Economic Aspects of German Unification: Lessons for European Integration

Abstract The speed of political events which preceded German unification precluded rational economic judgements about the nature of German Economic, Monetary and Social Union (GEMSU). In any case, economists were divided about whether the inevitable shock which would accompany GEMSU should be cushioned or introduced at one fell swoop (Owen Smith 1997). At the other end of the spectrum, the tortuous and protracted process of European economic integration has exposed conflicting national interests and differing economic paradigms. It is inevitable that these two very different processes would produce comparisons (Kloten 1995). In the first section, therefore, the principal differences between GEMSU and European integration are reviewed. This is followed in the second section by a critical appraisal of GEMSU. The main monetary, fiscal and social-policy implications are then analysed in a third section. It will be demonstrated, by summarising arguments made more extensively by this writer elsewhere (Owen Smith 1998a), that a number of features of the German economy have already been adopted, or would lend themselves to adoption, at the European Union (EU) level. The final section of this chapter is largely confined to a review of the economic aspects of GEMSU and European integration. It boils down to a contrasting picture of homogeneity and heterogeneity.