From the ruins of the Third Reich, both halves of divided post-war Germany emerged over the next two decades as the economic powerhouses of their respective European blocs. The unified German economy is now the fifth-largest in the world. The bulk of its production is in the West (the pre-unification Federal Republic). The Western economy has large chemical and car manufacturing plants, mechanical, electrical and electronic engineering, and rapidly growing advanced technology and service sectors in computing, biotechnology, information processing and media. The East’s (former Democratic Republic’s) economy never dominated COMECON, the Soviet bloc Council for Mutual Economic Assistance, in the way that the West’s did the EU, but it consistently recorded the highest growth and per capita income within the bloc.

Reunification illustrated starkly how far the East had fallen behind the West. After initial difficulties, and much pessimistic forecasting, the Eastern economy was absorbed fairly painlessly into the West albeit at considerable financial cost. Among the benefits was a head start for German companies entering the new markets of Eastern Europe. Nonetheless, Germany’s most important trading partners are its fellow members of the EU. Trade with China is on a similar scale to that with several Eastern European nations. The huge expenditure incurred as a result of unification – estimated at US$100 billion – had a knock-on effect on the speed of the German pursuit of economic and political union in Europe as the Government needed to ensure that Germany met the economic criteria (budget deficit, total debt) for entry into European Monetary Union (EMU) and the introduction of the single currency. The high cost of unification and long-term structural problems in the economy (especially the stagnation of key industrial sectors) have put the German economy under pressure since the late 1990s. Entry into EMU has demanded further fiscal discipline and, in 2004, the economy was -1 per cent while unemployment remained close to 0.1 per cent.