Economic, Institutional and Banking Development after GEMSU

Having established the special nature of the East German transition, we turn to an examination of what happened following GEMSU. The chapter is structured in three sections. In the first, we describe the economic collapse that occurred after GEMSU, and outline its causes. In addition, we outline the approach that was adopted to restructure and privatise East German industry and the problems surrounding ownership rights which hindered this process. In the second, we outline the institutional framework that developed after GEMSU, primarily by examining the West German system upon which it was based. The framework in the East, what we term the ‘German Risk Management Framework’ (GRMF), involves a range of financial flows and risk-sharing arrangements between the public and private sectors. In the third, we examine the banking system in the East specifically by first looking at the structure of the West German banking system (what it came to reflect) and then examining how the East German banking system was rapidly transformed to West German standards.