Between 1958 and 1960 alone, trade between the six member countries grew by 50 percent. David R. Henderson is the editor of this encyclopedia. A strong work ethic, harmonious labor relations, good management, sound investment, growing domestic and international demand, and a reputation for product reliability and durability characterized the manufacturing sector. A number of developments shortly after the war made nonsense of the Morgenthau Plan and caused a radical revision of U.S. policy toward Germany. It was designed to “contain” totalitarism and communism and to create markets for US products. Both conferences ended a year later at the Maastricht Summit. In the U.S. zone, a cost-of-living index in May 1948, computed at the controlled prices, was only 31 percent above its level in 1938. In his book "Postwar: A History of Europe Since 1945," the late historian Tony Judt outlined that the most serious economic problem in Europe after the war was the lack of housing. To prevent the recurrence of further conflict, U.S. Secretary of the Treasury Henry Morgenthau argued, Germany's surviving factories should be scrapped and the country completely "pastoralized." Stage one (then in progress) involved the establishment of free capital movement in the Community and closer monetary and macroeconomic cooperation between the member states and their central banks. New York: St. Martin's, 1991.Desmond Dinan is Director of the Center for European Community Studies at George Mason University in Fairfax, Virginia. Jean Monnet, a brilliant French official with a lifelong commitment to Franco-German reconciliation and European integration, had devised the plan to pool production of coal and steel under a single supranational authority. Reparations imposed on Germany following WWI … To quantify the cost to the European Community of maintaining a fragmented market, the Commission initiated a research program on the cost of non-Europe. Commitment to the Goal of Economic and Monetary Union First, U.S. officials realized that resentment toward the Versailles treaty, the punitive postWorld War I settlement, had contributed to the rise of fascism in Germany and to the outbreak of World War II. Thus France opposed German economic recovery because of a genuine fear of German resurgence, and because of the consequences for France's own economic recovery. A further factor was the reduction of marginal tax rates later in 1948 and in 1949. The country's cities were severely damaged from heavy bombing in the closing chapters of the war and agricultural production was only 35% of what it was before the war. Edwin Hartrich, The Fourth and Richest Reich (New York: Macmillan, 1980), p. 4. Toward a More Comprehensive Economic Community President Richard Nixon's suspension in August 1971 of dollar convertibility compounded the prevailing sense of uncertainty and apprehension. "Implications for the Operation of the Firm." After the financial crisis in 1929, German economy was in bad shape. In March 1957, the six ECSC member states signed the Treaty of Rome and launched the European Economic Community. By 1948 the German people had lived under price controls for twelve years and rationing for nine years. Although the top rate on individual income remained at 95 percent, it applied only to income above the level of DM250,000 annually. Germany's greatest contribution to its own and to its neighbors' future economic development would be to press for greater openness, particularly in the direction of improving relations with Central and Eastern Europe, despite the hard times that lie immediately ahead. Unemployment peaked at 6 million during the final days of the Weimar Republic – near enough 33% of the nation’s working population. Eucken was the leader of a school of economic thought, called the Soziale Marktwirtschaft, or “social free market,” based at Germany’s University of Freiburg. Cambridge: Cambridge University Press, 1991.Ludlow, Peter. At the time, observers thought that West Germany would have to be the biggest client of the U.S. welfare state; yet, twenty years later its economy was envied by most of the world. By 1958 industrial production was more than four times its annual rate for the six months in 1948 preceding currency reform. Stage three will begin on 1 January 1999 at the latest. Germany was one of the prime movers behind the European Community's program to achieve a single market by 1992. And less than ten years after the war people already were talking about the German economic miracle. Yet in 1947, the amount of money in the German economy—currency plus demand deposits—was five times its 1936 level. Given the nature of Germany's postwar economic development, it is imperative that European integration continue, and that the international system remain open. At that time, coal and steel were the essential ingredients of economic reconstruction and future prosperity. As you might imagine, the economic situation in Germany was very difficult after the war. So virulent was Allied hatred of Germany by 1944 that the so-called Morgenthau Plan for a brief moment, (during the Quebec Conference), became official U.S. policy. World War II killed around 70 million people or 4% of the world's population. When Hitler came to power in 1933, he began massive public works projects and massive government guarantees of loans to the essential German heavy industries. As soon as managers were convinced that the common market was going to be established, they started to behave in many ways as if it was already in existence" (Pinder 1962, 41). It was imposed on Germany as a result of Germany losing World War 1. The intergovernmental conference on Economic and Monetary Union, therefore, opened in December 1990 in tandem with an intergovernmental conference on European political union. The plan, however, ran into the major obstacle of French intransigence. To “remove the repressive effect of extremely high rates,” wrote Heller, “Military Government Law No. Barter also was so widespread in business-to-business transactions that many firms hired a “compensator,” a specialist who bartered his firm’s output for needed inputs and often had to engage in multiple transactions to do so. The Federal Republic of Germany and EC Membership Evaluated. After the Soviets withdrew from the Allied Control Authority, Clay, along with his French and British counterparts, undertook a currency reform on Sunday, June 20, 1948. The Cost of Non-Europe to the European Community The war, along with Hitler’s scorched-earth policy, had destroyed 20 percent of all housing. Ludwig Erhard won the debate. Germany's economy and infrastructure was totally decimated following World War II, and its fate was decided by the victorious Allied Powers. Moreover, as economist Tyler Cowen notes, Belgium recovered the fastest from the war and placed a greater reliance on free markets than the other war-torn European countries did, and Belgium’s recovery predated the Marshall Plan. Social Education 57(4), 1993 The first four years were the Community's "honeymoon...a time of harmony between the governments of the member countries and between [Community] institutions" (Marjolin 1989, 110). Under the auspices of the European Monetary System and the single market program, Germany's economy developed steadily in the 1980s. By any standard, but especially given the extent of wartime destruction, the Federal Republic of Germany's economic development has been extraordinary. This was no grand settlement in the manner of Westphalia or Versailles. Members of this school hated totalitarianism and had propounded their views at some risk during Hitler’s regime. Like the rest of the European Community, but more so because of unification, Germany is coming to terms with the post-cold war international system. served in lieu of a peace treaty concluding hostilities between Germany and Western Europe. Normally, when people talk about the German economy after World War II, they mean the West German economy. New York: Warner Books, 1978.Suggested Reading This article is adapted from the book "Outline of the U.S. Economy" by Conte and Karr and has been adapted with permission from the U.S. Department of State. Gillingham, John. The country was punished with huge war reparation after the First World War. Price controls on food made the shortages so severe that some people started growing their own food, and others made weekend treks to the countryside to barter for food. Enter your email address to subscribe to our monthly newsletter: Economic History, Economic Regulation, Economies Outside the United States, Government Policy, International Economics, Macroeconomics. 1993 National Council for the Social Studies. A third of its people were jobless and the … In a effort to relaunch the movement for European integration in the mid 1950s, the six ECSC countries considered forming a more comprehensive economic community. In the 1960s, Germany, more than any other Community country, enjoyed rapid economic development, a healthy balance of payments, and stable prices. Between 1989 and 1992, Germany's budget deficit expanded from barely 1 percent of gross domestic product to 7 percent; inflation rose from 1 percent to 4 percent. However, was the same type of treaty signed after the second world war? Free movement of goods throughout the Community, which the principle of mutual recognition makes possible and the single-market program attempts to implement, clearly benefits Germany. Third, a revival of German industry and commerce would help offset the cost of occupation. The consequent fall in inflation and stabilization of prices among the participating states brought the Community back to where it had been in the 1960s, before the collapse of the Bretton Woods system (a fixed system of currency parities pegged to the dollar whose value was linked to the price of gold). In the autumn of 1918, the Allies launched a massive attack on the German lines. Lorient was the location of a German U-boat (submarine) base during World War II. They also continued the Nazi conscription of resources, including labor. What looked like a miracle to many observers was really no such thing. This account has not mentioned the Marshall Plan. Other countries that received substantial Marshall Plan aid exhibited lower growth than Germany. The death rate in … At the same time, high wages for skilled workers, generous conditions, and a liberal welfare system drove up the cost of German labor and, by definition, German products. In 1947 he became the director of the bizonal Office of Economic Opportunity and, in that capacity, advised U.S. General Lucius D. Clay, military governor of the U.S. zone. In 1979, however, the European Court of Justice ruled that Germany could not discriminate against Community products that met standards set in member states where they were manufactured. Many industries soon followed, leaving cities for less crowded sites. By the end of the 1980s, especially because of a drastically declining dollar, it seemed that German products might price themselves out of the international market.   Historians argue over the exact numbers, so most of the following figures are from "The Fallen of World War II