GERMAN ECONOMIC, MONETARY AND
SOCIAL UNION (GEMSU)



The German Economic, Monetary and Social Union (GEMSU) was one of four accords that brought about the reunification of the German state. Signed May 18, 1990, it represented an economic, monetary, and fiscal agreement between the Federal Republic of Germany (West Germany) and the German Democratic Republic (East Germany). Because it was the first of four treaties to be signed, GEMSU laid the groundwork for the others. The other three agreements were the East-West Election Treaty (August 20, 1990), the Unification Treaty (August 31, 1990), and the final reunification accord, the Two-Plus-Four Treaty on the Final Settlement with Respect to Germany (September 12, 1990). GEMSU dealt with establishing an economic basis for reunification between the two countries while the other treaties addressed social and political issues.

Following Germany's defeat by the allied powers in World War II, the country was divided into two states: West Germany (occupied by Great Britain, France, and the United States) and East Germany (a satellite of the Soviet Union). Both Germanys became sovereign states, but West Germany prospered under a capitalist market economy with a strong Western orientation while East Germany stagnated under communist rule. By the 1980s the annual gross national product (GNP) of West Germany was over $800 billion while the GNP of East Germany was only $207 billion. Throughout the Cold War, the two Germanys remained ideological foes, but the concept of a unified Germany still lived in the minds of many German citizens and political leaders. There were two major roadblocks to reunification, however: the Soviet Union was unalterably opposed to a single German state, and East Germany remained just strong enough to resist reunification out of fear of being economically overwhelmed by its richer neighbor to the west. Furthermore, given Germany's penchant for military adventurism, many other European states, most notably France and Poland, were content with the status quo.

All of this changed with the coming to power of Mikhail Gorbachev, the subsequent dissolution of the Soviet Union, and its loss of authoritarian control of Eastern Europe. In 1989 when Erich Honecker was forced to resign as head of faltering East Germany, its citizens began streaming into West Germany in unprecedented numbers. On November 9,1989, the East German government began dismantling the Berlin Wall, long a symbol of a divided Germany. The United States gave diplomatic credence to the concept of a single German state, and a reunited Germany suddenly seemed imminent.

With the rapid crumbling of political stability and the social infrastructure of East Germany, Chancellor Helmut Kohl of West Germany was forced to act quickly to prevent the German Democratic Republic from slipping into total chaos. By early 1990, the Kohl administration moved toward economic union. Although it was more than a year ahead of schedule, the administration believed economic union (albeit a hurried one) would serve to stabilize East Germany, integrate it into various West German fiscal and monetary institutions and practices, and serve as a symbol of West German commitment to helping its eastern neighbor.

The German Economic, Monetary and Social Union treaty established the West German deutsche mark as the official unit of currency in the German central bank, and made the Deutsche Bundesbank the sole authority for monetary policy. East Germany would also adopt an economy featuring private ownership, marketplace economics, competition, and the free movement of labor and capital. The German Democratic Republic would also begin a general privatization of its economy. The German economic unity treaty allowed East Germans a one-for-one exchange ratio between privately held East German marks and West German deutsche marks (up to 4,000 marks). Pension benefits and wages also would remain on a one-for-one basis. Other holdings of East German marks could be exchanged at a two-for-one ratio. East Germans would begin paying West German taxes, including taxes for unemployment benefits and social security. The East Germans would conversely be eligible for West German unemployment and pension benefits. The treaty also had provisions covering limits on East German borrowing, real estate purchases in East Germany by Western commercial interests, and West German medical benefits and housing subsidies for East German citizens.

The German Economic, Monetary and Social Union was signed in Bonn by the German Democratic Republic's finance minister, Walter Romberg, and the Federal Republic of Germany's finance minister, Theo Waigel. GEMSU was a precursor to the Two-Plus-Four Treaty, which resulted in the almost total economic, social, and political absorption of the German Democratic Republic by the Federal Republic of Germany.

[ Michael Knes ]

FURTHER READING:

Neckermann, Peter. The Unification of Germany. Boulder, CO: East European Monographs, 1991.

Pond, Elizabeth. Beyond the Wall: Germany's Road to Unification. Washington: Brookings Institution, 1993.



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