History of Germany

Stagnation in 1990s
1990 Nov 1 - 2010

Stagnation in 1990s


Germany invested over two trillion marks in the rehabilitation of the former East Germany, helping it to transition to a market economy and cleaning up the environmental degradation. By 2011 the results were mixed, with slow economic development in the East, in sharp contrast to the rapid economic growth in both west and southern Germany. Unemployment was much higher in the East, often over 15%. Economists Snower and Merkl (2006) suggest that the malaise was prolonged by all the social and economic help from the German government, pointing especially to bargaining by proxy, high unemployment benefits and welfare entitlements, and generous job-security provisions.

The German economic miracle petered out in the 1990s, so that by the end of the century and the early 2000s it was ridiculed as "the sick man of Europe." It suffered a short recession in 2003. The economic growth rate was a very low 1.2% annually from 1988 to 2005. Unemployment, especially in the eastern districts, remained stubbornly high despite heavy stimulus spending. It rose from 9.2% in 1998 to 11.1% in 2009. The worldwide Great Recession of 2008-2010 worsened conditions briefly, as there was a sharp decline in GDP. However unemployment did not rise, and recovery was faster than almost anywhere else. The old industrial centers of the Rhineland and North Germany lagged as well, as the coal and steel industries faded in importance.