For this reason, it had taken over in June the Treuhandanstalt (Trust Agency, commonly known as Treuhand), which had been established by the GDR to take over East German firms and to turn them over to new management through privatization.
The CEO of Treuhand Detlev Karsten Rohwedder was assassinated by far left terrorist organization Red Army Faction in Düsseldorf in 1991.
Many investors also complained about energy shortages, as many East German power stations were shut down for safety and other reasons.
Real economic efficiency could only be achieved by permitting and even forcing considerable immediate dislocations, whereas temporary compromises might lead to permanent structural burdens.
However, excessive disruptions could jeopardize the economic and political stability required for a smooth unification process and might also cause streams of East Germans to move west.
[2][3][4] The social welfare programs offered, i.e. state pensions, unemployment insurance, traditionally adhered to a means testing and an earnings related basis for recipients, which had the potential to be more generous where permitted.
[9] There was an East-West productivity gap, attributed to poor labor market performance which was caused by high unemployment and lesser skilled labor in the New Länder relative to the West, increasing the demand for benefits and decreasing relative contributions for social welfare benefits.
[10] The expanded coverage of welfare policies to the New Länder permitted an exponential increase in the number of claims and beneficiaries nationwide.
In the course of privatization, the agency decided which companies would live and which would die, which communities would thrive and which would shrivel, and which eastern Länder would be prosperous and which would not.
Whether correct or not, reports persisted throughout the first years of unification that foreign enterprises were being screened more carefully and more skeptically than German firms even as they were being invited to invest.
The Japanese did not invest, although they had earlier expressed some interest, and the offices Treuhand established in New York and Tokyo found few investors.
Investment during the early years of unification was only 1 percent of the all-German GDP, when much more was needed to jump-start the economy of eastern Germany.
A review conducted in 2007 of twelve years of individual employment histories found that, generally speaking, the training of unemployed East Germans was beneficial, but involved initial negative (participants cease to actively seek employment for the first twelve to eighteen months of training) lock-in effects and that long-term retraining for construction was misguided.
[22] Although the precise level of German official expenditures in eastern Germany has been difficult to estimate because funds appropriated in one year might have been spent in another, it is beyond dispute that the federal government expended well over DM350 billion in eastern Germany during the first three years after economic, or monetary, unification.
[23] As eastern Germany went into a deep recession during the first phase of unification, the western German economy went into a small boom.
Prices, however, remained relatively stable because the cost of living grew at only 2.8 percent despite some high wage settlements in some industries.
This meant that western Germany not only had a vast new market but also a growth of over 1 percent in its workforce, as sharp an increase as since the days of the economic miracle.
The Bundesbank became worried about three elements of the sudden boom: the sudden financial shifts between east and west, which led to a jump in money supply; government deficits resulting from large expenditures in eastern Germany; and the potentially inflationary effects of a rapid growth rate in the west.
The Bundesbank permitted rates to begin falling only in 1993—to 7.3 percent—when it believed that the inflationary pressures had been contained by the recessionary effects of the credit squeeze.
Of that total, the new Länder contributed a gross regional product of DM231 billion, or 7.7 percent (compared to the roughly 20% of unified Germany's population).
Economists Snower and Merkl (2006) suggest that the malaise was prolonged by all the social and economic help from the German government, pointing especially to bargaining by proxy, high unemployment benefits and welfare entitlements, and generous job-security provisions.
[25] The German economic miracle petered out in the 1990s, so that by the end of the century and the early 2000s it was ridiculed as "the sick man of Europe.
While the rest of the European Community struggled with financial issues, Germany took a conservative position based on an extraordinarily strong economy after 2010.