The Eastern Länder as a Transition Economy

This chapter places the German eastern Länder in the context of the almost thirty countries of Europe and Asia which have accompanied the collapse of exclusive communist rule with systemic change towards the market. It compares the Länder as a group within unified Germany against the broadly-accepted benchmarks of the process in other transition economies. Eight years after the political transformation began in the Warsaw, Budapest, Berlin and Prague of late 1989, the economies — Poland alone excepted — have not regained the level they had then. All had become market economies, the German eastern Länder more thoroughly a market economy than any, notably because the federal set of laws and institutions were applied immediately on unification and because the privatisation was more thoroughgoing. Nevertheless, the eastern Länder ‘industrialisation’ that resulted from the operation of the Treuhand could have been less severe under alternative possible policies, and the output recovery after the nadir of recession has been heavily dependent on resource inflows from the western Länder. At no time in the transition, past or future, could equivalent external support be expected for other countries.