ABSTRACT
The State Treaty which created an economic, monetary and social union, between West and East Germany came into force by July 1991. There is an increasing public demand for the state to support and sustain Eastern Germany industry. The availability of Western German support provides Eastern Germany favorable conditions for a rapid transition. While wages in the East have moved quickly to reach half the Western German level and are on the way to parity, the Eastern German productivity is only one- third that of Western Germany. In 1991 transfers from Western Germany to Eastern Germany totalled DM 139 billion and are estimated at DM 180 billion in 1992, one-third of which will support investment. After unification in July 1990, West German taxes were gradually introduced in 1991 in East Germany. From 1989 to 1991, real GDP in Eastern Germany fell by 42%, with a slight turn-around toward the end of 1991.
