On October 3rd 1990 GDR and FRG were formally united.
German reunification posed the challenge of introducing new markets to an economy with none. The formerly communist German Democratic Republic (East Germany) joined the Federal Republic of Germany (west Germany) It was part of the dramatic demise of communism in Europe as well as a significant event for economic and political reasons.
It occurred at a time when the Soviet Union was disintegrating and communist regimes were collapsing all over Europe, there were uncertainties in Western Europe with market fluctuations in economy. In the 1980s West Germany seen a retreat of the state and an increase in privatisation. The German unification imposed a huge challenge, not just because of the financial burden but never before had Europe experienced an ousting a communist system by a capitalist market. As state socialism collapsed West Germany literally took over the east, with the rapid transformation of the eastern institutions and employment structures.
According to the constitution of the FRG the basic laws there were two ways for completing unification. The first would be to terminate all German states and draft a new constitution for a unified state.
However paragraph 23 made it possible to extend the FRG to the new states. (LANDER) In August 1990 East Germany voted in majority to come under the purview of the Basic Law of the FRG and German unification was completed according to paragraph 23.
A recreation of a unified Germany had very real cultural and societal impacts on the German people, especially those from the East. Gone was their socialist state of guaranteed employment and housing, they now had to contend with a free market economy and compete for jobs. Unfortunately, the East German system didnt prepare the majority of its citizens for this type of reality, and many of its citizens had a difficult time coming to terms with their situation in a unified Germany. The disparity between East and West is something that can still be seen today, where unemployment rates and economic wellbeing tend to be worse in the former East German states.
German unification had to be agreed by the allies. Whilst the USA had no reservations the Soviet union at first opposed plans on the grounds that it did not want a unified Germany being part of the NATO.
The UK and France also had concerns about the implications of having a larger and more powerful Germany in the European Union.
German Chancellor Helmut Kohr reassured the allies by promising to limit the number of German troops and lock Germany further into the process of European integration.
At the final 2 + 4 talks in Moscow, USSR. 12th September 1990. The UK, France, USA, FRG, GDR and the USSR signed an agreement regulating the external aspects of German unification and restoring full sovereignty to a unified Germany from October 3rd 1990.
The chronic weakness of the East German economy and the extent to which is lagged behind of the west was vastly underestimated at the time of unification. Once it became known the euphoria was soon eclipsed by the sober realization of the immensity of the task ahead.
Economic decline, fuelled by hopelessly outdates plant machinery and exposure to western competition was catastrophic during the first 18 months of the economic union, and was further aggravated by the loss of markets for industrial products in the collapsing economies of Eastern Europe. One vital role of the German State in the economic reconstruction of the new Lander was to quip them with modernised infrastructure comparable with those in the West.
The former FDR invested one trillion DM into the new states of the former GDR This was 40 times the amount in real terms of the US Marshall Fund aid sent to West Germany after World War II. These huge investments gave East Germany the highest growth in Europe.