The price of unity: the transformation of Germany and Eastern Europe after 1989

This article adopts a comparative perspective and focuses on the economic reforms that were implemented in Germany and Eastern Europe during and after German unification in 1990. After the collapse of communism, most politicians and economists considered neoliberal reforms based on deregulation, liberalization and privatization as the only viable model. Although the reforms in eastern Germany were not labeled as such, they amounted to a “shock therapy,” much like in neighboring Poland. Radical privatization and hasty liberalization, in combination with monetary union coming into force in July 1990, resulted in the closure of many enterprises and mass unemployment. The German government tried to compensate the “losers of transformation” with welfare payments, but this resulted in a systemic crisis of united Germany that eventually led to a second round of neoliberal reforms under Federal Chancellor Gerhard Schröder’s center-left coalition government from 2001 to 2005. The widening social gaps and the fear of social dislocation have contributed to the rise of right-wing populist parties both in Germany and in East Central European countries like Poland.