Despite its outward signs of prosperity, East Germany is beginning to experience major economic problems.
Compared with its Eastern European allies, or even its own domestic situation just a decade ago, the German Democratic Republic hardly seems in a desperate condition. Basic foodstuffs and social services are massively subsidized by the state, and the quality and quantity of consumer goods in East Germany are the envy of the Soviet bloc.
In contrast with the inflation problems of the West, most individuals in East Germany actually have enjoyed a "real" increase in purchasing power in recent years. Since 1971, average personal incomes have increased by about 4.3 percent a year, or from 762 to 956 marks a year.
Despite these gains, however, there appears to be a growing level of unrest in East Germany as rising personal income generates new demands on the government for more and better services. No matter how rich East Germany is compared with nations such as Poland, Czechoslovakia, or even the Soviet Union itself, it continues to lag far behind neighboring West Germany.
The focus in recent years has been on three major economic problems:
Escalating world commodity prices as well as the commodity prices of the Council for Mutual Economic Aid (CMEA).
Growing indebtedness to Western financial institutions.
The emergence of the West German mark as the nation's second currency.
Rises in the prices of basic commodities have had an especially damaging impact on the G.D.R. The economic plan for 1978 illustrates this reality by highlighting the country's main import commodity needs: 11.9 million tons of oil, 2 million tons of iron ore, 70,000 tons of asbestos, more than 25,000 tons of titanium oxide and 85,000 tons of cotton. These figures represent the entire production needs of the East German economy for those materials.
The Soviet Union supplies half of East Germany's import requirements in this sector; however, Moscow's decision to raise the prices it charges for raw materials to its partners has resulted in a huge East German indebtedness to the U.S.S.R.
G.D.R. imports from the U.S.S.R. outstripped exports to its larger partner by 1.286 billion rubles between the start of 1976 and mid-1978. No other country in Eastern Europe is experiencing anything close to such a large trade imbalance with the U.S.S.R.
Indebtedness to Western financial institutions threatens to increase East Germany's dependence on the capitalist world. The Bank of International Settlements in Basel calculates this form of East German "external" debt to be $3.5 billion, and some analysts calculate the sum to be in excess of $5 billion. The G.D.R.'s need to borrow "hard" currency from the West is nonetheless based on two seemingly unalterable vulnerabilities:
First, the East German mark, like other Soviet-bloc currencies, is not accepted by sellers outside the Soviet Union and Eastern Europe;
Second, East Germany's hunger for Western technology and consumer goods is increasing.
Yet prices for imported Western products have skyrocketed over the past five years. The government has launched a vigorous campaign to make the public -- industrial managers and planners especially -- more aware of how expensive Western imports have become for the country. But the growth of a consumer-based society with a pronounced desire for Western goods probably will force the G.D.R., like its Polish neighbor, to go deeper into debt on the international capital market.
Another major economic difficulty facing East Germany is the influx of a "second currency," the West German mark. Actually, the G.D.R. has a most liberal policy on private possession of Western currency. Since December 1973, the regime has permitted citizens to receive up to 500 West German marks (or the equivalent in another currency from the West) per year. This money, in turn, can be spent in special luxury stores (Intershops) which carry sought-after items from the West. And they unashamedly cater to people holding hard currency. This invariably means West German marks, given the traditionally close association between the two Germanys.
Widespread bitterness within the East German public over the influx of West German currency is understandable. Individuals who do not have direct access to hard currency are denied the right to purchase luxury items in these special shops -- this in a Socialist society. Government spokesmen justify this policy by pointing out how important such currency is for righting East Germany's balance of payments problems and indebtedness vis-a-vis the West.
The chief of East Germany's ruling Communist Party, Erich Honecker, publicly has asserted on more than one occasion that these special currency shops are not integral aspects of socialism. And Honecker also has stated that more than 100 Intershops had been closed by the authorities in 1977. Such actions clearly were undertaken to soothe public opinion.
A regime that builds a Wall to halt emigration should not be taken lightly. In view of East Germany's past difficulties and triumphs over adversity, there are sound reasons to assume that the country will be able to tackle these new economic maladies effectively. But the glimmer finally has been removed from this "other" German economic miracle. A time of uncertainty lies ahead for the German Democratic Republic.