Unified under Otto von Bismarck in 1871, Germany quickly becomes an industrial and colonial power. But under Kaiser Wilhelm, Germany's foreign policy is far less diplomatic, as rising military power and aggression causes tension throughout the region.
The assassination of Archduke Ferdinand triggers World War I. Germany finances the war with bonds, hoping to win quickly and gain territory in the process. But the war bogs down in the trenches, popular support wanes, and by 1918 the politically powerful army allows a more democratic government to take power and agree to a surrender.
The Weimar Republic embraces democratic principles, but successive governments must deal with an economy crippled by war debt, the exacting demands of the Treaty of Versailles, and the decision to print money recklessly to meet these obligations -- problems compounded by the global depression and opponents' efforts to undermine the treaty. Adolf Hitler's National Socialist Party slowly gains popularity.
The Nazis assume power in 1933 and quickly install a fascist one-party state. Government spending on military rearmament and economic self-reliance also brings down unemployment. Nazi courts and internal security bodies act with increasingly arbitrary power, targeting minorities and dissidents. German territorial designs complicate European politics and will trigger World War II.
To sustain the war, the Nazi government further mobilizes the "warfare state." Forced labor and raw materials from captured territories help make up for a shrinking and increasingly unskilled workforce, but the economy can't keep up with the demands of the war. Hitler's "Final Solution" exterminates millions of Jews and other minorities before the turning tide of war brings devastation to Germany.
The victorious Allies divide a destroyed Germany and its capital, Berlin, into four occupation zones. Returning soldiers and other expatriate Germans find few jobs in the devastated cities, and cigarettes and liquor emerge as key forms of currency. Price controls meant to curb inflation worsen shortages instead, until a new currency and the end of controls allows the free market to return.
The Allied sectors form the Federal Republic of Germany (FRG, or West Germany) and the Soviet Zone becomes East Germany. Under Chancellor Konrad Adenauer, Ordoliberal economists in the West create a "social market economy," mixing free markets and generous social programs. With the new Deutsche Mark (DM) and growing world trade, the West German "miracle" begins, helping to drive the European economy.
After millions of East Germans flee to the West, the Berlin Wall goes up, a symbol of the Cold War and a new obstacle to German reunification. Konrad Adenauer is succeeded by his ally, the Ordoliberal economist Ludwig Erhard. But the economic miracle begins to slow, and Erhard resigns in the economic downturn of 1966.
A new government introduces more economic planning, targets, and closer cooperation with labor. The policy works enough to help Social Democrat Willy Brandt take power before the economy falters again. Brandt looks eastward with his Ostpolitik policy, building ties to East Germany and Eastern Europe. In the détente in Cold War tensions, the two Germanys recognize each other and join the UN.
Brandt steps down in a scandal over East German espionage. His Social Democratic successor, Helmut Schmidt, moves the coalition to the center, although social programs continue to grow. The oil shocks worsen unemployment and inflation, and critics argue that the German model cannot adapt to the changing world economy.
Christian Democrat Helmut Kohl takes office. He tries to reduce the size of government through a policy of "reversal" (die Wende). The basic economic approach is unchanged, but a slow privatization trend begins. The Green Party grows in influence, forcing all parties to turn their attention to environmental issues. Economic ties with East Germany slowly strengthen.
The beginning of the end of the Cold War comes abruptly on November 9, 1989, as East Germans pour over the Berlin Wall to drink beer and champagne with West Berliners. Reunification follows just as suddenly a year later. The move is so popular that Kohl returns to power easily, but problems soon emerge as a free market wrestling with high unemployment tries to absorb a rusted-out command economy.
The Maastricht Treaty on European integration begins a new era. A strong proponent of European unity, Germany must now carry out economic reforms required for the single market and common currency even as it wrestles with absorbing the East. European integration pushes the privatization agenda, a politically difficult policy because of people's fear of losing jobs in a time of high unemployment.
An SPD-Green center-left coalition brings provincial premier Gerhard Schröder to power with pledges of economic and social reform and deficit-cutting. But unemployment remains high, and growth is sluggish. On January 1, 2002, the euro, the common currency, replaces the Deutsche Mark (DM), and Germany and Europe move into uncharted waters.
The German economy is stagnant, no longer the motor of Europe. Criticisms of Chancellor Schroeder's inability to spark growth mount, but he survives a strong challenge from the conservative opposition to narrowly win reelection in 2002. The German government and public opinion adopt a marked position against a U.S. war on Iraq. The domestic scene is dominated by unemployment and malaise.
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