Throughout its history, Germany has seen several ups and downs in its economic fortunes. However, one German tradition has lived on, the tradition of making high quality and durable products ever since the medieval times.

In the Middle Ages, Germany was divided into hundreds of competing kingdoms and principalities. Thus economic survival meant competition, collaboration and a high level of understanding between government and the industry. During this “German Experience” An element of savings was also observed

Germans got a taste of the Industrial Revolution much later then their counterparts in Britain. Governments in the many German states promoted industrialization heavily in order to compete with each other. In this time period, two different types of economies emerged, one in the north and the other in the south. The northern states were richer in natural resources compared to the southern states where the idea of cottage industries took hold. Several cartels (known as Konzerne) were formed in the industry.

After the unification and the proclamation of the German Empire, prosperity was observed under Wilhelm 1. The government, both national and local played an important role in the growth of the economy. Although the German Empire faced several faced several ups and downs, on the whole the economy expanded tremendously and thus an economic miracle was experienced. A social compact was also established and social welfare was offered to the laboring classes.

After World War 1, the economic fortunes of the country declined sharply. The 1919 Treaty of Versailles proved disastrous for the German economy. An era of hyper-inflation was followed in the early 1920s causing the value if the currency to crash (4.2 trillion Papiermark to US$1). This was followed by temporary stability and then the Great Depression.

During Hitler’s regime, the economy developed with the help of heavy government subsidies to certain industries. By the time World War 2 ended, Germany lay in ruins. This was followed by several years of bitter experience for the German population.

The new German leaders envisioned a new and different path for the German economy in the ruins. Ludwig Erhard was responsible for shaping a new face of the German economy. He introduced currency reform by replacing Reichsmark with a new currency, “Deutsche Mark”. He abolished the old rules and regulations to pave way for the establishment of a free economy.

A true economic miracle followed in the 1950s. Industrial production and overall GDP rose to levels never seen before and unemployment was down to 1.2 percent in 1960. In 1957 foundations were laid for the Deutsche Bundesbank, a new central bank to oversee the monetary policy.

In the 1960s, the West German economy generally experienced a slowdown in part because of tighter monetary stance of the Bundesbank. 1967 saw the passing of the Law for Promoting Stability and Growth, and increased role of the state in managing the economy. Economic progress was to be measured through four basic parameters: currency stability, economic growth, employment levels, and trade balance. The 70s saw a big rise in social spending and a severe recession due to the upsurge in oil prices. This was followed by less dramatic movements in the later part of the decade.

In 1982, a new coalition government took charge under the leadership of Helmut Kohl. He introduced a policy called “die Wende” (the reversal). This essentially meant reducing government role in the economy. This reinstalled a measure of confidence and thus 1980s proved to be a decade of steady growth and contained inflation.

The reunification in 1990 saw the merging of a capitalist and a socialist economy. As expected a number of serious challenges emerged. The East German economy was highly centralized and had poor infrastructure. The government decided to privatize the 8,000 or so public-owned enterprises through the Trust Agency (Treuhandanstalt). One major issue that emerged was of property rights which saw over 2 million claims being filed. East German productivity was very low and proved to be a major impediment to smooth integration with West Germany. As many economists expected, East German economy went into a deep slump with over 3 million left unemployed within a year after unification. On the other hand, West Germany experienced a slight boom. The Bundesbank took a cautious view and hiked interest rates to curb money supply in the economy. The economy had an overall negative growth rate of -1.2% in 1993. Br 1994, growth in the economy resumed. Germans however were forced to pay a heavy price for reunification and prosperity only returned in the late 1990s.