History

I didn't know this.

From the article TheLepidopterists posted, I came across this more in-depth article about reunification ("The economic Anschluss of the GDR"). Looks like the looting of the GDR wasn't dissimilar to that in the USSR.

This year’s commemorations of the fall of the Berlin Wall are less triumphalist than usual: the far-right Alternative für Deutschland (AfD) won over 20% of the vote this year in several former East German Länder (:shocked-pikachu:); opinion polls suggest that 58% of East Germans ‘feel no better protected from state arbitrariness than in the GDR’ (Die Zeit, 3 October 2019); successful books tell the story of the 1990s from the viewpoint of the ‘losers’. Something no longer rings true in the noble history of a bountiful West Germany bestowing democracy and the Deutschmark on a neighbour ruined by four decades of Communist dictatorship.

With US backing, and no opposition from a weakened Soviet Union, West Germany under conservative chancellor Helmut Kohl took over within a few months, annexing a sovereign state, liquidating its economy and institutions, and transplanting a neoliberal capitalist regime.

Not only the currency but the whole market economy was transplanted. Sarrazin recalled, ‘We could only give them the Deutschmark in exchange for the complete transformation of the economic system.’ The terms of the treaty signed on 18 May confirmed this regime change. ‘The basis of the Economic Union shall be the social market economy as the common economic system of the two contracting parties. It shall be determined particularly by private ownership, competition, free pricing and, as a basic principle, complete freedom of movement of labour, capital, goods and services’ (article 1.3). ‘Provisions of the constitution of the German Democratic Republic relating to its former socialist social and political system shall no longer be applied’ where they clash with neoliberalism, free trade and ‘ownership of land and means of production by private investors’ (article 2).

Soon after the treaty came into force, East Germans became disenchanted. As consumers clamoured for products from the West, real prices of goods and services produced in the East went up 300-400% and business competitiveness evaporated. Businesses lost not only their domestic market to western companies, but their customers in the East, especially the Soviet Union, which had taken 60-80% of East German exports. Former Bundesbank president Karl Otto Pöhl admitted that the GDR had swallowed ‘horse medicine that no economy would be able to cope with’ (8). But convinced of the need for shock therapy, Bonn’s negotiators rejected supportive countermeasures, such as phased currency alignment, subsidies for East German manufacturing or a surtax on West German goods.

The GDR underwent an overnight economic liberalisation that had taken postwar West Germany a decade. In July 1990, industrial output had fallen 43.7% from 1989; by August, 51.9% and by the end of the year, 70%. The official unemployment figure rose from 7,500 in January 1990 to 1.4 million in January 1992, but was more than double that when short-time working, retraining and pre-retirement were factored in. No other country in Central or Eastern Europe suffered more economically by leaving the Soviet Union’s orbit.

This social demolition was deliberate: dozens of reports had explored its consequences. ‘Better to achieve unity with a ruined economy than remain in the Soviet bloc with a half-ruined one,’ said SPD politician Richard Schröder (9). His wish was more than granted. To Ossies (East Germans) the exterminating angel had a name: the Treuhand (Treuhandanstalt, trust agency), created on 1 March 1990, the tool to convert the former GDR to capitalism. It privatised or liquidated almost all of the ‘patrimony of the people’, the name for the GDR’s state businesses and assets, which it took possession of in July 1990. This made it the world’s biggest conglomerate, responsible for 4.1 million employees (45% of the workforce) working for 8,000 businesses at 32,000 sites, from steelworks to holiday camps, grocers to local cinemas.

By the time the Treuhand was wound up in December 1994, it had privatised or liquidated most of its portfolio with an impact unequalled in industrial history: a country deindustrialised, 2.5 million jobs gone and losses estimated at DM 256bn despite an opening balance sheet of DM 600bn, according to its own president’s estimate (10). This miracle of neoliberalism was, according to Christa Luft, ‘the largest ever destruction of productive capital in peacetime’ (11). Researchers Wolfgang Dümcke and Fritz Vilmar regard this as the key period in the structural colonisation of the GDR (12): West German investors and companies bought up 85% of East German production sites, East Germans just 6%.

When the Treuhand was created, it did not set out to privatise the old GDR economy. In the view of dissident circles and civic movements, this ‘trust agency for the preservation of East German citizens’ rights over the patrimony of the people of the GDR’ was expected to divide up state businesses among the people. The IG Metall union proposed that ownership should be transferred directly to workers. But the conservative victory in the East German election changed that. A fortnight before monetary union on 1 July 1990, East Germany’s parliament, the Volkskammer, passed an emergency law ‘for the privatisation and organisation of the patrimony of the people’. This ended any search for compromise between socialism and capitalism, the focus of reformist economic thought in the GDR since the fall of the Wall. Shock therapy prevailed.

The Treuhand was set up within weeks and improvised its work. As East and West Germany had no shared phone network, the Treuhand’s East German employees had to go to West Berlin phone boxes at a pre-arranged time to speak to colleagues in the West (14). This did not discourage West German business restructuring consultants from offering their services. The Treuhand’s first president, Reiner Maria Gohlke, a former CEO of IBM, handed over in August 1990 to Detlev Karsten Rohwedder, head of the Hoesch steel and mining group. Its oversight board was headed by a friend of Chancellor Kohl, Jens Odewald, CEO of the West German department store chain Kaufhof, which later acquired lucrative retail sites on Alexanderplatz. From summer 1990, Bonn supervised operations: the finance ministry appointed a cabinet of consultants from firms such as KPMG, McKinsey and Roland Berger, who determined (without explicit criteria) whether companies were destined for improvement, immediate privatisation or liquidation (15).

Absurd decisions — with collusion between the Treuhand, the conservative government and West Germany’s business leaders — produced a conviction in the East that has never been refuted: the Treuhand was principally acting to eliminate any competitor that would reduce West German groups’ profit margins. Though largely stagnant, East German industry did have some successes. On 2 October 1990 the Treuhand management decided to close the Pentacon camera factory in Dresden and export its Praktica model to western countries.

One of East Germany’s rare environmental achievements was Sero, a national recycling company. Local authorities asked for it to be turned into a network of municipal businesses, but the Treuhand broke it up and sold it off to West German companies. The agency’s zeal in destroying the Interflug airline, which was largely in the black, and transferring its routes and Berlin Schönefeld hub free of charge to its West German competitor Lufthansa, is almost beyond parody.

It was hard to sell ‘free and fair competition’ to the Thuringian mining village of Bischofferode. In 1990 the Treuhand bundled together all its potash mines and transferred them to a western competitor, K+S, which immediately closed them down. Dietmar Bartsch, a parliamentarian from the leftwing Die Linke party said, ‘Bischofferode is an example of a competitive business shut down because of West German competition. It was about showing that the GDR was over, that there was nothing of value in it.’