Unintended Consequences – Some Thoughts on the 20th Anniversary of Germany’s Reunification

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October 3, 2010 marked the 20th anniversary of German reunification. The same day, there were Presidential elections in Brazil. Surely, sheer coincidence, but one might also see it as a curious hint at a parallelism of change since 1990. The year of German unification also marked a takeoff point for rising powers like China, India or Brazil. Then, of course, no one saw it that way. German unification ended the bipolar system of two superpowers, it seemed to open up an era of unipolar domination by one superpower, but ultimately marked the beginning of a multipolar world.

By Michael Liebig


What concerns the internal socio-economic and political transformation and integration in Germany, the resumé of the past two decades is: all in all, the project has worked out satisfactorily. But, there is a second dimension to the German reunification process: its geopolitical and geo-economic setting. The latter has had major ramifications on the internal dynamic. But, let’s first look a bit more closely at the internal dimension.

The Situation Within Germany

Over the past 10 years, the socio-economic alignment between the East and the West of Germany has substantially advanced. The previous decade, the 1990s, were dominated by the de-industrialization of East Germany. Most observers agree that the capital stock of East German industry was technologically obsolete to a degree that it could not be technically improved, but had to be replaced all together. Industrial products would have been competitive (for a transitional phase) under two conditions: very low wage levels and an artificially low exchange rate. This, however, was impossible within a single social-economic and monetary space. Thus, most of the East German industry was shut down. As a consequence, unemployment among older and less qualified persons has remained high up to today and demographic attrition has become a major problem particularly outside urban areas (some two million East Germans have settled in West Germany over the past 20 years). However, the former DDR has not turned into a “German Mezzogiorno,” as some had feared.

The German state has invested an estimated 1.3 trillion euro in the East German infrastructure (transportation, education, environmental cleanup etc.). Meanwhile, particularly around universities and research institutes, a significant high-tech sector of small and medium-sized firms has developed. This SME sector is highly competitive and and represents a re-industrialization trend. Science and culture, the later with a significant touristic spin-off, are economic drivers as well. And, the East German agricultural sector too has a high productivity.

In respect to mentality and political disposition, the east-west divide is turning into an age group divide. Mutual resentments are still latent in the age group above 45 – typically, “arrogant wessies” vs. “ever-complaining ossies”. But such resentment is barely detectable among those younger than 45 years of age. I know from personal experience that among university students, the “ossie”/”wessie” stereotypes have completely disappeared. A generation has grown up for whom the division of Germany, the communist regime in the DDR and the Cold War are distant history. A former DDR citizen has become (the first female) German Chancellor and the former communist party has metamorphosed into the Left Party which is sitting in the Bundestag and becoming a generally accepted party.

Over the past two decades, Germany as whole has changed profoundly. Not only the DDR has vanished, the “old”, pre-1989 Federal Republic is equally gone. Some of the damage done to “Rheinish capitalism” and the “social state” paradigms during the 1995-2005 neoliberal era is not only regrettable, but has become a dangerous poison for society. Nevertheless, all in all, things have remained pretty “normal” and stable in unified Germany. And equally so – with one exception however, the Balkans – there have been no violent ruptures in Europe as whole since German unification.

The changes in unified Germany (and Europe) are by no means the exclusive result of the impact of Anglo-American neoliberalism. The whole world has been transformed over the past 20 years since unification – in ways that do no at all correspond to Anglo-American, neoliberal designs of “globalization”. These global economic and political changes have led to far-reaching consequences for Germany and Europe. Therefore, in order to adequately understand the internal evolution of reunified Germany, it is essential to situate this process in the global political and economic context.

Ending (not just) the Cold War

When the Berlin Wall fell, the main actors were primarily concerned with 20th century European history. The declaratory policy of the western powers was full support for German reunification, in reality they hoped it would never come. When it did happen, their policies on the “German question” derived from the consensus that a reunified Germany had to be firmly “embedded” within NATO and the EU. Even the (weakened) Soviet Union eventually shifted to this position.

Today, it is difficult to recapitulate that – in terms of international law – World War II ended in the night of Oct. 2/3, 1990. Not before this date, did the four victorious powers of WWII give up their special prerogatives concerning “Germany as whole.” After 1945, no peace treaty had been signed with either of the two German states. Both were, albeit to very different degrees, not sovereign.

Before unified Germany was granted sovereignty, it had to accept an number of conditionalities:

  • the (post-1945) military occupation-derived right of the United States and Britain to station troops in (West) Germany were preserved by being “NATO-ized.” (France withdrew its military forces after 1990)
  • Germany had to recognize the finality of its border with Poland (that is the loss of 1/3 of the Reich’s territory east of the rivers Oder and Neisse)
  • An “informal understanding” was reached that Germany will give up the deutschmark in favor of an EU currency union
  • The Soviet Union was granted large-scale financial aid, including the costs for the relocation of Soviet forces in the DDR back home (the last Russian troops left Germany in June 1994).

The weight of 20th century history did again resurface at the 20th anniversary of unification. On Oct. 3, 2010 Germany paid the last installment of its World War I war reparations, set at the 1919 Versailles Treaty.

Not only the shadow of past wars lay over German reunification, on Oct. 3, 1990 new wars were looming: in the Gulf and in the Balkans. And, shortly after the Fall of the Berlin wall, US forces had invaded Panama, deposing and arresting Panamanian military strongman Gen. Noriega in December 1990.

The Mirage of an Unipolar World

When George Bush Sr. watched the opening of the Berlin Wall on Nov. 9, 1989, he was not amused. But unquestionably, among all major actors, the Bush administration had the most relaxed attitude towards German unification. Why? The US government was the quickest to realize that German unification would become the starting point for a “new world order”. When Bush Sr. postulated the “new world order”, he had an unipolar world system in mind: The United States had won the Cold War. Arch rival Soviet Union was stuck in a existential crisis which offset its military strength. France and Britain were mere middle powers. Germany was absorbed by itself. The European Union (then 12 member states) was essentially a customs union. And China, India and Brazil were “Third World” countries beset by enormous internal problems. So, the way seemed cleared for unilateral American action on the world stage.

Four months after German reunification, the 1991 Gulf War started; Iraq was bombed and Iraqi occupation forces were driven out of Kuwait. This first defeat of Saddam Hussein was followed by a “cold war” till 2003 when the Second Gulf War was launched by Bush Jr administration. US military action against (and in) Iraq was a constant feature of the post-1990 “new world order“, but there were other US-led wars: Kosovo, Afghanistan and the ubiquitous “war on terror”.

But these wars over past 20 years have not consolidated American world domination. Quite the opposite, they not only ruined American state finances, but America’s global standing. In parallel, the US economy atrophied through de-industrialization and the surge of the US “financial industry” (decoupled from the real economy). Secular trade and current account deficits turned America into the world’s No. 1 debtor nation. In 2008, the inevitable happened: the US-centered financial crisis laid bare the real state of affairs: America was essentially broke. The generations born before the 1980s might still have been impressed by America’s political and economic dynamism during the Clinton years (which turned out to be straw fire), but the generation born after 1990 has known only an America in decline.

A Time Journey: Russia…

In 2010, few will dispute that the world has become multipolar. 20 years ago, such a proposition seemed absurd. In what condition were Russia, China, India or Brazil in 1990?

In 1990, the Soviet Union was in a state of exhaustion – economically, financially and ideologically broke. It had been arming itself to death, yet loosing the war in Afghanistan in the 1980s. At the time of German unification, the Soviet economy was not only technologically backward, but disintegrating; it could no longer supply the most basic consumer items. To feed its population, the Soviet Union had to import vast amounts of food. The imports could not be balanced by exports of raw materials and energy – so the foreign debt soared. As a consequence, the Soviet leadership decided to write off its Warsaw Pact client states. The geostrategic glacis in Central Eastern Europe would be abandoned – in order to secure (and modernize) the Soviet Union itself. The plan misfired. In December 1991, the Soviet Union was dissolved.

At that moment, at least 400.000 Soviet troops were still stationed in the Germany – with tanks, fighter aircraft and rockets (the last nuclear weapons were withdrawn in June 1991). As earlier during the August 1991 coup attempt in Moscow, these troops did not make any move – they quietly mutated into the armed forces of the Russian Federation. The moral of the once proud Red Army was devastated. I personally remember how soldiers on guard duty were asking for cigarettes and the like. Officers “rented out” their soldiers to private firms, cashing in the wages, while the soldiers “earned” some food, beer and cigarettes.

For Russia, the Yeltsin years were an era of weakness and humiliation – internally and externally. That changed after Vladimir Putin had become Prime Minister in 1999 – Russia worked itself out of the “loser” role. Over the next decade, Russia gradually regained its economic strength, state structures re-consolidated (probably excessively so) and the foreign policy standing improved significantly. Russia’s revival was helped by the growing demand (and rising export prices) for its energy resources and raw materials. And this demand came in particular from “emerging economies”, whose increasing weight in world economy began to felt in the late 1990s.

… China

In 1990, China was in a quite difficult situation. Following the launching of the post-Mao economic reforms by Deng Xiaoping in 1978, China underwent rapid economic development during the 1980s. But by the late 1980s, social and economic dislocations generated political repercussions and led to popular unrest. The protests were brutally suppressed in June 1989. The “Tianamen Massacre” isolated China internationally and slowed down – temporarily – China’s economic advance. But the Chinese learned their lesson from the collapse of the Soviet Union by combining bold economic reforms with political authoritarianism (under Gorbachev the opposite had happened). This strategy paid off: For the past two decades, the Chinese economy has developed with double-digit growth rates. In foreign affairs, China kept a low profile, and it refrained from a Soviet-style arms race. 20 years after German unification, China has become the No. 2 world power – in economic, financial and political terms. While pursuing a pragmatic attitude towards the United States, China developed a strategic partnership with Russia, normalized relations with India and upgraded relations with Brazil. Since the acronym BRIC has become a household word.

… India

In 1990, India too was isolated and in dire straits, economically and financially. During the Cold War, the Soviet Union was – de facto – India’s main political and military ally. In 1990, this ally was disintegrating and bilateral trade collapsed, after the Soviet Union had shifted trade to dollar accounting. India’s quasi-socialistic economic system was inefficient internally and not competitive internationally. At the time of German unification, India’s foreign currency reserves were rapidly melting away. In early 1991, the country had to turn to the IMF for an emergency credit line, for which it had to physically transfer 67 tons of its gold reserve as collateral to London. Following this national humiliation, Indian Prime Minister Rao launched far-reaching economic reforms – with astonishing results: Over the next decade India’s GDP quadrupled. And in 1998, India became a (de facto recognized) nuclear weapons state. Since the turn of the century, India is being accepted as one of high-growth powerhouses of the world economy.

… Brazil

In 1990, Brazil’s economic situation might be called desperate: A stagnating real economy, massive public debt, large foreign indebtedness and hyperinflation. Brazil was at the mercy of the IMF. But by the mid-1990s, hyperinflation had been broken. The country’s big domestic market, vast natural resources, and technology-vectored investments led to steadily rising economic growth which have accelerated since the turn of the century. In essence, Brazil has shown a similar economic growth dynamic as China or India.

On October 3, 2010 world public opinion was focused on the Presidential Elections in Brazil – not on the 20th anniversary of Germany ’s unification. And that makes perfect sense. Germany’s political and economic performance since unification can be characterized as satisfactory, but spectacular change has occurred elsewhere – among those actors in the world economy and in world politics which seemed hopelessly lagging behind in 1990.

German unification ended the bipolar system of two superpowers, it seemed to open up an era of unipolar domination by one superpower. But ultimately, it marked the beginning of a multipolar world. And this geopolitical and geo-economic setting is favorable for Germany’s basic interests. I’m somewhat hesitant when it comes to philosophy of history. But reviewing the past 20 years, I guess Hegel had the right intuition when he wrote about “the ruse of history”.

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