 xxvi
Green Party (West Germany), xxii, xxv, Iran, 226, 248
xxviii, xxxv–xxxvii, xxxix–xl, xli, Iraq, liv, 248
xlii, xliii–xliv, xlv, xlvi, xlvii, lii–liv, Ireland, xxii, 169
20, 23–4, 88, 90, 93, 94, 96, 97, 98, Italy, xxii, l, 131, 152, 169
99, 101–2, 104
Grüne Partei, see Green Party; Bündnis Japan, 152, 161, 169, 181
90 Jospin, Lionel, xxi
guestworkers, 130, 135, 137–8, 143–4;
see also right-wing parties and groups Kaiser, Jakob, 13
Gulf War, 27, 215 Kennan, George F., 10, 20
Gysi, Gregor, xlvii, 54, 98 Kennedy, John F., 16
Khrushchev, Nikita, 179
Habermas, Jürgen, 23 Kiep, Walther Leisler, xxiv
Hamm-Brücher, Hildegard, 101 Kinder Statt Inder, xxviii, xlv
Heavy industry, 69, 71, 74–5, 77, 80–1, Kinkel, Klaus, 96, 101
111, 179 Kirkpatrick, Ivone, 14, 15
Helsinki Agreement and Conference Kissinger, Henry, 231
(1975), 19, 20, 35, 36, 222; see Klimmt, Reinhart, xliii
also détente and Ostpolitik Koch, Roland, xli
Herzog, Roman, 101 Kohl, Helmut, xx, xxiii–xxiv, xxxi,
Higher education, xxvii–xxviii xxxv, xxxviii, xlv, lii, 3, 19, 20, 22,
Hitler, Adolf, xxvii, 15, 205, 212; see 23, 24, 25, 26, 27–8, 38, 41, 47,
also National Socialism; Munich 52, 53, 55, 80–1, 83, 95–6, 97, 101,
Agreement 143, 190, 191, 192, 193–4, 198,
Holland, l 216, 220, 226, 236, 239, 241, 242,
Holocaust victims, xxvi–xxvii 247, 248; see also CDU/CSU, Ten
Holy Roman Empire, 204, 227 point plan, Confederation Plans
Honecker, Erich, 20, 21, 22, 23, 37–8, Köhler, Horst, xxvi
41, 42, 44, 46, 47, 48, 49, 50, 54, Kommunistische Partei Deutschlands
55, 89 (KPD), 88
Horn, Gyula, 47 Korea, 226
Human and civil rights, lv, 35, 36, 38, Kosovo, xxx, xl, li, lvi–lvii, 248
43, 50, 133, 188, 210, 211, 223–4; Krenz, Egon, 44–5, 49, 50, 51–2, 54,
see also Demonstrations; 57, 89
Immigration and Mass Migration Kurdish people, 131
Hungary, xxx, 19, 20, 22, 33, 35, 38,
44, 46, 47, 56, 57, 79, 161, 182, Labour market, xxi, xxvii, xxxiii,
188, 196, 235, 249 xxxiv–xxxv
258 Index

Lafontaine, Oskar, xix, xxxv, xxxvi, xli, Demonstrations; Immigration and

24, 25, 55, 97, 98; see also SPD Mass Migration
Lambsdorf, Otto Graf, xxvii, 96; Malta Summit (December 1989), 40, 52
see also FDP Manufacturing and Construction
Länder, xxxii–xxxiv, xxxviii, xlvii, 3, Industry, xxxiii–iv, 77–8, 86, 131,
74, 79, 92, 93, 94, 95, 96, 97, 166; See also Heavy Industry
98–9, 100, 102–4, 107, 108, 109, Masur, Kurt, 49
110, 111–12, 113, 114, 115, Matthew, Freeman, 10
116–17, 118, 119, 120, 121, 122, Mazowiecki, Tadeusz, 45, 184
123, 124, 125, 126, 134, 136–9, McCloy, John, 13, 14
153–4, 156, 157–9, 211 Media, 129, 131, 133, 135, 143; see
Baden-Württemberg, 95, 102, 112, also West German Television
121, 136, 142 Mediterranean, 215
Bavaria, xxv, xli, 112, 120, 142, 155 Merkel, Angela, xxiv, xxxvi, xlvi
Brandenburg, xliii, xlvi, 102, 120, 138 Merz, Friedrich, xxxvi
Bremen, xl, xlvi, 96, 98, 101, 120, Middle East, 215, 248
140, 142, 157, 159 Mielke, Erich, 50, 54
Hesse, xxiv, xl–xli, xlvi, xlviii, 96, Migration, see Immigration and Mass
98, 101, 120, 121 Migration
Joint tasks (of the German Länder and Mittag, Günther, 47, 50
the Federation), 110, 114, 122, Mittellage, 204
123, 124, 125 Mitterrand, François, xxiv, lviii, 53, 181,
Länder legislative competence, 113, 193, 194, 220
114, 116, 117, 118, 119, 120, 121 Modrow, Hans, l–li, 49, 50, 53, 54, 71,
Lower Saxony, 98, 112, 132 75, 89
Mecklenburg-Vorpommern, 138 Möllemann, Jürgen, xlvi
Mecklenburg-West Pomerania, 102 Molotov, Vyacheslav, 11
North Rhine-Westphalia, xxv, xxviii, Monetary issues; see Economic, financial
xlii, xliii–iv, xlv, xlvi, xlvii, 98, and monetary issues
101, 112, 119, 138, 142 Monnet, Jean, 167, 177
Rhineland Palatinate, xliii, 97, 120 Müller, Gottfried, 121
Saarland, xliii, xlvi, 120, 138, 157, Müller, Peter, xlii
159 Multilateralism, liii, lvii, 206–7, 213,
Saxony, xliii, xliv, xlvi, 27–8, 79–80, 216, 217, 220, 224–7
124, 136 Munich Agreement (1938), 19; see also
Saxony Anhalt, 77, 102, 138 Hitler
Schleswig Holstein, xxv, xlv, xlvi,
101, 119, 137, 138, 142 nation-states, 129, 134, 145, 210, 211,
Thuringia, xliii, xliv, xlvi, 80, 102, 225
121 National Alternative, 140
Leuna Oil Refinery, xxiii National Front, 140
Liberale Dematkratische Partei National Offensive, 140
Deutschlands (LDP/LDPD), 92 National Socialism, xxvii, 129, 130, 132,
Liebknecht, Karl, 42 133–4, 138, 141, 153, 169, 205,
Ligachev, Yegor, 243 209, 211; see also Hitler
Local government, 211 Nationality legislation, xli, xlvii, xlviii,
London Declaration (July 1990), 218, 129, 132, 133, 144; see also
220 Citizenship
Luxemburg, Rosa, 42 North Atlantic Treaty Organisation
(NATO), liii–liv, lvi, lviii, 4, 17,
Maastricht Treaty, see (EC/EU) 19, 21, 25, 26–7, 36, 55, 193, 203,
Macmillan, Harold, 16 207, 208, 209, 211, 213, 215, 216,
Mahgreb, 215 217, 218, 219, 220, 221–6, 232
Maiziere, Lothar de, 73, 89, 91; see also combined joint task forces between
 Index 259

NATO and WEU (CJTF), 221 détente; Helsinki Agreement and

conventional forces Europe (CFE), liii, Conference
234
German membership of NATO, Paris Charter for a New Europe
238–9, 240, 241, 242, 243, (November 1990), 25–6, 223
244–5, 246, 247 Partition of Germany, 9–16
LANCE Missile System, 233–5 Party systems and parties:
NATO-Russia Council (May 1997), coalition politics, 2, 12, 13, 88, 95,
219 97, 99, 100–3
NATO expansion, 218–19, 223, 225, party dealignment, 2, 88ff., 94, 102–3
249 party funding scandal, xxiii–xxv, xli,
North Atlantic Cooperation Council, xlv, xlvi
218, 219 party memberships, 92–3, 94, 95
nuclear strategy, 208, 220 party system of the FRG, 2, 88–104;
Partnership for Peace (January 1994), see also names of individual parties
219 party system of the GDR, 88–94; see
Rapid Reaction Corps, 220 also Blockparteien; and see names
Rome Summit (November 1991), of individual parties
219–20 Post unity era, xxxviii–xxxix
strategic review and new strategic Partei des Demokratischen
concept (November 1991), 21, Sozialismus (PDS), xxv, xxxix,
219–20 xlii, xliii, xliv, xlvi, xlvii, 54, 94,
Nationaldemokratische Partei 96, 98–9, 101–2, 104, 142
Deutschlands [in GDR] (NDPD), 92 Peace Movement, 36, 46
Nationaldemokratische Partei Pöhl, Hans-Otto, 66
Deutschlands [in West Germany] Poland, xxx, xlvii, liii, 17, 18, 20, 22–3,
(NPD), xliii, xlvi, 132, 140, 141, 28, 35, 38, 39, 45, 46, 56, 57, 152,
142 161, 182, 184, 188, 190, 195, 196,
Nazi era (1933–45), see National 235, 249
Socialism Polish crisis of 1980, 38–9
Nemeth, Miklos, 47 Solidarity (Polish Trade Union), 39,
Neo-Nazis, see Right-wing parties and 45, 235
groups Politbüro and Central Committee of the
Neue Mittel (new middle), xxi GDR, 38, 39, 47, 48, 49, 50, 51
Neues Deutschland, 41 Portugal, 131, 169
Neues Forum, 23, 33, 43, 46 privatisation, xxxiv–xxxv, l, 2, 63, 65,
North Africa, 215 70, 71, 72, 73, 74, 75, 76, 78, 79,
North Rhine–Westphalia, xxviii, xliii, 80, 83, 84, 85, 159–60, 163, 168,
xliv, xlv, xlvi, 98, 101, 112, 119, 176, 181, 184, 187, 196
138 Prodi, Romano, xxx
Norway, 221 Property, l, 92, 183, 187
Nuclear proliferation, 214, 215, 220 Protestant Church in GDR, 36
public opinion, 23, 27, 37, 133, 135,
Occupation period, see Cold War 220, 226
Oder-Neisse Line, 12, 13, 17, 22–3
Organisation for Security and racial exclusionism, xlvii–xlix
Cooperation in Europe (former Rapallo, 13
CSCE), liii, liv, lv, 4, 35, 203, 207, Rau, Johannes, 27
216, 217, 218, 222–5, 241, 244, Reagan, Ronald, 36, 39, 151
246–7 Realpolitik; see Balance of Power
Ostpolitik, 2, 16, 17–20, 36, 37, 97, 207, Red Army Faction (RAF), 73
222 Refugees, see Asylum Seekers
Basic Treaty between FRG and GDR regionalisation, see EC/EU regional
(1973), 18, 19, 36; see also economic policy
260 Index

religion, 131 1993), 71, 81, 83, 155, 156

Republikaner, xliii, xlvii, 95, 99, 140, Somalia, l, 226
141–3; see also Right-wing parties Sonderveg, 206
and groups; Schönhuber South-East Asia, 2, 84, 86
Rexrodt, Günther, 83 Sovereignty, 25, 116, 117, 118, 166,
Reykjavik Conference (1986), 39 207, 211–12, 227, 247
Right-wing parties and groups in Soviet Union, see USSR
Germany, xlvii, 1, 3, 22, 130, 132, Sozialistische Einheitspartei Deutschlands
136, 137, 138, 139, 140, 141, 143–4 (SPD), 18–19, 20, 21, 22, 36, 41, 45,
anti-semitism, 132, 135 47, 48, 49, 50, 51, 52, 54, 72, 88,
racism, xlvii–xlix, 3, 129–45 89, 90, 92, 94, 99, 164, 166, 167
racist attacks on foreigners (1990–94), Sozialdemokratische Partei Deutschlands
134–9; Eisenhüttenstadt 136; (SPD), West Germany, xx–xxiii,
Hoyerswerda, 136, 137, 138 xxv, xxviii, xxxv, xxxvii–xlvii,
Lübeck, 138; Mölln, 137; xlviii, liii, lvi, 12, 16, 18, 19, 20,
Rostock, 137, 138; Solingen, 138 24, 26, 27, 37, 55, 80, 85, 88, 90,
Rohwedder, Detlef, 73, 74, 75 93, 94, 95, 96, 97, 99, 101, 102,
Round Table Talks (1989–90), 54, 55 104, 143, 222, 226–7; see also
Rühe, Volker, xlv–xlvi, l Brandt; Schmidt; Vogel; Engholm;
Ruhrgebiet, 205 Lafontaine
Rummel, Reinhardt, liii Sozialdemokratische Partei Deutschlands
Russia, see USSR (GDR), 46, 93
Rütgers, Jürgen, xxvii, xliv Spain, xxx, 131, 152, 169, 194
Sputnik (Russian magazine), 21, 41
Sacharov, Andrei, 40 Stalin Notes (1952), 12–14
Salisbury, Lord, 13 Stalin, Joseph, 12–14, 178, 179
Santer, Jacques, xxx Stasi (East German security service),
Saudi Arabia, xxiii xliii, 1, 36, 42, 45, 47, 49, 54
Schabowski, Günther, 45, 49, 51 Stoiber, Edmund, xxv, xli, 100
Scharping, Rudolph, xxxviii, liii, lv, 97–8 Stolpe, Manfred, xliii
Schäuble, Wolfgang, xxiv, xli, 27 Stoph, Willi, 18
Scherf, Henning, xl Strauss, Franz Josef, 100
Schmidt, Helmut, xxxviii, 19, 21 Strauss-Kahn, Dominique, xxxvi
Schönhuber, Franz, 141, 143 Streibl, Max, 100
Schröder, Gerhard, xx–xxiii, xxvi–xxvii, subsidarity, 118
xxix–xxxii, xxxv, xxxvi, xxxviii, subsidisation, see Economic, financial
xli–xlii, xlv, xlv, xlviii–xlix, liii, lv, and monetary issues
lvii, 98 Summers, Larry, xxvi
Scowcroft, Brent, 235 Süssmuth, Rita, 27
Shevardnadze, Eduard, 243, 244, 245, Supranationalism, see Sovereignty
246, 247 Sweden, l, 155
Simonis, Heide, xlv Switzerland, 169–70
Sinatra Doctrine, 40
Single Market, see EC/EU taxes, see economic, financial and
skinheads, see right-wing parties and monetary issues
groups Taylor, A.J.P., 205
Slovakia, 196 Ten Point Plan of Chancellor Kohl
Social Market Economy (SME), see (1989), 22, 52, 53–4, 236; see also
Under economic, financial and Kohl
monetary issues Territorial reform, 113, 114, 119–20
social policy, 164–6 terrorism, 215
Sozialistischen Reichs Partei (SRP), 132 Thatcher, Margaret, xxxviii, lviii, 53,
Solana, Xavier, xxx 151, 176, 181, 182, 184, 186, 187,
Solidarity pact in FRG (September 188, 237
 Index 261

third way (between socialism and 223, 225, 231–6, 238–41, 244–5,
capitalism), 23, 24, 34, 36, 53, 55, 247, 249
56, 178, 180, 183, 196
Tiannamen Square uprising (1989), see velvet revolutions (1989–90), l, 21,
China 33–56, 174, 175, 182, 185, 186, 194
Trade unions, xxv, 70, 79–80, 81, 82, violence, 35, 48, 49, 50, 54, 56, 130,
84–5, 93, 165–6, 181, 189–90, 192; 132, 135–8, 139, 140, 141, 144,
see also Employers’ Association 210–11, 212, 214, 220, 227
Transatlantic relations, 19, 23, 207, Vogel, Bernhardt, xliii
209–13, 217, 218, 219–22, 225–8, Vogel, Hans-Jochen, 24
248 Volkshammer (GDR Parliament), 45, 54,
Transport system, xxvii 88, 89, 91, 92, 93, 97
Treuhandanstalt (THA), 2, 65, 71, 72,
73, 74, 75, 76, 77–8, 79, 80, 81, wages and prices, xxxii, 26, 63, 65, 66,
82, 83, 124, 152, 155 68, 69, 70, 71, 72, 78, 79, 81–2,
Truman Doctrine, 12 83, 84, 85, 153, 154, 155, 156,
Turkey, 131, 221 165–6, 169, 170, 189–90, 192
Two plus four talks (May–September Waigel, Theo, xxxiv, 81, 100, 120
1990), 25, 55, 214, 240–2, 245–6 Walesa, Lech, 39
war, see violence; World Wars I and II
unemployment, xxi–xxiii, xxxii, Warsaw Pact, 36, 207, 213, 218, 219,
xxxiv–xxxv, l, 1, 2, 24, 26, 63, 64, 234, 241, 243, 245, 246
65, 66, 67, 68–9, 73, 77, 79, 81, Weimar Republic (1918–33), 56, 205,
82, 84, 85, 95, 134, 136, 141, 142, 213
161, 162, 163, 166, 170, 181, 190, Wiezäcker, Richard von, lv, 22, 41,
191, 192 213
unification boom, 25, 64, 67, 68, 71, 77, Welfare State, xxi, xxv, 176, 177, 181,
83, 163 190, 210
Unification Treaty (October 1990), 65, West German television, 38, 47; see
70, 72, 113, 121 also Media
United Kingdom of Great Britain and Westbindung and Western Integration,
Northern Ireland, see Great Britain see German integration with the
United Nations, lii–liii, 40, 224, 226 West, Cold War
United States of America, see USA Western European Union (WEU), liii–liv,
Uprising in GDR 17 June 1953, 48, 56, 4, 203, 213, 216, 217, 218, 220–4
231 Westerwelle, Ingo, 97
USA, xxi–xxiii, xxvi, xxix, lvii–lviii, Westphalia States System, 204, 210,
4, 9–17, 19, 23, 25, 26, 29, 33, 37, 212, 227
52–3, 133, 135, 144, 152, 161, 162, Wiking Jugend, 141
166–8, 169, 175, 178, 179, 181, World Bank, 186
216, 217–18, 220, 221, 225, 226, World War I, 153, 204
231–49 World War II, 9, 17, 23, 130, 132, 139,
State Department, 10, 13, 16, 240 153, 163, 175, 176, 177, 178, 194,
see also Transatlantic relations 204, 209, 231, 236, 243
USSR, liii, lvii–lviii, 4, 9–23, 25, 29,
33, 35, 37, 38, 39, 40, 41, 43, 45, Yugoslavia and former Yugoslavia, xxx,
52, 53, 54, 55, 88, 115, 175, 178, 131, 169, 215, 248
179, 183, 193, 205, 206, 207, 208,
213, 214, 215, 217, 218, 219, 220, Zoellick, Robert, 238