Six
From Socialism to Capitalism
Economic and Legal
Problems of German
Unification
Norbert Reich*
i
The speed of revolutionary developments in Central and Eastern Ger­
many makes one forget that the destruction of the old order is but the
first step to recreate democracy, to guarantee human rights, and to re­
construct the economy. Between the revolutionary enthusiasm on the
one hand, and the establishment of a fully functioning economy and
government in the Western sense on the other, there lies a long way
through the desert of anarchy, want, and profiteering — hopefully this
march will not last 40 years as happened to the Jewish people before
they could see the beloved land of Kanaan! Liberals have simple an­
swers to complicated questions: socialist governments had been cor­
rupted by the Communist party leadership, or rather dictatorship,
socialist economies became rotten due to inefficiencies, overstaffing,
and want of innovation, and people were frustrated because they could
not think, move, work, and consume freely as in Western societies.
Some parts of the liberal rhetoric are certainly correct, but it is sur­
prising that the revolutionary changes in the East might also be ex­
plained from a Marxist perspective: a drifting apart of the forces of
production and the property regime of society created antagonistic
conflicts that eventually led to a revolution. Modem technologies, in­
ternational trades and consumer demands pressed against the strains
* Professor of Law, University of Bremen, Germany.
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Bulletin ofAustralian Society and Legal Philosophy
put upon the economy by the system of collective property, state plan­
ning and party control. A dual economy emerged which could not be
reconciled. ‘The chains’ of outdated socialist property regimes had to
be tom apart in order to free the new forces of production. This proc­
ess is not a gradual one, but rather one of conflict The failure of so­
cialism has — an irony in Pashukanis’ legal theory — made socialist
law ‘wither away’. Society faced a legitimacy crisis when the class
character of party domination in socialist countries was discovered.
The Communist Party had lost its avant-garde position in society and
became a parasitic apparatus exploiting society for its members’ privi­
leges (a situation similar to the ruling class in the dncien regime). Just
as Marx anticipated the ousting of the bourgeois ruling class, a ‘revi­
sionist’ Marxist theory would suggest that the ‘nomenklatura’ had to
be thrown out of domination. This involves, however, a difficult and
conflictual process: there is much to lose for party members!
Both perceptions are right and wrong at the same time. They are
right insofar as they stress the importance of the economic crisis in
overthrowing the socialist regimes in the East They are however in
another sense wrong because they have no explanation for the compli­
cated processes of transition which are happening at the moment. Lib­
eralism takes market economies for granted and measures state activity
and mass movements by their proximity to or distance from the attain­
ment of a functioning market equilibrium. Marxism, on the other hand,
had developed, especially in the twenties, elaborate theories of the
transition from capitalism to socialism;1 it obviously cannot explain
the development in reverse.
My reflections will therefore look for a more modest explanation. I
will borrow from theories of corporatism which are based on Max We­
ber’s analysis of the relationship between bureaucracies and markets
and have been fruitfully used by a major British study on governmentindustry relations in Europe.12 The relationship between economy and
state is determined by the point on the continuum between competition
and closure. Developed market economies are usually characterised by
a tightly knit ‘private interest government’. Weber found in his time
that in market economics
1 N. Bukharin, Economika perechodnogo vremeni, Moscow 1921. The legal
theories in the Soviet Union of the twenties have been analysed in my book:
Sozialismus und Zivilrecht, Frankfurt/M 1973. Stalinism brought this fruitful
discussion to an end.
2 M. Wright and S. Wilks (eds), Government Industry Relations, Vol.l:
Comparative Government-Industry Relations: Western Europe, the US and Japan,
Oxford: Clarendon (1989).
76
Economic and Legal Problems of German Unification
...jointly acting competitors...form an 'interest group’ towards
outsiders; there is a growing tendency to set up some kind of
association with rational regulations; if the monopolistic interests
persist, the time comes when the competitois...establish a legal order
that limits competition through formal monopolies. Li such a case, the
interest group has developed into a 'legally privileged group’ and the
participants have become ‘privileged members’. Such a closure, as we
want to call it, is an ever-recurring process...3
Coiporatist theory at first sight only applies to market economies
and bureaucracies administering them. Economies and governments in
transition from socialism to capitalism show different patterns because
there the mechanisms of competition and closure have to be estab­
lished anew. The previous actors in socialist countries now joining
market economies, like firms, bureaucracies and workers, have be­
come ‘decapitated’ by the revolutionary process itself; the once wellorganised interest groups like party apparatus, state planning agencies,
production associations and trade unions are abolished and their mem­
bers’ interests dispersed and individualised. If at all, they only nega­
tively participate in the bargaining process of the transitional period.
Perhaps they may prefer the reversal of the process of closure, as
M. Weber has described it for capitalism, to the complete openness or
even anarchy in the period of transition.
This process is therefore characterised not only by a breakup of so­
cialist economy, government and law in the ‘macro level’, but also by
a destruction of the cooperation and concerted mechanisms on a
‘meso’-level which made living conditions to some extent bearable un­
der socialism even in times of greed and want. New bargaining pat­
terns have to be arranged, and this will take some time.
n
As far as Germany is concerned, there have been certain peculiarities.
The vacuum left in East Germany after the overthrow of the old Stalin­
ist 61ite was quickly filled by the organised interest groups of the West.
This is certainly true for political parties and for business and former
property owners. West German labour unions have moved only slowly
into the East, while the old East German unions lost any influence in
worker representation due to their affiliation with the former power
dlite. The very success of the democratic revolution in East Germany
led to a complete destruction of the bargaining structures which had
3 M. Weber, Economy and Society: an outline of interpretive sociology, Bericeley:
University of California Press (1978), p. 342.
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evolved under socialism. As a result East German interests were not
adequately represented in the ongoing negotiations on economic, po­
litical and legal union with West Germany. The East German govern­
ment, after the March elections of 1990, had a mandate from the
people of the East but de facto acted in the interest of the West. As will
be shown, the very fragile organisations of the Runde Tisch which
emerged in 1989 did not play a decisive role in the later unification
and restructuring process. The possibility of an (East-) German ‘Sonderweg’ was therefore rejected due to the absence of an interest aggre­
gation mechanism. This was conclusively demonstrated in April 1990
when the newly elected East German Parliament did not even debate
the draft constitution prepared by the Runde Tisch. Later changes in
economy and government imposed ‘from above’, i.e. by West Ger­
many, were first the introduction of deutsche Mark (Staatsvertrag of
May 1990) and then the imposition of the political and legal system of
West Germany (Einigungsvertrag of August 1990).
Unfortunately, Germany is another example of the defects in the
liberal rhetoric which favours the transformation of ‘socialist economi­
es’ to the imperatives of the market by applying a ‘shock therapy’.
Notwithstanding the fact that the West German government has under­
written the unification experiment, privatisation has proven to be diffi­
cult. East German factories have been shut down, workers have lost
their jobs, investment in the East is still low but migration to the West
high, and redundancy payments are increasing. Some tell us that this
process will be over in a short time, others are convinced that it will
never end; East and West Germany may be politically and legally
united, but socially and economically they are separate.4 Will East
Germany be the ‘mezzogiomo’ in Central Europe?
Our observations will focus on specific legal aspects of the German
unification which have been set out in the two above mentioned trea­
ties. We will explain their basic structure and flaws, as far as economic
transformation and integration of the East in a market system are con­
cerned. This process would be inadequately described if we were to
omit an analysis of the consequences which flow from the complete in­
tegration of die former GDR into the EC.
4 The best documentation of die economic problems of the German unification
process can be found in the OECD Economic Report on Germany, 1991.
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Economic and Legal Problems of German Unification
m
German unification was effected, as mentioned above, by two impor­
tant documents. The fact that they successively came into force within
such a short time leads one to forget that their basic approach is differ­
ent The first wanted to create an economic union introducing market
mechanisms; it envisaged a certain transitional period in which the old
system could gradually adapt to market economy. The second wanted
to introduce West German law to the ‘Easton territories’ as quickly as
possible, subject to some transitional provisions. This difference in ap­
proaches, which was the result of the German political debate in the
summer of 1990, prevented a consolidation of East German economy
under new market conditions. It is partly responsible for its complete
dilapidation. An economic crisis in the East was provoked at a time
when the West German economy was booming. This crisis is, in my
opinion, not just a temporary one, as the liberal rhetoric would have us
believe, but a structural one, and will continue to divide Germany on
an economic level for the years to come. Let me give some examples;
1. The Treaty of May 1990 acknowledged that a whole array of
transitory arrangements were necessary to integrate the GDR economy
in the Western (including the EC) market systems. On the other hand,
at this time the East German government took rather radical steps to
get rid of the old system. The most important step was taken by the
Act of 17 June 1990 which submitted all socialist enterprises to the
control of the Treuhand, a holding company of the state whose task it
was to restructure and privatise the economy. The original law was
somewhat ambiguous as to whether preference would be given to pri­
vatisation or to restructuring, but it was clear that a separate and func­
tioning East German economy should be preserved, always under the
imperative of a market system and policed by the introduction of the
DM-Maik. The drafters of the Treaty of May 1990 were very well
aware that this process would cause tensions; therefore, West German
and EC Law were not immediately introduced (with some exceptions
relating to regulations on corporations, financial transactions, con­
sumer protection and the like). Art. 14 provided for structural meas­
ures to adapt socialist firms (under the Treuhand regime) to market
economies, e.g. by writing off debts which were incurred under the old
regime and by trading in hard currency under the new system. Such re­
lief was not directly granted by the Treaty but could at least be envis­
aged under Art. 14. Another measure to restructure the economy
involved the granting of state aid to enterprises which, despite their fi­
nancial problems caused by the monetary union, could still survive.
Such measures are quite ‘popular’ (yet costly!) in critical sectors of the
West German economy which have strong support from special in-
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terest lobbyists, including the shipbuilding, steel manufacturing and
coal mining industries.
The same caution of the Treaty negotiators, suggesting that they
were still on nearly equal terms and that a bargaining process was go­
ing on, can be seen as far as external relations of the old GDR econ­
omy were concerned. Owing to the fact that the East German economy
was highly integrated into the former Comecon, and that more than
half of its external trade was with ‘socialist countries’, there was con­
siderable concern that these markets should not be lost after the intro­
duction of an economic union between the two Germanies. Art. 13
therefore spelled out the continuation of ‘the incurred foreign trade ob­
ligations’ of the GDR. It established a principle of good faith protec­
tion. It was clearly preferable that the cooperation between the East
German government and foreign companies that have been trading
with the East should continue, and this was made possible after the in­
troduction of the deutsche Mark as official currency. The Treaty obvi­
ously did not want to disturb existing corporate arrangements.
2. The Treaty cm unification, concluded only three months later,
took a different approach to transitional arrangements. It does not, as
had been suggested in a socio-legal conference of ZERP with partici­
pants from Eastern and Western Europe in the beginning of 1990,3
pave the way for an autonomous reshaping of ‘socialist’ law into civil
rights, democracy and market conditions. It is on the contrary a mere
conflict of law instrument which wants to impose West German law as
quickly as possible onto the East and to leave only that little of East
German law in force as is necessary for the transition and to alleviate
pressure on the government brought on by controversial issues, such as
the abortion question. The Treaty is concerned with legal unification,
not with economic transition and recovery. This paradigmatic change
is really at the heart of the plight of the East Germany economy. Let
me give some examples:
The basic principles underlying legal unification in Germany have
been spelled out in Articles 8 and 9 of the Treaty: West German law
will take direct effect in East Germany or the newly formed Lander at
the date of their entry into the Federal Republic (Beitritt) unless there
are specific transitional arrangements (e.g. in the administration of jus­
tice, social security etc.) (rule of prevalence). East German law is only5
5 V. Gessner & A. Httland, Rezeption westlichen Rechls oder aulochlone
Rechtsgestaltung in der DDR und in Osteuropa, Zentrum fur Europdische
Rechlspolitik (ZERP) DP 1/90.
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Economic and Legal Problems of German Unification
applied where it is compatible with West German and EC law unless
otherwise provided for in the Treaty (rule of subordination).
We cannot go into the details of this far-reaching principle. As far
as the restructuring of the East German economy is concerned, Art. 25
of the Treaty confirmed the legal status of the Treuhand as a public
agency holding what was left of former socialist enterprises. It has as
its task to structure in a competitive way and to privatise the former so­
cialist (‘volkseigene’) firms. The legislator made sure that the Treu­
hand could not suddenly develop into an interest group lobbying and
acting on behalf of East German firms and labour in the process of re­
structuring and privatisation. Its status makes impossible a direct input
of the interests of the firms or workers managed by it. Control over
Treuhand’s policy, budget and personnel was assured by the Minister
of Finance, thereby limiting its autonomy. Treuhand was not, as the
word suggested, a ‘trustee’, but the chief of the East German economy.
As a consequence, the liberal rhetoric towards a competitive re­
structuring, or rather privatisation even at the risk of a complete col­
lapse of the East German economy, became at first the dominant
ideology of the Treuhand. East German firms were subjected to com­
petition without the protective arrangements of corporatism which
their West German counterparts enjoyed due to intense lobbying and
bargaining. It comes as no surprise that the Minister of Finance would
reject subsidies in favour of East German brown coal pits which at the
same time he handed out so generously to the West German coal
mines — despite problems with the subsidy codes of the EC and of
GATT. This example shows the discrepancy between the dominant
liberal rhetoric and the coiporatist practice in Germany.
On the other hand, Treuhand injected considerable sums of money
into redundancy payments arising under other provisions of the Treaty
because of unemployment or short-time labour brought about by the
very activity of Treuhand itself! These transfer payments became an
alimony to allow some level of consumption to East German citizens
who had lost their jobs but had to be welcomed in the consumer soci­
ety of the West. At the same time, West German (to a lesser part EC)
industry and trade profited from the spill-over effects of these trans­
fers. While factories of consumer goods were closing down in the East,
their counterparts in the West had to work overtime to satisfy demands
from the East and sometimes even employ workers migrating from the
East to the West!
It should be mentioned that Treuhand, coming under increasing
pressure especially from labour unions, has had to somewhat modify
its approach recently. A strategy allowing firms to survive with the ac­
tive help of Treuhand is not completely ruled out today, especially
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Bulletin ofAustralian Society and Legal Philosophy
when managers and workers of a company want to take over the firm.
We do not know whether these modifications are capable of overcom­
ing die plight of the East German economy. It is interesting to show
that, once the period of cut-throat competition and destruction of the
capital stock in the East is over, corporatist arrangements may emerge
anew, though on disadvantageous terms for East German citizens com­
pared to their more privileged ‘compatriots’ in the West.
IV
In the liberal rhetoric, an important part in the transition from social­
ism to capitalism is played by the privatisation of former socialist
firms. It can take two directions: the return of seized property and the
sale of forma’ socialist firms to private tenderers.
Liberals have most frequently insisted on the first, claiming natural
justice and the protection of property rights under the German Funda­
mental Law which however is applicable to the Eastern territories only
since 3 October 1990! Their short tom victory may prove to make the
second pillar of liberal ideology, namely privatisation, more difficult:
1. The May Treaty again handled the restitution issue with some
caution. It provided for a procedure which would have postponed it
The drafters realised that the restitution of property might create in­
vestment barriers and that it should not necessarily follow the classical
liberal principles as laid down in Art. 14 of the German Fundamental
Law, i.e. restitutio in integrum and at full market value.
The Unification Treaty was much more to the liking of the liberals
after they had put up considerable pressure to have the restitution issue
settled on their terms and after resistance in the East had lessened. A
Joint Declaration attached to the Treaty provides for restitutio in inte­
grum, but makes some reservations for property possessed in good
faith and for public use. The most important qualification concerns
property seized before 1949 by the occupation forces where restitution,
upon the insistence by the Soviet government, was completely ex­
cluded. The issue was brought before the Constitutional Court by the
parties whose properties were seized (the old Eastern nobility, factory
owners etc.). The Constitutional Court, in its judgment of 23 April
1991,6 rejected the argument of unconstitutionality of this provision. It
suggested however that the government provide for some (but not full)
compensation.
6 Published in Neue Juristische Wochenschrift (NJW) 1991, p. 1S97.
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Economic and Legal Problems of German Unification
Former owners of property socialised, collectivised or seized after
1949 are entitled under Art. 41 of the Treaty to restitution as far as it is
possible or alternatively to compensation.7 This has created and will
continue to create enormous administrative problems to a not yet func­
tioning bureaucracy (more than 1 million claims are pending before
East German administrations). These claims are a considerable disin­
centive to investment because no new investor can be sure that he or
she will not one day face a claim by a former proprietor. A special Act,
the Vermogensgesetz, which was amended in March 1991 to eliminate
barriers to investment,8 9has provided for a temporary procedure to as­
sure priority to investors and to avoid claims of former owners, if the
property acquired is used to create employment, infrastructure, or
housing (so called ’Vorfahrtsregelung')? Since every application has
to be handled individually and allows for opposition from the former
owner, this will cause at least a temporary investment backlog.
2. The privatisation measures were left to the Treuhand which, by
the middle of 1991, reports having sold more than 2,500 firms at a to­
tal price of DM 10 billion, with still another 10,000 with 3 million em­
ployees in its stock. Obviously there has been a handpicking of the
most profitable firms by investors, while the less profitable ones will
either have to be broken up or completely liquidated. The Treuhand
was slow to accept a mandate to restructure firms by providing tempo­
rary aid, cancelling former debts, taking over environmental charges
stemming from the old regime, etc. At the same time, money needed
to encourage investments went into considerable redundancy pay­
ments.
3. It is also notable that the Treaty makes no provision on special
measures to be taken in order to speedily improve the neglected infra­
structure in the East, e.g. in the areas of transportation, communica­
tion, housing and environment. In the whole bulk of detailed
transitional provisions of the Treaty, there are only two vague provi­
sions relating to infrastructure: one concerns the participation of the
former GDR in the regional aid fund system of West Germany (Art.
28), the other relates to the environmental policy (Art. 34). The former
at least recognises the need for structural adaptation measures during
7 For an overview to the English speaking reader cf. M. Thomerson, “German
Reunification — The Privatization of Socialist Property in East Germany’s Path to
Democracy”, Georgia J. oflnt. and Comp. Law (1991), pp. 123-147.
8 Artikelgesetz of 22 March 1991, BGB111991, p. 766.
9 Cf. details in J. Rode°ra & M. Gogrewe, Zum Unternehmenskauf in den neuen
Bundeslandern, Deuisch-Deutsche Rechtszeitschrift (DtZ) 1991,p. 353.
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the period of transition. It encourages the preparation of specific, indi­
vidual programmes for economic growth and structural change, but
does not create any global approach administered by a special author­
ity supplementing the action of Treuhand.
V
The imposition of the West German legal order on the East implied at
the same time also the direct applicability of EC law. The dilemmas
created by this ‘double entry’ are based on a deliberate decision by the
German government and were not imposed by EC law.10 11
Let us give
some examples
1. The EEC Treaty allowed for three ways of the framer GDR to
become integrated in the EC:11
(i) Art 237 gives any European State a right to apply for member­
ship. The assent of the European Parliament and the ratification of the
accession treaty by Member States’ parliaments are necessary. This
procedure was used by Spain and Portugal and will be used again in
deciding the applications of Austria, Sweden, Finland, and Switzer­
land. It requires the continuing existence of a sovereign state — an op­
tion ruled out for the GDR after the March elections of 1990.
(ii) Art 236 allows the government of any Member State or the
Commission to submit to the Council proposals for the amendment of
the treaty. This procedure was used to adapt the Community to major
territorial changes of its Member States, e.g. in 1956 when the Saar re­
gion was given back by France to Germany, or, in 1985, when Green­
land left the authority of Denmark. The advantage of this procedure is
its more democratic character due to the ratification requirement (the
assent of the European Parliament is not necessary), and that the
Treaty can be amended to allow for adequate transition arrangement;
its disadvantage however is a time-consuming negotiation and ratifica­
tion process. It was suggested by this author that this procedure be
used to allow a smooth and democratic integration of the socialist
10 This was discussed in a ZERP conference of June 1990 of researchers of West and
East Germany, cf. N. Reich & C. Ahrazoglu (Hrsg.), Deutsche Einigung und
EG-Integration, ZERP DP 60/90.
11 Cf. the discussion in E. Grabitz & A. Bogdandy, Deutsche Einheit und
Europdische Integration, NJW 1990, pp. 1073-1079; Chr. Tomuschat, "A United
Germany within the EC”, Common Market Law Review (CMLRev) (1990), pp.
415-436; C.W.A. Timmermans, “German Unification and Community Law”,
CMLRev 1990, pp. 437-449; B. Kohler-Koch (ed.), Die Osterweiterung der EG,
1991.
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Economic and Legal Problems of German Unification
economy of the GDR into the EC without submitting it immediately to
the full impact of the EEC Treaty.12
(iii) The majority of legal writers,13 backed by the Resolution of 28
April 1990 of the Council of the EC Heads of State and Governments
in Dublin,14 opted for the theory of ‘moving frontiers’ used in interna­
tional law to extend treaties to newly acquired territories of contracting
parties. Thereby, the former GDR was simply taken over by the Fed­
eral Republic without the latter changing its identity. According to Art.
227, which states that the ‘Treaty shall apply to...the Federal Republic
of Germany...’, this was to include the newly acquired territories of the
forma1 GDR.
We will not argue here what theory was right or wrong, even
though we express some scepticism toward the third theory because of
its obvious fictitious and undemocratic character. It should however be
kept in mind that the German unification was not decided on legal, but
on political grounds. Therefore, Art. 227 proved to be the easiest in­
strument to integrate the GDR into the EC without protracted negotia­
tions and volatile democratic proceedings.
As a consequence, Art 10 of the Unification Treaty spells out the
principle that EC law will be directly applicable in East Germany after
unification. The German government did not negotiate for comprehen­
sive transitional arrangements, but left the initiative to the Community.
Some adaptation measures were proposed and enacted by the Commis­
sion in a simplified procedure,15 e.g. concerning agriculture, product
standards, mutual recognition of diplomas. Certain substandard prod­
ucts can still be produced, but can only be circulated in the former
GDR until the end of 1992 (1995 in the case of medicines).
One should compare this absence of express transition provisions
with the Treaties of Accession concluded by the EC with Spain and
Portugal. It took three years to negotiate and 300 pages of the Official
12 Reich, “Deutsche Einigung — Kein Problem der EGT, Zeitschrift fiir
Sozialreform, (1990), pp. 267-273; in a similar sense J. P. Jacqu6, “German
Unification and the EC”, European J. of In!. Law, (1991), pp. 1-17; criticism is
voiced by P. Chr. Mttller-Graff, "Deutsche Einheit und europdische Integration —
aus recktlicher und rechtspolitischer Sichl", in: Kohler-Koch be cit, pp. 28-41.
13 Cf. K. Hailbrotmer, “Legal Aspects of die Unification of the two German States”,
European J. oflnt. Law (1991), pp. 18-41; ibid, “Das vereinle Deutschland in der
Europdischen Gemeinschaft”, DtZ 1990, pp. 321-329.
14 Cf. the German text: Falke, in: Reich & Ahrazoglu, loc cit at footnote 10, pp.
28-29.
15 Document of the EC-Commission Com (90) 400; Official Journal (OJ) of the EC,
L 353 of 7 December 1990.
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Bulletin ofAustralian Society and Legal Philosophy
Journal to record! East Germany had to adapt to EC law overnight,
having only associated with the EC since the spring of 1990. Again
there was no bargaining power left to East Germany to protect its
economy and labour from the direct effects of the imposition of EC
law. On the other hand, the situation was different for the Spanish and
Portuguese governments who negotiated in close cooperation with all
interest groups, associations and trade unions, to allow for a smooth
adaptation of the economy of these countries to the imperatives of an
Internal Market.
Two examples will make clear what this lack of transitional ar­
rangements means to the GDR economy:16 17
1. The EEC Treaty contains very detailed provisions on state aid in
Art 92 et seq. Without going into details the basic principle is that aid
is not per se forbidden but has to conform to certain substantive crite­
ria under Community law and must undergo a clearance procedure.
State aid must be notified to the Commission; there is an unspecified
standstill period before a state aid measure can be put into effect
Due to the imperatives of the Internal Market, the Commission has
become more and more critical towards the granting of state aid and
has brought several proceedings against Member States, in many cases
insisting on repayment. Most actions were won by the Commission be­
fore the European Court of Justice. The Commission and the Court
have especially insisted on the strict observation of the notification and
standstill provisions to allow an effective ex ante-control over state aid
in order to avoid distortions of competition.
While it is quite probable that aid, paid out by the Treuhand or by
some other East Goman agency for the purpose of restructuring East
German firms to make them fit for market conditions, would qualify
for an exemption under Art. 92 (3) c), the notification and standstill re­
quirements impose a considerable workload either on the Treuhand or
on the East German Lander, thus creating an additional investment
barrier.
In its decision of 18 September 1991, the EC-Commission specified
the criteria for applying the state aid rules to the activities of Treu­
hand.11 It insisted that the restructuring measures necessary to adapt
16 We borrow from an analysis that had been done in another context, but is also
applicable to East Germany: H. Micklitz & N. Reich, Legal Problems of European
Space Activities (1989), questioning the possibility of an autonomous national or
international industrial policy under the EC internal maiket and state aid roles.
17 Cf. the article by P. Schtttterle, EG-Beihilfenkontrolle iiber die Treuhandanstalt,
Europdische Zeitschrift fir Wirtschaftsrecht (EuZW) 1991, p. 662.
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Economic and Legal Problems of German Unification
the East German economy to market systems, including preservation
of employment or the improvement of regional structures, do not as
such qualify for an exemption from the applicability of state aid rules.
The Commission used a broad definition of aid, as developed in the
practice of the Court of Justice. This definition includes the injection
of equity capital and the granting of loans under preferential terms to
shaky firms from the former socialist regime, which without such aid
could not be privatised. It would also comprise subsidies for direct em­
ployment measures, as proposed by the OECD.18 On the other hand,
the liberation of the privatised firms from debts incurred under the old
regime and from potential environmental risks will not be regarded as
aid. In any case, the Treuhand must strictly fulfil its reporting obliga­
tions, thus creating procedural barriers to quick investment and re­
structuring decisions which are needed in the interest of the East
German people.
2. Another area in which EC law becomes important for a Keynes­
ian-like restructuring of the East German economy is public procure­
ment. EC law has been quite aggressive in opening up public works,
supply, utilities and services markets for EC-wide tender if a certain
threshold is reached. In addition to these requirements which again
cannot be spelled out in detail the Court applies the principles of non­
discrimination on grounds of nationality by procurement practices, as
they have been developed under the free movement of goods and serv­
ices rules, (Art 30 and 59), thus preventing favouring home industries
in tenders for public works. Therefore, the Court struck down an Ital­
ian provision which reserved 30 percent of public supply contracts to
firms located in a particular region.19
Any Keynesian-type of recovery policy through public works ne­
cessitates, however, that local tenderers be given privileged access to
public markets to stimulate investment and employment where the
work is undertaken. This would mean for East Germany that undertak­
ings established there should get preferential treatment in tenders con­
cerning improvement of, e.g. infrastructure in East Germany. Such a
rule would help create employment in the East and stop migration of
workers to the West On the other hand, it runs contrary to EC policy
and law under the Internal Market perspective.
18 Loc cit at footnote 4, p. 124.
19 Case C-21/88, judgment of 20 March 1990, (1990) European Community Report
ECR1-889 - Carrara.
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It is not suggested that EC rules be completely changed in such a
way as to always allow for a preferential treatment of tenderers estab­
lished in East Germany. But it is certainly conceivable that East Ger­
many be granted a temporary exemption from the application of the
EC procurement rules.20 Such an exemption would probably be
strongly resisted by the other Member States and by the Commission
itself because it runs counter to cherished principles of competing in
the Internal Market at any price. Therefore, the introduction of tempo­
rary relief measures favouring East German tenderers would require
exerting some bargaining power by the German government working
together with East German firms, trade associations and trade unions.
The break-up of corporatist arrangements in the East has made such al­
liances nearly impossible. The government, still under the dominant
influence of liberal ideology, will not take up the issue itself. As a con­
sequence, public procurement in the East will have to follow EC rules
and thereby continue the paradoxical effects of public works being un­
dertaken in the East, while investment, employment, and profit making
are reserved to the more competitive Western firms, which in turn will
probably employ migrant workers from the East!
VI
Let me close my remarks by citing from Harold Laski’s21 now classical
critique of liberalism which, of course, referred to its 18th and 19th
century protagonists, but still contains an element of truth to explain
the inherent dialectics of today’s transition processes from socialism to
capitalism:
As a doctrine, (liberalism) was, effectively, a by-product of the effort
of the middle class to win its place in the sun. As it achieved its
emancipation, it forgot not less completely than its predecessors that
the claims of social justice were not exhausted by its victary....Hie
liberals...had only a negative theory of the state; to than, for quite
intelligent reasons, it was a tyranny from which they sought an escape.
After their victory, they saw it either as a means of protecting
themselves from invasion from below, or as, somewhat later, a
technique for distributing such concessions to those who challenged
their supremacy as might enable them to maintain it unchanged in its
larger outlines. To the demand for justice they replied by the offer of
charity.
20 Cf. Art 28 (2) of Directive 90/551 of 17 September 1990, OJ L 297 of 29 October
1990 on procurement for public utilities.
21 The Rise of European Liberalism (1936), pp. 258-259.
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