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

  • Jörg Bibow

    (Univ of Hamburg & Levy Econ Inst)

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    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.

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    File URL: http://128.118.178.162/eps/mac/papers/0106/0106004.pdf
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    Paper provided by EconWPA in its series Macroeconomics with number 0106004.

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    Length: 34 pages
    Date of creation: 29 Jun 2001
    Date of revision:
    Handle: RePEc:wpa:wuwpma:0106004
    Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 34; figures: included
    Contact details of provider: Web page: http://128.118.178.162

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    1. Buiter, Willem H. & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers.
    2. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of two Small Euopean Countries," Working Papers 89, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Sinn, Hans-Werner, 1999. "EU Enlargement, Migration and Lessons from German Unification," CEPR Discussion Papers 2174, C.E.P.R. Discussion Papers.
    4. Gustav Adolf Horn & Wolfgang Scheremet, 1999. "Erfolgreiche Konsolidierung des amerikanischen Staatshaushalts - ein Beispiel für Europa?," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 66(12), pages 227-233.
    5. von Hagen, Jurgen, 1993. "Monetary union, money demand, and money supply : A review of the German monetary union," European Economic Review, Elsevier, vol. 37(4), pages 803-827, May.
    6. Bertola, G. & Drazen, A., 1991. "Trigger Pointsand Budget Cuts ; Explaining the Effects of Fiscal Austerity," Papers 26-91, Tel Aviv.
    7. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
    8. Eichengreen, Barry, 1996. "Saving Europe's Automatic Stabilizers," Center for International and Development Economics Research, Working Paper Series qt9zb6q3ms, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    9. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
    10. von Hagen, Jurgen, 1992. "German unification: Economic problems and consequences : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 36(1), pages 211-221, July.
    11. Philip Arestis & Kevin McCauley & Malcolm Sawyer, 2000. "An Alternative Stability Pact for the European Union," Economics Working Paper Archive wp_296, Levy Economics Institute.
    12. Jorg Bibow, 2001. "Easy Money through the Back Door: The Markets vs. the ECB," Economics Working Paper Archive wp_323, Levy Economics Institute.
    13. Jörg Bibow, 2001. "Easy Money through the Back Door: The Markets vs. the ECB," Macroeconomics 0103004, EconWPA.
    14. Gerlinde Sinn & Hans-Werner Sinn, 1994. "Jumpstart: The Economic Unification of Germany," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691728, June.
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