Economic problems

What were six main economic problems faced by the GDR by the late 1980s?

Growing debt and lack of foreign currency, high spending on welfare, lack of bureaucracy, poor leadership and planning, slow economic growth, decline in living standards, environmental problems

How had debt increased over time?

1970: 2.2bn DM; 1980: 30bn; 1989: 46bn.

Give four reasons why the GDR’s debt increased so much.

High spending; oil price rise after 1973; higher prices for Soviet imports after 1981; poor-quality exports; high interest rates; poor credit rating; borrowed from FRG; imported Western tech on credit.

How did interest rates change?

From 5.6% to 14% (1977–81).

How did trade with the FRG help the GDR?

No tariffs or trade barriers; access to EEC markets; FRG made up 20% of GDR’s trade by 1989.

What was the problem with being dependent on the FRG?

Increased debt; closer economic ties made unification more likely; FRG loans improved credit rating but weren’t invested productively.

Give an example of a poor-quality GDR product.

The Trabant car.

What was the impact of producing poor-quality goods?

Reduced export demand – heavy industry exports fell 30% (1986–88).

What does ‘trade deficit’ or ‘balance of payments deficit’ mean?

When imports exceed exports, forcing the country to use foreign currency reserves.

Give one piece of evidence showing dependence on the USSR.

Imported 70% of raw materials and 90% of iron ore, oil and wood.

What did Brezhnev do in 1975 and 1981?

Reduced oil and raw material supplies; removed subsidies so they were sold at market prices.

Why did dependence on the USSR contribute to collapse?

Reduced supply and higher prices increased GDR debt and exposed vulnerability.

What was Koko?

A secret trade organisation selling prisoners, art, and weapons to earn foreign currency.

Why was Koko helpful?

Raised foreign currency; bypassed Comecon limits; avoided loan interest; supplied elites with Western goods; organised prisoner sales.

Give three other ways the GDR tried to raise quick money.

FRG loans (2bn DM 1983–84); prisoner sales (3.4bn DM 1960s–80s); visa charges (16bn DM 1969–89); exporting Soviet oil and essential goods.

Give three examples of poor economic leadership and planning.

Unreliable statistics; unrealistic targets; Honecker’s refusal to reform or end social contract despite Mittag’s advice.

What was the GDR’s economic growth rate?

2% per year (1976–80); 1.5% in 1980s; FRG data showed contraction in 1980, 1982, 1986, 1987

Give two reasons for low labour productivity.

Outdated infrastructure (only 27% of industrial plants under 5 years old in 1989); widespread alcoholism; productivity 35% of FRG.

Give three reasons for slow economic growth.

Low productivity; dependence on Comecon; underinvestment; export of vital oil; lack of raw materials; isolation from global innovation.

Give five areas where the government spent heavily.

Housing, education, transport, subsidies, and welfare benefits.

How much did welfare spending increase?

From 72.9bn to 112.3bn DM (1980–85); subsidies from 8bn to 58bn (1970–89).

Give two areas of defence spending.

Stasi operations and Berlin Wall defences.

How much did defence spending increase?

Up to 5.8% of GDP by 1982.

Why did the SED spend so much on bureaucracy?

SED functionaries made up 3% of adults; duplication between party and state work.

Give three signs of declining living standards.

Long queues; shortages of goods; growth of second economy (‘Bückware’); outdated technology; fewer imports.

Why did poor living standards anger people?

Awareness of better FRG life; inequality in access to luxuries; desire for personal possessions.

What caused environmental problems?

Heavy lignite (brown coal) use; inefficient, high-sulphur emissions; industrial pollution.

Give one piece of evidence about environmental issues.

Air pollution highest in Europe; Bitterfeld uninhabitable; 50% of forests damaged; respiratory illnesses 20% higher in the south.

What was the aim of the Five Year Plan 1981–85?

Modernisation through technology; increase consumer goods 20%; reduce energy use 6%.

What was the aim of the Five Year Plan 1986–90?

Build 1 million homes; focus on microchips and new tech; still prioritised quantity over quality.

What is the historical debate about the economy’s role in collapse?

Steiner blamed the planned economy; Fulbrook blamed external crises like the oil shock.