The East German ‘Debt Crisis,’ the Soviet Union and the West

Because of costly ‘consumer socialism’ and continuous trade deficits with the West, the East German balance of payments crisis aggravated towards the end of the 1970s. Despite all internal warnings and massive Soviet complaints about East German dependence on the West, the concept of ‘Unity of Economic and Social Policy’ remained unchanged, and all measures taken to reach a favorable trade balance – whether this meant reducing imports from or increasing exports to the West – proved insufficient. This paper analyzes the interactions between East Germany and the Soviet Union before and throughout the debt crisis of the early 1980s. Additionally, it sheds new light on how East Germany escaped the fate of bankruptcy prior to 1983. Which trade operations (e.g. oil, grain) created the necessary foreign currency revenue to pay the most pressing credit rates? What role did the so-called ‘Zurich model’ (the project of a huge West German long-term loan in return for humanitarian concessions) play in the East German strategy, before the Strauß loans made it superfluous? How did East Berlin communicate its policy to Moscow and how did the Kremlin’s reaction change over time? By addressing these questions, the paper touches not only the most pressing economic and financial issues of that time but also contributes to our understanding of the further challenges the East German regime had to face in its tightrope walk on the abyss of bankruptcy.