On the 'Burden' of German Unification: The Economic Consequences of Messrs. Waigel and Tietmeyer

Jerome Levy Economics Working Paper No. 328

34 Pages Posted: 10 Nov 2003  

Jörg Bibow

Skidmore College - Department of Economics; Bard College - Levy Economics Institute

Date Written: May 2001

Abstract

This paper investigates the causes of western Germany's remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germany's fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germany?s dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbank's dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.

Suggested Citation

Bibow, Jörg, On the 'Burden' of German Unification: The Economic Consequences of Messrs. Waigel and Tietmeyer (May 2001). Jerome Levy Economics Working Paper No. 328. Available at SSRN: https://ssrn.com/abstract=270339 or http://dx.doi.org/10.2139/ssrn.270339

Jörg Bibow (Contact Author)

Skidmore College - Department of Economics ( email )

Saratoga Springs, NY 12866
United States

Bard College - Levy Economics Institute ( email )

Blithewood Rd
Annandale on Hudson, NY 12504
United States

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