Economic Management and the Challenge of Reunification
The speed and depth of the economic downturn at the beginning of 1996, with its threat to employment and public finances, leads one to believe that Germany has been delaying difficult decisions on the reform of its social market order. The collapse of industrial firms with household names has furthermore led to a pervasive feeling that the German economic constitution is under threat. Of course the higher growth of the late 1980s in West Germany, and the reunification-induced boom there in the early 1990s, disguised the need for improved competitiveness and led to undue confidence that Europe’s strongest economy could absorb the costs of reunification with its eastern half. Economic growth, so long as it continued, could support the transformation of the collapsing eastern economy and could perhaps sustain the huge deficits and debt accumulation in the public finances. In a recession, however, the problem is that the debt burden becomes more onerous and policy makers cast around to discover new sources of growth to sustain activity. At the turn of 1995–96 the federal government issued a ‘50 Point Plan for Growth and Employment’, which replayed old tunes of ‘supply-side’ economic improvements, which had been proposed at repeated intervals since the first Kohl government in 1982.
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