Abstract

Real Economic Adjustment Constraints in Monetary Integration

This contribution analyzes the most important real economic implications of German-German monetary integration for the GDR economy. The analysis covers both demand and supply-side problems which result in limited corporate profitability and, thus, in inadequate capital inflows on the one hand and in growing structural unemployment and allocation problems on the other. Externally, the GDR's competitiveness is deteriorating as a result of the monetary link with the Deutsch-mark not only vis-à-vis potential Western clients and competitors, but also in the trade with its former CMEA partners.

This is followed by an analysis of the question whether, with the help of fiscal policy incentives or through autodynamic effects, a quick upturn of economic activity can be achieved. The conclusion is reached that the mere copying of general economic concepts and the mere introduction of the Deutsch-mark do not entail the kind of framework conditions that led to the socalled economic miracle in West Germany after the 1948 monetary reform. Monetary and economic integration of the GDR rather unleashes real effects that may – on certain conditions – hamper rather than favour a successful and rapid economic upturn.