The east german disease revisited

This paper attempts to explain the development of the East German economy since the political, social, and economic union with West Germany in 1990. An earlier contribution Greiner et al., 1994] showed the different effects that produced joint deindustrialization in East Germany as an analogy of the well-known Dutch Disease phenomenon. This paper examines recent East German time series of main economic variables since 1994. Though the business sector and the unions are ever more willing to correct errors of the past, fiscal transfers from West to East Germany continue to exert their pressure on the tradeables sector. Economic policy should encourage savings in East Germany and gradually change the structure of (declining) transfers to expenditures that generate new capacities.