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Retailing is a classic small business in the Western world and should become so again in East Germany. Despite the best efforts of the Communists to squeeze out the last private retailers, 17,000 were still in business when the Wall fell. Many of them are eager to expand. West German suppliers, keen to see a viable network of small retailers, are advancing goods on credit and helping in other ways like donating old cash registers and display cases. The threat to the independent East German retailer is no longer the bureaucrat but the competing capitalist.
While East Germany faces enormous change, the impact of monetary union on West Germany is likely to be modest. The economic Anschluss adds 25% to the population but only around 10% to the gross national product. The conversion of marks adds about the same amount to the West German money supply. If spent, the freshly minted DMs will have the same effect on growth as a sizable tax cut. When this new demand hits a West German economy operating close to capacity, the Bundesbank will be keeping a wary eye on developments. Bundesbank president Karl Otto Pohl calls the 1-to-1 conversion "a generous offer that went to the limit of what is economically acceptable." But he believes inflation can be contained.
The consensus of economists is that union will add around 1% to West Germany's current yearly inflation rate of 2.5% and enough additional stimulus to keep annual growth around 4%. Interest rates will probably be higher than they otherwise would have been, although Friedel Neuber, chairman of the WestLB bank says, "East Germany's capital requirements don't necessarily need to result in higher interest rates." West Germany, a major capital-exporting country, last year shipped about $60 billion abroad. A diversion of a fraction of that to East Germany would meet most immediate needs. Meantime, the addition of a large, lower-paid work force should slow wage rises in West Germany and boost profits.
The big unknown in the equation is the amount of direct aid that West German taxpayers will have to pay out to prop up the East's economy. Figures as high as $60 billion a year over the next few years have been mooted; the DIW economic forecasting institute in West Berlin expects $30 billion annually. Bonn has already put together a war chest of about $70 billion for & eventualities. Among other things, Bonn inherits a large G.D.R. budget deficit and foreign currency debt of around $13 billion. At the same time, the special aid to West Berlin that West Germany provided, some $12 billion a year, can be phased out, and defense spending may be reduced.
Everything depends on how the East German economy responds to a free-market jump start. Pohl points out that "no one can subsidize uneconomic jobs in the G.D.R. forever." Elmar Pieroth, a prominent West Berlin politician and businessman who advises the G.D.R government, insists, "The spirit of entrepreneurship is reappearing, and people are eager to take advantage of the possibilities." That was the kind of spirit that created the Wirtschaftswunder.