ABSTRACT
Eastern Germany’s accession to the economic and currency area of the Federal Republic of Germany in two ways affected the initial conditions for privatization. First, this development reduced the transaction costs for direct investments-in particular those made by Western German investors. Second, the price-cost squeeze and the demand shock that emerged following monetary union largely depreciated the existing capital stock of Eastern German enterprises.1 The Treuhandanstalt decided under these conditions to give priority to a rapid privatization of the enterprises it held, defining this task as the most important objective of its business policy. It expected from rapid privatization the most efficient rehabilitation of the enterprises it held. This chapter examines the most significant elements of the Treuhandanstalt’s privatization strategy, and the results it has entailed, against the background of the theoretical framework developed in Chapter 3.
