Show Hide image Europe 2 November 2019 Germany's Thatcherite turn: how privatisation became a flashpoint in East Germany After the fall of the Berlin Wall, the Treuhand state agency was founded to privatise East Germany's state-owned companies. Today, its legacy is sowing division between East and West. By Sumi Somaskanda On a bright autumn Sunday in Crimmitschau, Germany, sun sifted through white-trimmed windows onto the floors of a former textile factory, where a group of locals had gathered for an exhibition. Industrial-scale weaving mills and spools of gleaming thread lined the walls. A few thousand people once worked in the textile industry in this small town in Saxony, in the former East Germany. A series of banners displayed the stories of East Germans who fought to keep factories like this one open in the early 1990s. Organized by Die Linke’s (The Left Party’s) Rosa Luxemburg Foundation, this traveling exhibition focuses on the deeply controversial Treuhand Anstalt, the agency that oversaw the privatisation of the East German economy from 1990-1994. Through individual and collective stories, curator Katrin Rohnstock told me she aims to shed light on the Treuhand’s legacy, and why it is seen here as a symbol for what went wrong with Germany’s reunification. After the tour, over coffee and sweets, locals recounted their own memories of the Treuhand. Brigitte Klima, who worked in the textile industry in the nearby town of Werdau, described how she and her colleagues in the union petitioned to keep their jobs, to no avail. “They intentionally ploughed down everything,” she said, patches of red creeping up her neck as she spoke. “Nobody had the right to take our work from us.” Thirty years after the fall of the Berlin Wall, Germans are locked in a bitter debate over why, although the former East Germany has made dramatic strides in catching up with the West in living standards, wages, and infrastructure, social and political divisions in the region are deepening. Amid that debate, the Treuhand has emerged as a central flashpoint. In the East, the agency is a byword for exploitation and colonisation. Both the far-right Alternative for Germany (AfD), which has soared to new heights in three East German states this year, and Die Linke have demanded a parliamentary inquiry into the Treuhand. It’s been the focus of several documentaries and media investigations and is often painted as the capitalist villain that sold out East Germany’s economy, leaving its people empty-handed. Yet for many economists and those who worked in the agency, the Treuhand worked precisely as intended: it brought a decrepit East German economy in line with the West. At its core, this battle is over who profited from reunification, and who did not. Historian Marcus Böick spent ten years researching the agency and authored a widely-read 2018 monograph, The Treuhand: Idea–Practice– Experience 1990–1994. Among older East Germans, he says the Treuhand has morphed into a powerful and divisive myth. “It’s not that they want a return to East Germany. They definitely see the great advantages of travel and consumption and political participation,” he tells me. “But if you look at the dark side of reunification, the Treuhand is a central piece of understanding where the frustration started.” *** Months after the Berlin Wall fell, as East and West Germany wrangled over what should become of the former Soviet satellite state, the German Democratic Republic (GDR) government created the Treuhand Anstalt as a holding agency to begin the process of transforming the country’s state-run enterprises into market-friendly corporations and publicly traded companies. Wolfgang Seibel, Professor of Political and Administrative Sciences at the University of Konstanz and author of a 2005 book about the Treuhand, describes the agency’s early days as both a legal clearing office and an attempt to protect East German assets from reckless privatisation. East Germans were moving West at an alarming rate – around 750,000 left between 1989 and 1990. Chancellor Helmut Kohl’s speech in Dresden accelerated the road to unity. He arrived in December 1989, flanked by a mob of cameras and a throbbing, jubilant mass of East Germans: they wanted one Germany, and he was the man to deliver it. Drenched in floodlights, the chancellor was visibly anxious as he stood above the ruins of the Frauenkirche and announced: “We are one people.” Kohl would later call this a turning point. Despite objections from British Prime Minister Margaret Thatcher, he decided reunification must come swiftly. Upon that promise, Kohl’s conservative allies won the East’s first democratic elections on 18 March 1990. He pledged to bring “flourishing landscapes” to the East. But East Germans, who were eager to attain Western standards of living as quickly as possible, went back out onto the streets to demand the adoption of the West German currency, chanting: “If the Deutsche Mark comes, we’ll stay; if it doesn’t, we’ll go to it!” Kohl promised a monetary union to stop migration and the GDR adopted the West German Deutsche Mark on 1 July 1990, appreciating the former’s currency fourfold. Companies were unable to pay wages and their products became far too expensive. What was produced wasn’t being consumed, anyway: East Germans were flooding stores to buy European cars, refrigerators, and chocolate. The Treuhand was now tasked with finding investors for more than 8,000 stricken enterprises, with their 4.1 million workers. Their motto, as Treuhand President Detlev Rohwedder described, was “privatise quickly, restructure resolutely, and shut down carefully.” “It was clear from the very outset that what the Treuhand would have to do would have far-reaching consequences, not only on the East German states, but also on the social climate,” Wolfgang Seibel tells me. There were no blueprints to follow. Some in the East derisively referred to Birgit Breuel, an economist who became Treuhand president in 1990, as the “German Margaret Thatcher” – a nod to the prime minister’s privatisation of British public utilities and industries. But the difference in scale was immense. One manager in Marcus Böick’s book boasted that Thatcher needed 10 years to privatise 54 state enterprises; they were averaging hundreds a month. There were voices of caution, including from the former US Federal Reserve Chairwoman Janet Yellen. She co-authored a seminal paper in 1991 prescribing large-scale investment and significant wage subsidies to remedy the East’s deepening economic depression. Hans-Werner Sinn, president of the Ifo Institute for Economic Research and author of the 1991 book Jumpstart: The Economic Unification of Germany, argued that no country could survive a massive sell-off of its economy because prices would hit rock-bottom (which, in line with his predictions, they did). Still, the Treuhand charged forward. Ken Paulin arrived from the management consultancy firm McKinsey in Frankfurt to become the Treuhand’s director of restructuring in 1990. The offices were impossibly cramped; the bathrooms were in unspeakable condition; there were only six telephones for thousands of staff. He says his team weighed up and considered the 120 enterprises entrusted to them as fairly as they could. Some landmark industries were kept intact, and there were notable successes: a sprawling steelworks in Eisenhüttenstadt southeast of Berlin shed thousands of jobs and teetered on the edge of closure, then recovered when a Belgian company took over. Chemicals giant BASF bought a big enterprise in Brandenburg and invested millions. Germany’s oldest chocolate factory, Halloren, survived. Other businesses were subdivided and sold – some for the symbolic price of one Deutsche Mark, in return for investor commitments to retain staff for a few years and invest in rebuilding. More than 3,000 companies were closed. There were worker protests, most notably at a potash mining site in Bischofferode, where miners went on a weeks-long hunger strike in 1993. “What you can accuse the Treuhand of is that we paid too little attention to the people at our companies. We couldn’t. We didn’t have psychologists, we looked at businesses,” Paulin says to me. Nonetheless, he believes the agency made a success out of an unprecedented and deeply complex challenge. And there were no alternatives, he and others insist. *** Could the bitter backlash have been prevented? Gerd Gebhardt believes so. In the mid-1980s, he began gathering a group of like-minded scientists and dissidents at his home in Potsdam outside East Berlin to discuss the troubling environmental and economic decay visible around them. Gebhardt was also writing his doctoral thesis in physics, and he began examining the principle of singularity as it applied to nations. Growth and resource consumption were expanding at an untenable rate, he wrote; based on his predictions, East Germany would implode in early 1988. Unsurprisingly, he was labelled an enemy of the state. The Stasi searched and bugged his home and wrote up detailed protocols on his life. When the Berlin Wall fell, Gebhardt’s group scrambled to draw up their own plan for the country’s future, especially its Volkseigentum, or public property – a central principle in a socialist country. They consulted an inheritance lawyer and decided that East Germans, too, had much to inherit – the buildings, land, apartments, and factories that had been theirs for 40 years. A holding agency would distribute share certificates worth 25,000 Ost Mark. Each and every East German could acquire one to buy property or become shareholders in their factories, where they would hold a 25 per cent stake (foreign investors would take a controlling stake). Like the Thatcher government’s “tell Sid” campaign urging citizens to buy shares of British Gas in 1986, Gebhardt’s group mocked up certificates beseeching East Germans to grab their slice of the pie. “How else could we participate in a new, capitalist system without any seed capital?” Gebhardt says to me. They flew to Switzerland and floated their model to Japan’s Nomura Holdings, who pledged investor support. With that in hand, Gebhardt presented the plan at East German representatives in February of 1990, and it was adopted unanimously. Then, it stalled. The share certificate proposal was watered down in legislation a few months later, referred to only vaguely as the right to public property. At the same time, some of the biggest pieces of pie were disappearing. Shares of the State Bank of the GDR were taken over by West German banks, and the GDR state insurance was sold to West Germany’s Allianz. The currency union then wiped the value of East Germany’s Volkseigentum off the board. *** Gebhardt still lives in Potsdam today, and he is still adamant that his group’s plan, had it been put into place early, would have prevented much of the acrimony between East and West today. His house is pulled back from a busy street, concealed by drooping trees and surrounded by a lush, unruly garden. There is no name on the buzzer. Only after the wall fell did he discover that the Stasi had been spying on his family for years. “None of us whitewashed East Germany or wanted to save it,” he says. “It was primarily about having a say in what happened.” Some economists and historians told me a Thatcherite “tell Sid”-style shareholder plan would never have taken off here. East Germans were fleeing by the tens of thousands, keen to embrace West German symbols of wealth, so there was no stable population of interested shareholders like those in Britain. But economist Hans-Werner Sinn says the model “definitely” could have worked. He points to the joint venture between Volkswagen and Skoda in 1991, where the Czech government maintained a minority share of the company and VW invested in new production facilities. “The big mistake was promising East Germans wages that could never be paid because their companies were dying, and instead selling their property to West German gold-diggers looking for a deal,” he says, adding: “And I’m a West German.” Many economists vehemently deny that assessment. What is clear, however, is that Germany will now mark 30 years since the fall of the Berlin Wall with the divisions between East and West looming as large as they have in decades. Sumi Somaskanda is a contributor to the Atlantic and news anchor for Deutsche Welle in Berlin. Subscribe To stay on top of global affairs and enjoy even more international coverage subscribe for just £1 per month!