La Germany celebrate today i 29 years since its reunification. It was the October 3, 1990 when the territories of the German Democratic Republic, after decades of Soviet influence, were incorporated into the then West Germany. Later, the eastern part of the unified country was divided into five new federal states (Länder): Mecklenburg-Vorpommern, Brandenburg, Saxony, Saxony-Anhalt and Thuringia.
Two fundamental stages preceded reunification: the fall of the Berlin Wall (9 November 1989) and the entry into force, on 1990 July XNUMX, of the Treaty on monetary, economic and social union between the two States. The latter proved crucial for the East Germans, because it predicted a conversion rate between East and West Marks of 1 to 1 for current accounts and 2 East Marks for a one West Mark for assets and debts.
Naturally, the par exchange rate did not reflect the real economic values of the time at all: it was essentially a political gift from Chancellor Helmut Kohl to the eastern territories. However, the decision was made against the advice of the Bundesbank, who considered even a 2-1 change to be "far too generous".
In detail, the Treaty provided that wages and payrolls should be changed at the rate of 1 to 1. Less favorable treatment for pensions, considered equal to only up to 70% of the average income of the former East German worker. As for savings, deposits and cash they were exchanged at the rate of two eastern marks for one western mark. However, every East German was allowed to change up to 4 thousand marks at a rate of 1 to 1. Also in this case, the distance from the recommendations of the Bundesbank was considerable: the Federal Bank in fact proposed that the ceiling for convertibility at par should stop at 2 marks.
The consequences for the Eastern companies, which with the exchange at par found themselves in lack of competitiveness compared to oriental industries, to the point that many closed their doors in a short time. Even today, every year the territories of the former East Germany receive a special transfer of 100 billion euros for "reconstruction".
