Before Strauß : the East German struggle to avoid bankruptcy during the debt crisis revisited

Abstract

Due to costly ‘consumer socialism’ and continuous trade deficits with the West, the East German balance of payments crisis was aggravated towards the end of the 1970s. Declining Soviet support, the tense international situation, rising interest rates and the financial turbulences of other Socialist states (Poland, Romania) made the situation even worse. Facing a Western ‘credit boycott’, in spring 1982 bankruptcy seemed unavoidable to many of the GDR’s economic experts. However, after the adoption of several emergency measures, solvency was secured in the short-run and finally the loans negotiated by Bavarian Prime Minister Franz Josef Strauß in 1983/84 released the GDR from the acute debt crisis. This article revisits the East German struggle to avoid bankruptcy prior to the ‘Strauß loans’. It sheds new light on the regime’s reactions to the ‘credit boycott’ and examines the strategies pursued to secure solvency. Oil and other trade operations with the USSR and certain Western countries created the necessary financial leeway. Since the resulting short-term liquidity came at high costs, the search for new loans continued. Finally, the so-called ‘Zurich model’ and its failure is a good case in point to illustrate the GDR’s aim of surviving the debt crisis without making any major concessions in return.