Economic Stagnation in the 1980s

Economic Stagnation in the 1980s

·         The economy worsened

·         Honecker favoured central planning

·         Increase in trade deficit and fuel shortages were a huge problem

Return to central planning

·         Favoured by the SED

·         No threat to central authority

·         Ideology outweighed performance

·         By 1972 private enterprise accounted for less than 0.1% of the goods produced in the GDR

·         Increasing gap between theoretical and actual performance

The growing national debt

·         Debt owed back to capitalist countries at high rates of interest rose to astronomical prices

·         1970 debt to capitalist countries was DM 2.2 billion; 1980 it was DM 30 billion; 1989 over DM 46 billion

·         1975-85 USSR accounted for 29-34% of GDR foreign trade and Western countries 31-36%

·         COMECON took much of the industrial output

·         GDR received 70% of raw materials from USSR

·         Problem with the amount of debt is that the GDR could never export enough to finance it because of inefficient production techniques and limited demand for the products made outside of the soviet bloc

Impact of the USSR

·         USSR was facing its own economic problems in the 1980s

·         1970s the USSR could no longer afford to support COMECON members – Brezhnev gave notice in 1981 that supplies of raw materials would be cut.

·         GDR could not compete with the emerging economies of South Asia in the production of manufactured goods

·         Brezhnev had complained to Honecker that COMECON members were exploiting the cheap goods

·         1981 – USSR announced they were reducing oil deliveries

·         GDR response was to develop lignite – cheap brown coal

·         Extraction of lignite rose from 256 million tonnes in 1980 to 312 million tonnes by 1985 – 40% of world total

·         Lignite was inefficient and caused a lot of pollution because of high sulphur levels

·         Forecasts called it ‘heavy cloud’ and many power stations could start to operate again

·         No longer possible to have propaganda to say the GDR was better because of the use of lignite.

Koko

·         An alternative economy

·         KOKO = Commercial…