CHAPTER 9
PUBLIC SURPRISES HAVE private histories. The fall of the Berlin Wall shocked the world on November 9, 1989, and people have debated the history of this stunning event ever since. Most often they have searched for its causes in the public histories of the time—the mass protests, mass emigration, ideological crisis, and rhetoric of protest that defined the final months of the German Democratic Republic (GDR). Nothing signifies this focus on public histories more than the widespread use of Albert O. Hirschman’s Exit/Voice/Loyalty model to explain the GDR’s collapse. Published in 1970, Hirschman’s book, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, put forth a sociological model for explaining how people respond to declining performance in organizations. Hirschman posited that members of an organization can respond to a decline in performance in three ways: leave the organization (Exit), protest to reverse the organization’s decline (Voice), or keep their behavior constant (Loyalty).1
In the summer of 1989, Hirschman’s model appeared to receive a real-world test in the dramatic dénouement of East Germany. Beginning in May, East German citizens, fed up with the indefatigable deterioration in the performance of their government, sought to express their dissatisfaction and chose Hirschman’s methods to do so. By the thousands, they left the GDR and headed for Hungary, where, on account of austerity pressures, Miklós Németh had dismantled the “Iron Curtain” border fence between Hungary and Austria and would soon open the border to East German emigration. As the Exit portion of Hirschman’s model suddenly appeared, the Voice component quickly followed. In September, groups of protesters gathered every Monday in Protestant churches in Leipzig and Dresden. At first called “peace meetings,” these gatherings soon grew into mass protests throughout the GDR calling for political and economic reform. With the pressures of Exit and Voice mounting as the Wall opened on November 9, it was only natural that observers drew connections between the forces at work in Hirschman’s model and the government’s ultimate capitulation.2
This chapter flips Hirschman’s model on its head. Instead of focusing on the public choices available to the East German population, it is structured around the private choices available to the East German government. Exit, Violence, or Austerity: these were the three strategies of governance available to the East German communist party (SED) in 1989. As its citizens fled to the West through Hungary and mounted protests on the streets of East German cities, the SED leadership could either officially sanction their emigration (Exit) or forcefully suppress the protests and restrict travel (Violence). Hanging over each strategy was the looming prospect of national insolvency and a default on the country’s debt to its Western creditors. In order to prevent such a development and maintain the country’s creditworthiness on international capital markets, the government estimated it would have to cut living standards by 25–30 percent in 1990 (Austerity). The East German leadership accepted Exit and hesitated to use Violence because it viewed Austerity as the worst option and actively tried to avoid it. In choosing Exit, the leadership believed it could extract new loans from West Germany in exchange for opening its borders. In refraining from Violence, the leadership knew that if it cracked down on protesters in the streets, it would lose all access to the Western capital upon which the country heavily depended.
The leading historical accounts of the fall of the Wall and the collapse of the GDR stress the role of accident, contingency, and the power of local actors in bringing these stunning events to fruition.3 For fear of adding to the triumphalism that accompanied the Cold War’s end in the United States, they are also wary of any claim that Western hard power played a significant role in the GDR’s demise.4 While not denying the importance of contingency and local actors, this chapter attempts to recover an understanding of the sources of Western power that influenced the collapse of the GDR without partaking in triumphalism. It focuses on the most important leverage Western political and financial institutions had in the late 1980s—money—and fully recognizes that this leverage more often than not produced consequences Western actors did not foresee or intend. With this leverage in focus, it becomes clear that the United States government indeed played only a minor role in the collapse of East Germany, but other centers of Western political and financial power—namely, the West German government of Helmut Kohl, the International Monetary Fund (IMF), and the global financial system—played critical roles in undermining the GDR’s sovereignty, stability, and, ultimately, existence.
Through the two billion-mark loans from the West German government in 1983 and 1984, East Germany returned to financial stability by the middle of the decade. To bolster the country’s creditworthiness, Alexander Schalck-Golodkowski, leader of the Kommerzielle Koordinierung (KoKo) division, and Günter Mittag, the SED’s chief economic official, decided to place the loans on deposit with Western banks instead of using them to pay for new imports. The actions of West German chancellor Helmut Kohl made it clear that the GDR had a new, very rich lender of last resort in place of the Soviet Union, and financial markets responded with enthusiasm. With hard currency in its bank accounts and a new Western financial umbrella to stand under, the GDR regained easy access to Western capital markets in 1984.
But with the financial crisis of the early 1980s fresh in their minds, Mittag and Schalck knew the country’s problems were far from solved. Most importantly, the debt level needed to recede if the country was to maintain its independence from the Federal Republic. To foster a sense of urgency in the bureaucratic ranks, Schalck and Deputy Finance Minister Herta König devised a financial model that fudged the nation’s finances to make the situation appear worse than it actually was. They hoped that by painting a dire picture, they could spur an increase in economic performance, particularly in the all-important area of exports to the West. Even if the model did not do this, Schalck and König believed that it would still ensure the nation’s solvency by holding hard currency secretly in reserve.
This new Schalck/König model relied on one simple trick—altering interest rates. During the GDR’s most dire months on the brink of bankruptcy in 1982, it had been forced to borrow money on a short-term basis at a very high rate of interest.5 After the loans of 1983 and 1984, however, the GDR was once again able to get long-term loans from Western banks at lower interest rates. The Schalck/König trick was simply to pretend that the loans had done nothing to lower the GDR’s borrowing costs. Then, when Gerhard Schürer, director of the State Planning Commission, went through his annual process of devising the national economic plan, he would calculate the national debt based on the inflated interest rates provided by Schalck and König. From this one change, two vastly different pictures of the GDR economy emerged: one from Schürer and the other from Schalck and König.6
If knowledge is power, then the Schalck/König model significantly concentrated power in the German Democratic Republic. Because the model created a small circle of people with an accurate view of the economic situation—in the mid-1980s, likely only Honecker, Mittag, Schalck, König, and the Stasi head, Erich Mielke—it delegitimized any criticism of the economic situation from outside this small circle. Each year for the rest of the decade, Schürer and the planning commission produced the same wildly optimistic plans for exports and imports in order to make the debt recede on paper. And each year, when the numbers inevitably failed to materialize, Schalck and KoKo would step in with roughly 2 billion valutamarks from the secret KoKo accounts to cover the remaining balance.7 With no sense of the real economic situation and, for the moment, no real threat of insolvency if performance targets were not met, the East German nomenklatura resisted fundamental change, and Honecker refrained from applying pressure for reform.
As it ate away at the internal workings of the East German state, this false sense of security also fueled Honecker’s resistance to Gorbachev’s perestroika and glasnost in the Soviet Union. The content of Honecker’s criticism of Gorbachev’s reforms was both practical and ideological. Practically, Honecker believed—and indeed rightly foresaw—that Gorbachev’s attempt to modernize the Soviet economy would lead to significant shortages in the domestic supply of food and consumer goods.8 Ideologically, the implications of the politics of breaking promises that underlay perestroika contradicted everything Honecker had been building under his hallmark initiative, the Unity of Economic and Social Policy, since the early 1970s.
Underlying Honecker’s criticism was a confidence grounded in his sense that the East German economy suffered from none of the ills hurting the Soviet Union. In his view, economic problems did not exist in the GDR, and even if they did, any attempt to solve them would incite social unrest and damage the legitimacy of the SED. As long as he had the Schalck/König model’s assurances of solvency, he could afford to avoid the political risks associated with the reforms taking place in the Soviet Union, Poland, and Hungary.
Although the Schalck/König model’s interest rate trickery gave the East German economy a great deal of leeway in meeting its performance targets, it still relied on the achievement of one very hard economic fact: a significant annual export surplus. If the East German economy failed to produce more than it consumed, no amount of accounting deception would save it from eventual insolvency. After the crisis years of 1980–1983, the country’s Western trade performance had not met the aggressive targets set by the State Planning Commission, but trade surpluses had comfortably been achieved, going from VM 647 million in 1981 to VM 4.94 billion in 1985.9
Then the price of oil collapsed on world markets in the last two months of 1985. By that time, mineral oil refined from subsidized Soviet crude oil was the GDR’s most important export to the West, so the collapse in energy prices was particularly damaging to East Berlin. In 1985, the GDR earned VM 2.5 billion from its mineral oil exports to the West, but that number dropped to 1 billion in 1986 and 900 million in 1987.10
The oil price collapse quickly changed Schalck’s tune regarding the airtight assurances of national solvency he had been presenting in the Schalck/König model. Before the price collapse, in mid-September 1985, he and König presented a confident update of their model to Mittag. The nation, they assured their boss, would still be solvent at the end of the decade.11 By March 1986, they were far more uncertain. Rather than assuming a VM 4 billion annual trade surplus, as they had the previous year, they were now forced to assume an annual trade surplus of VM 1.2–2 billion. As they wrote, “Compared to projections submitted earlier there is a significant deterioration.” Instead of declining by 1990, the national debt would grow by VM 4.4 billion to VM 31.6 billion. Such a development would leave the country open to the volatility of international capital markets, and one external shock from an unforeseen event might cause Western banks to stop lending to the GDR. Therefore, they believed a dramatic change in the country’s economic performance was now necessary. If the rise in the debt was to be prevented, it was “essential” that “exports to the West receive a different status in the material distribution of the economy.”12
Since the early 1970s, Eastern Bloc states had been trying unsuccessfully to produce globally competitive goods by importing Western technology. So far, it had failed in every country in which it had been tried, including the GDR. But with the leadership unwilling to consider cutbacks in East German living standards as a means of balancing the nation’s books, growing the economy out of its debt problem was left as the only option. Therefore, in a series of Politburo meetings in May and June 1986, the leadership decided to make another attempt at importing Western technology on credit. The East German microelectronics and computing industry would be one of the biggest recipients of these investments. As Silicon Valley began its ascent in the United States in the 1980s, the GDR leadership—and Mittag, in particular—believed the country could be the Silicon Valley of the socialist world.13
It fell to Schalck and Schürer to figure out exactly how to make this happen. Because KoKo maintained large hard currency deposits and good relations with Western banks, Schlack proposed that it take out the loans independently from the East German state. The imports, Schalck wrote the leadership, would “be provided to companies as interest-free credits” and would not “burden the balance of payments from 1986–1990.”14 Of course, KoKo would have to repay the loans at some point in the future, so the East German state would eventually have to pay them off. Under Schalck’s plan, the day of reckoning would not come until 1991, giving the technological investments time to generate the hard currency required to pay off the debt. Ghosts of the failure of this strategy during the 1970s in Poland, Hungary, and the GDR itself haunted the proposal, but with nowhere else to turn, Mittag and Honecker authorized the plan. Export growth to the West was now the only way the GDR could survive.
Instead, the trade balance worsened. The export surplus of VM 4.94 billion in 1985 fell back to VM 873 million in 1986 and turned to a VM 1.03 billion trade deficit in 1987.15 That autumn, as the year-end trade deficit started to come into full view, Schalck and König realized for the first time that they could no longer ensure the solvency of the country over the coming years. Their model had always assumed at least a modest export surplus, and the falling export performance made it clear that this assumption was no longer tenable. They began to sound the alarm internally on impending insolvency. In October, they wrote to Mittag, “The inadequate development of internal economic productivity and efficiency, connected with an insufficient . . . reduction of imports has led to a constant growth in the debt of the GDR.” Higher debt meant higher interest payments. They informed Mittag that “five to six billion Valutamarks are necessary just for interest payments” every year. “This is the price that our republic must pay every year for the anticipated national income of future years. At the same time, this means that any trade surplus below 5 billion VM will lead to a further increase in debt.” They said they could “guarantee the solvency of the republic in 1990” but only if “the planned trade surplus is actually realized.” “For the period after 1990,” they noted, “it is a matter of life and death that the improved performance of our economy . . . lead to an export surplus of 5 billion VM.” If this was not achieved, they told Mittag, “we see no possibility of securing the solvency of the republic in 1991.”16
Schalck made his newfound alarm even clearer at a working group of the country’s top economists and economic managers taking place the same week in October. “If the GDR does not achieve an export surplus in 1987,” he told the group, “the creditworthiness of the country will be critically burdened.” Schalck told his colleagues that the GDR’s Eastern Bloc allies were already demonstrating in dramatic fashion that global capital markets no longer tolerated long periods of poor economic performance. “The example of Hungary, which for the past two years has not achieved a trade surplus, shows that the country’s credit rating has severely deteriorated and it can only receive government-guaranteed loans.” Because such loans came with conditions attached, Schalck concluded that “this way is not politically or financially viable for the GDR.”17 If the Hungarian experience showed the perils of trade deficits, the Polish experience showed the catastrophic consequences of insolvency. Schalck later recalled, “[General] Jaruzelski . . . conveyed to me very clearly that a state which is insolvent loses and must lose its political power, and therefore its maneuverability. It can then govern only through bayonets [and] martial law; Jaruzelski . . . did this, but without success.”18
The KoKo chief’s transformation from a beacon of reassurance to a prophet of doom in fall 1987 was an important development. Because he, König, and Mittag had done such a masterful job hiding an accurate picture of the country’s finances from both domestic and international audiences, there were very few people, either within the GDR or outside of it, that could issue a credible warning to Erich Honecker about the country’s approaching crisis. Schalck was one of the few who could, and after October 1987, he began to regularly warn that the country faced insolvency in the years to come. The illusions of security that his Schalck/König model had provided Mittag and Honecker from 1983 to 1987 were gone. Any continued resistance to beginning a process of economic reform now rested not on confidence in the nation’s long-term solvency but instead on fear of the political instability reform would bring.
Gerhard Schürer may not have known the country’s complete financial picture, but by spring 1988, he could see the writing on the wall. This caused him to break his silence. In preparation for a Politburo meeting in early May, he composed a proposal to fundamentally change the country’s economic direction. “Our conclusion must be,” he wrote, that “each object, no matter how important it is,” must be confronted with “the harsh economic conditions of the world market.” The head of the State Planning Commission foresaw no way that his institution would be able to repay Schalck for the recent hard currency loans because he foresaw no way that East German industries would be able to produce globally competitive exports.
Schürer saw only one remaining option to ensure the country’s solvency—austerity. Although he believed in the state’s mission to provide the working class with a high quality of life, he recognized that “the benefits for the population from the state budget for housing, price supports, fares, education, health, culture, sports and recreation” were far outstripping the country’s ability to pay for them. Schürer believed the party could no longer afford to insulate the population from the discipline of the world market.19 In sending the document directly to Honecker, Schürer later recalled, he wanted to make it clear: “Our republic is going broke.”20
Schürer’s proposal was the most direct challenge to the Unity of Economic and Social Policy—and, by extension, Honecker’s leadership—since its implementation in the early 1970s. Honecker forwarded it to Mittag and asked him to formulate a response for discussion in the Politburo. Mittag went straight to the point. Schürer’s proposal would “call into question . . . the Unity of Economic and Social Policy,” and his “suggestions for price changes” to consumer goods, rents, and energy were connected with issues of “significant mass appeal.”21 With regard to the recent attempt to borrow hard currency to improve the country’s computer industry, Mittag held to the position that the only way out of the current impasse was export growth, which required investment in the latest technologies.22 The choice between Schürer and Mittag boiled down to a difference of belief in the ability of the East German economy to compete on the world market. Schürer believed it could not. Mittag believed it had to. After the Politburo discussed the two positions, Honecker sided with Mittag and directed his comrades to find a way out of the crisis without implementing austerity.
The Politburo meeting began six months of fruitless discussions within the leadership about how to move forward. Despite the threat of looming insolvency, Honecker maintained the strict limits he had set on economic reform. Because the capitalist countries had high unemployment, growing poverty, and deteriorating living conditions for the working class, Honecker believed the generous East German social system was “very advantageous” and needed to be maintained. “We must always keep the improvement of the workplace and living conditions of the workers in mind,” he said. It naturally followed that consumer prices should not be increased. The general secretary believed recent events in Poland, where the government’s 1988 price increases had spawned widespread strikes, confirmed his point of view. He told his comrades, “Countries where price spirals were set in motion find themselves in a deep crisis. Comrade Jaruzelski told [me] that his decision to increase prices was wrong and that they are now looking at other options.”23
Thus, by September, Honecker could at once declare that “the decisive issue” was “the problem of ensuring the solvency of the GDR” while also pointing to its neighbors as evidence that price increases and austerity measures were not viable solutions.24 He concluded, “All countries that have begun the price-wage spiral have then gone bankrupt, see Poland [and] Hungary—in Czechoslovakia, the same thing looms.” The GDR could not “go the Romanian way” of imposing draconian austerity, Honecker said, because “the situation with the FRG [Federal Republic of Germany] does not allow for it.” As long as West Germany remained an economic and consumerist juggernaut, the GDR could not break its promises to East German citizens.25 Politburo member Harry Tisch summed up the nature of the country’s economic problems with precision: “Our people want social security, safety, job security, and education from us and the department stores of the FRG.”26 Through the end of 1988, the leadership chose not to discipline those desires, and the debt to the West continued to grow.
Schürer sensed that the situation was growing dire. In February 1989, he approached Egon Krenz, heir apparent to Honecker, about overthrowing the general secretary on the grounds that he had run the country into financial ruin. “A reduction in the debt is impossible” with Honecker leading the country, Schürer told him. But not yet feeling a sense of dire urgency, Krenz declined to remove his boss.27 He too could not contemplate imposing austerity. “For me it is no question whether the Unity of Economic and Social Policy will continue,” Krenz said. “It must be continued, because it is socialism in the GDR!”28
If the experience of Poland and Hungary demonstrated that price increases and austerity measures were unpopular, it also showed that communist leaders avoided implementing austerity until they had no other choice. With its creditworthiness still intact and its borders still secure through the spring of 1989, the East German leadership still had choices, so it collectively chose short-term stability over long-term solvency. Events along the Hungarian border would soon change these choices, but the priorities of the East German leaders remained unchanged until the end: they would choose any path—including even opening the Berlin Wall—if it allowed them to avoid the implementation of austerity.
By the late 1980s, the border fortifications separating Hungary from Austria and the broader West had become dilapidated. The electronic signaling system along the border, meant to alert the guards to any attempted crossing, regularly sounded false alarms due to gusts of wind or wild animals. It needed to be modernized. In the fall of 1987, the head of the border guard wrote a report for the Hungarian Interior Ministry detailing the system’s failings and annual cost, as well as estimating the costs of a system renovation. In a country with an annual budget deficit of 30 to 60 billion forints, the report’s numbers detailed an unwelcome prospect: the annual cost of the system was 42–50 million forints, and a renovation would cost 1.2 to 1.5 million forints per kilometer along a 366-kilometer border.29
As we have seen, when Miklós Németh became Hungarian prime minister in the fall of 1988, dealing with the pressures of IMF-mandated austerity was his first order of business. As Németh went through the country’s books line by line, he looked for areas to cut. When he came across the line item detailing the annual cost of the border security system, he “unceremoniously” drew a line through it. Andreas Oplatka has written, “Today, looking back on the success of the border opening, it would no doubt be easy and tempting for Németh to say that he made his decision” as a reform politician “thinking in European dimensions.” But “the former prime minister openly and frankly says the opposite. He admits that at the time it was all about cost savings.”30 Németh still needed the rest of the leadership’s approval for this decision, so in February 1989, he went to the Politburo with a report detailing the costs of modernizing the border security system. As Oplatka has concluded, this “financial factor was particularly convincing.” After hearing of it, “no one opposed the dismantling.”31
Having gained the assent of the party, Németh moved on to seek the next level of authorization in the Eastern Bloc’s chain of command: the Kremlin. On March 3, 1989, he arrived for his first visit with Mikhail Gorbachev. The two leaders touched on many subjects, ranging from the status of Soviet troops in Hungary to the merits of a multiparty democratic system to the challenges of Hungarian economic reform. Eventually, Németh broached the issue of border security: “We have decided to gradually do away with the electronic signaling system between now and January 1, 1991.” Gorbachev hesitated and then responded, “I see, frankly, no problem.”32 Surprised at the ease of the acquiescence, Németh returned to Budapest resolute in his decision to move forward with the dismantling of the border fence.
Initially, dismantling the fence drew little public attention. It gained increasing notice, however, after the Hungarian and Austrian foreign ministers, Gyula Horn and Alois Mock, held a symbolic wire-cutting ceremony before TV cameras and newspaper reporters on June 27. Immediately the image of the two foreign ministers was published across Western Europe and thus beamed into East Germany through West German television. East German citizens began to travel to Hungary in the hope they would be allowed to cross the Austrian border.33 Many holed up in the West German embassy in Budapest (and to a lesser extent in Prague and Warsaw), believing that the West German government would eventually pay the GDR for their release to the West, as it had done many times before for East German political prisoners stuck in East German jails. By July, the Exit had begun.
In August, local civil society groups in the town of Sopron along the Austrian border began organizing what would eventually be billed as the “Pan-European Picnic.” Set for August 19, the picnic would celebrate Hungarians’ new freedom of travel by allowing residents to freely cross the border into Austria for three hours during the afternoon. Hearing of the plan and sensing political opportunity, Imre Pozsgay worked with Austrian royal Otto von Hapsburg to raise the plan’s profile as an international symbol of European détente. In the run-up to the picnic, Németh nervously endorsed the event as a means of testing how the Soviet Union would react to a complete, if temporary, opening of the border. On the afternoon of August 19, roughly 2,000 people crossed the border under the picnic plan, while around 600 East Germans used the temporary opening to flee across the border. In the days to come, both became global news, a sign of the evaporating barriers between East and West.34
Against the backdrop of a worsening economic situation, this event put further pressure on Németh to permanently solve the refugee problem. In retrospect, he concluded that he spent the summer of 1989 consumed with the country’s struggle “to remain solvent.” Hungary “could not avoid price increases and austerity measures,” he remembered. “We had to comply with the tough conditions of the IMF, which we were not able to do despite our best efforts.”35 These pressures forced Németh to view the East German refugee problem through the lens of his own country’s economic future.
The flood of East German refugees who followed in the wake of the picnic spurred Németh to a final decision. The choice was between either sending the refugees back or opening the Austrian border for all East Germans to cross freely. The prime minister began by weighing his country’s commercial relationship to the two Germanys. He asked his team if there was any economic damage the GDR could inflict on Hungary if he acted against East German interests. They came up with nothing.36 In contrast, the economic benefits of a good relationship with Bonn were obvious—the Kohl government held the keys to Hungary’s fortunes in Western Europe and, along with the United States, determined the country’s fate in the IMF. This was enough to convince Németh. On August 22, he confirmed his decision to open the border to Austria with the highest ranks of the leadership and immediately requested an emergency secret meeting with Kohl to inform him.
On August 25, Németh and his closest advisors departed for Bonn under the utmost secrecy. When they landed, they boarded a helicopter to fly to Gymnich Castle outside of Cologne, where Kohl and West German foreign minister Hans-Dietrich Genscher secretly waited. After a discussion of the precarious Hungarian economic situation, Németh announced that the Hungarian government had decided to open its border to Austria for East Germans. Kohl, with “tears in his eyes,” thanked the prime minister for his decision and asked what kind of financial compensation he wanted in return. Németh proudly responded, “We do not sell people.” This was an allusion to the mercenary Romanian and East German practice of selling the emigration of their dissident, German, and Jewish populations to West Germany in exchange for a substantial amount of hard currency. Németh, at least officially, wanted no part of such a practice. Instead, he asked for Kohl’s assistance in bringing Hungary closer to the European Community. Kohl readily agreed and added that the Federal Republic would compensate Hungary for any retaliation carried out by its socialist “brother countries.”37 The meeting concluded with both sides agreeing to work together to coordinate the logistics and timing of the border opening. On September 10, the Hungarian government opened the border to the 7,000 East Germans now waiting to leave for the West.38 According to one Hungarian estimate, 600,000 East Germans followed suit in the weeks to come.39
If there was no quid pro quo in fact, there was certainly one in perception. In the weeks after their meeting, the Kohl government granted the Hungarians a DM 500 million loan in support of “a reform process of pan-European importance” and in recognition of the Hungarian decision “against closed borders, and for the free movement of all citizens.”40 The Hungarians delayed signing the loan until mid-December to perpetuate the appearance of independence, but it fooled nobody. In a meeting on October 7, Honecker and Gorbachev discussed the loan and lamented Hungary’s betrayal of socialism in exchange for money. Gorbachev folded the news into a broader explanation of the disintegration of the Socialist Bloc going on around them: “The West promises great gifts of grace [Gnadengeschenke] in exchange for renouncing positions.”41
Why did the Hungarian government decide to dismantle the Iron Curtain and open its border for East Germans? Among the many reasons is that its leadership had lost the ideological conviction to defend the GDR’s repressive brand of socialism. As prime minister, Németh had to think in terms of the Hungarian national interest, and the financial power of the West and the economic weakness of the East significantly shaped his choice. In the broadest sense, Németh and his closest advisors believed the country’s future lay in Western Europe. They had been trying to establish ties with the European Community for almost a decade, and they now hoped to gain access to the European Economic Community and the future European Common Market. The West German government would ultimately decide whether and when this happened. Kohl did not even have to mention the retaliatory power he could wield if the Hungarians chose to send the refugees back to East Germany. The fate of the Hungarian economy, and with it the political fortunes of Németh and all the reform communists, depended on the good graces and financial power of Bonn. This broader financial context pushed the Hungarian government to permanently open the Exit option.
At the Warsaw Pact’s summit in Bucharest, Romania, in early July 1989, Gorbachev publicly renounced the Brezhnev Doctrine.42 Although this only made public what he had been telling his Eastern Bloc allies in private since 1986, its official enshrinement arrived to the great consternation of Honecker and Krenz. Adding injury to insult, Honecker fell ill at the conference and had to fly home early for medical treatment. Although his condition initially stabilized, the general secretary was forced to have surgery in mid-August and take a leave of absence until the end of September.
Honecker’s illness paralyzed the East German leadership’s response to its deteriorating domestic and international circumstances. The week after Hungary opened its border, the GDR worked with the Czechoslovak government to end East German travel to Hungary all together. But the Exit movement was now in full bloom, and emigrants continued to leave undeterred. Instead of traveling all the way to Hungary, they now simply stopped in the West German embassy in Prague, where thousands were camped out in miserable conditions by the end of September. As Honecker finally returned to work at the end of the month, he agreed to strike a deal with the West German government. He would “expel” the East Germans in the Prague embassy from the GDR (thus retaining nominal control over who got to leave the country) while also allowing them to travel to the West. From September 30 to October 1, the refugees traveled by night on trains from Prague through the GDR to the Federal Republic. On October 3, Honecker made a last-gasp attempt to shut down the Exit option by completely closing the GDR’s borders.
This decision only served to enrage the domestic protest movement now gaining steam. Since the spring of 1989, a small group of dissidents had been using the peace prayer service held in the Nikolai Church in downtown Leipzig every Monday to organize protests against the regime. By September 18, hundreds of Leipzig residents had joined in, and the next week, the protesters began to take to the streets and call for reform. On October 2, roughly 10,000 people set out to march around the city’s ring road, and security forces dispersed the crowd with clubs, dogs, and shields. As the trains carrying a last group of refugees from Prague rolled into the Dresden train station on October 4, an estimated 20,000 protestors surrounded the station and blocked the tracks until police forcibly dispersed them. Then, in the days leading up to the SED’s celebration of the fortieth anniversary of the GDR on October 7, countless protests in cities throughout the country were put down with force.
The increasing boldness of the protests and the state’s harsh response set the stage for the climactic protest in Leipzig on October 9. Since June, when Deng Xiaoping and the Chinese leadership had ordered security forces to shoot protesters in Tiananmen Square, it had been an open question among East German citizens and foreign observers whether Honecker and the SED leadership would do the same in the GDR. Why the East German leadership did not choose Violence owes to a complex interplay among domestic and international factors.
The country’s precarious financial position played a key role. Schalck had been keeping Krenz informed about the real state of the country’s financial situation for many years before 1989.43 Honecker had been grooming Krenz since the 1970s to be his successor, and given Honecker’s advanced age, it made sense to keep Krenz informed. It is thus very likely that a memo in Schalck’s papers dated September 18, 1989, was seen by Krenz as well as Mittag and Mielke.
The document—and the myriad unrecorded and informal conversations Schalck surely had with leading officials at the time—laid out in significant detail the GDR’s financial dependence on the capitalist West and suggested how it affected the country’s political sovereignty. Schalck stated that in contrast to the previous year’s urgent demands for a trade surplus in 1989, the country would, in fact, run a VM 2.5 billion deficit. Despite this horrific economic performance, Schalck and his team had successfully prevented capitalist banks from questioning the GDR’s creditworthiness by refusing to publish information on the nation’s financial position. But the continued flow of capital, Schalck now wrote, hung by a thread.
The country’s solvency now depended on whether the “annual borrowing of 8–10 billion VM can actually be secured,” he wrote. “Such a credit volume is an extraordinarily large sum for a country like the GDR, which means we are highly dependent on capitalist banks to maintain our solvency.” He continued, “The particularly high risk of dependence lies in the finance credits that are indispensable for us. Maturing principal and interest payments can only be made through finance credits.” Like the Hungarians in 1987, Schalck now told the leadership that the country’s solvency depended on the continued inflow of Japanese capital. “Currently more than 75 percent of finance credits come from Japanese banks. Should the Japanese government no longer allow the further granting of loans, for example, if the United States blackmails the Japanese government due to its credit boycott policy, there is no way to cover the shortfall in loans through banks in other countries.” Beyond American blackmail, Schalck explained that there were other factors that would influence the readiness of capitalist banks to keep lending money to the GDR. These included “the impact of political factors on the lending willingness of capitalist banks, and the position of the governments of countries such as Japan and the FRG, which has a signaling effect on banks in other countries.”44
It is impossible to know precisely how this memo affected the leadership (which, at this point, was still without Honecker due to his leave of absence), but it is clear that discussion of the financial situation continued as the protests grew in the streets. Ten days after Schalck’s memo, on September 28, all the leading economic state officials—Schalck, Schürer, König, Minister of Foreign Trade Gerhard Beil, and President of the State Bank Werner Polze—composed another extended memo examining the nation’s financial position. Sounding the alarm, they noted that “we already are significantly dependent on capitalist banks to meet our payment obligations of principal and interest as well as to implement our yearly import plan.” The “extraordinarily high sum” of VM 8–10 billion needed to “be mobilized annually from approximately 400 banks at any one time.” This mobilization was growing increasingly difficult because “capitalist banks set country limits for their credit orientation toward socialist countries, just as they do for developing countries. Due to the already high debt, banks are not willing to significantly increase this limit for the GDR.” The GDR’s access to credit markets in the years to come, the authors warned, was “largely dependent” on “the impact of political factors on the lending willingness of capitalist banks and the positions of the governments of countries such as Japan and the FRG, which are among the most important creditors of the GDR.” Even if the country managed to keep the markets’ favor, it would still need to double its exports in the next five years while holding imports constant. Such export growth would have been unprecedented in the history of the GDR.
Nevertheless, any deviation from these surpluses would certainly lead the country into insolvency, the authors warned, which would have dire consequences. “Assuring the solvency of the Republic without conditions is the crucial prerequisite for the political stability of the GDR and further economic development.” This was because “failure to meet upcoming repayment obligations on loans or untimely payment of interest would lead to the total cessation of credit granted by capitalist banks. With this, no more loans would be available for the GDR’s imports.” Just as Schalck had drawn lessons from Hungary’s example two years earlier, the economists now urged the leadership to look to Poland to see the disastrous results of failing to maintain solvency. “Poland,” they wrote, “has received no new loans from capitalist banks since its cession of payments in 1981.” The Polish example showed that the world of finance had become more demanding of debtors. Debt rescheduling agreements with few or no conditions attached “no longer exist,” the economists wrote. “For years now, debt rescheduling agreements with capitalist banks have only been concluded with the involvement of the IMF.”
East German leaders saw the IMF as an organization hell-bent on dismantling socialism. The economists believed the history of socialist countries’ relationship with the IMF in the 1980s only provided new, disturbing evidence to support their conviction. They wrote, “The prerequisite for a possible debt restructuring is the fulfillment of conditions that have been issued by the IMF.” From the experience of other socialist countries, it was clear these conditions would include: “the renunciation of the state’s right to intervene in the economy (example of Poland); the reduction of subsidies with the intention to abolish them (examples Poland, Yugoslavia, and Hungary); [and] the liberalization of imports from Western countries, that is, the renunciation of the state’s ability to determine its import policy.” In other words, dealing with the IMF would mean the forced repeal of socialism. This led the group to one overarching conclusion: “Therefore, the issue of assuring the solvency of the Republic is to be granted the highest political and economic priority.”
Here, just as in Hungary and Poland, the coercion of creditworthiness was at work. The economists proposed the government adopt unpopular domestic policies that would invite social unrest in order to maintain the country’s international creditworthiness. The current financial situation made the following policies “necessary,” they wrote: “a systematic change in the basic proportions between accumulation and consumption . . . ; a reduction of societal consumption—and if that is not enough—also individual consumption; and the development of industrial export sectors, including the redistribution of labor for the benefit of . . . export-critical branches within industries.”45 Put simply, maintaining solvency would require the hallmarks of the politics of breaking promises—price increases, cutbacks in social benefits, and labor mobility—as well as the continued support of the country’s Western creditors.
Schalck reiterated this last point in a memo to Krenz four days after the October 9 protest in Leipzig. Although the memo was written after that fateful day, it almost certainly put ideas already floating through the two men’s minds on paper rather than proposed something completely new. “The attitude of the FRG government and the business circles of [the] Federal Republic influence the attitude of the other states and Japan toward the GDR to a large degree,” Schalck wrote. We must take “the political and economic influence of the FRG, especially in the European Community and also in relation to financial circles and credit markets outside Europe very much into account.”46 Thus, if it was not written plainly on a document to be found in the archives, it was certainly plain for Egon Krenz to see that if he chose to use violence against protesters in Leipzig or elsewhere, the country would soon be insolvent. Insolvency clearly meant one thing: a repeat of the Polish experience in the 1980s, a prospect no one in the leadership, particularly Krenz, welcomed.
What Krenz, rather than Honecker, believed in the early days of October is important because by October 9 the overthrow of Honecker had been set in motion. Honecker held on to power long enough to celebrate his country’s fortieth birthday on October 7. But by the next day, the plot to bring him down had finally begun to take shape.47 Honecker issued orders to all local leaders and security forces to prepare “measures” to prevent future “riots” “from the outset.”48 But when decision time came the following day in Leipzig to put down the protest or let it go on, the party’s acting leader there, Helmut Hackenberg, called Krenz, not Honecker, because he had already heard that Krenz had begun planning Honecker’s overthrow.49
Neither the country’s financial weakness nor Krenz’s scheming against Honecker were known to the East Germans who gathered that day. To them, the East German state remained a mass of repressive instruments that could be and would be used against citizens who spoke out in dissent. This did not stop roughly 70,000 of them from gathering outside Nikolai Church after the Monday peace prayers and bravely circling the ring road that surrounded the city center. The ring road had become the weekly battleground between protesters and the security forces. As the protesters began to make their way around, Hackenberg made his call to Krenz to report that the protest was far larger than anyone had predicted and ask what he should do. Krenz told him he would call him back. According to accounts of personnel at the scene, it took him a half hour or forty-five minutes to call back, by which time Hackenberg had individually decided not to disperse the protesters without a firm order from East Berlin—and Krenz, in particular. The next morning, the consequences of the previous evening were clear: the protest immediately became a symbol of the growing power of the people in the GDR, who had lost their fear of the state’s power of repression.50
In taking so long to call back, Krenz ultimately did not decide how events unfolded that night, but a more decisive leader would have. The reasons for his hesitance in calling back are unclear, but the reasons for his hesitance to use violence were manifold. He has always claimed to have had a deep personal conviction to not use force, and Gerhard Schürer confirms this conviction in his memoirs.51 In addition, by the fall of 1989, Gorbachev had made his support for nonviolence well known and had officially renounced any Soviet willingness to intervene in allied countries to defend socialism.52 The country’s international financial position added yet another reason for restraint. If the leadership had implemented a “Chinese solution,” they well understood that national insolvency, the politics of breaking promises, and the Polish experience would follow. They stopped short of Violence, then, because they feared Austerity.
Krenz’s official move against Honecker came at the Politburo meeting on October 17.53 The next day, at a meeting of the broader SED Central Committee, Honecker announced his resignation due to “health reasons” and asked the committee to elect Krenz as the new general secretary. Upon his official election, Krenz gave a speech defining the direction he intended for the country. He announced what he called “the Turn”—die Wende. As he launched his Wende, Krenz clearly felt constrained by the nation’s economic and financial circumstances. On the day the Berlin Wall opened, he told the Central Committee, “The balance of payments . . . puts limits on us; it prevents us from making political decisions that would be necessary.” He continued, “Every day new facts become apparent that affect our economic situation. And without the economy nothing else works.”54
To solve the country’s economic problems, Krenz turned to the problem of Exit. Even before he had officially overthrown Honecker, Krenz had developed a draft of new travel regulations to allow East Germans to travel to the West and asked Schalck to review it for its financial implications. Schalck responded on October 13 with a proposal to essentially trade the controlled opening of the Berlin Wall for hard currency. “The decisions and principles laid out in the draft are of seminal importance in order to continue socialist development in the GDR and improve the attractiveness of our society. At the present time, we see no other solutions,” Schalck noted. Furthermore, he told Krenz, the government should expect “a significant pent-up demand in East German travel to the West, particularly to the FRG but especially also to West Berlin.” Schalck assumed at least five million East German citizens would want to travel to West Germany in the first year and a further five million would want to travel to West Berlin. All of this would cost the East German state money it did not have—DM 300 million in the first year, according to Schalck’s calculations. “Immediately after a decision on and before the publication of the regulations, I think it would be absolutely appropriate to obtain through informal talks a reasonable financial contribution from the FRG government to enable this policy, which the FRG has sought for a long time,” he wrote. Schalck envisioned a lump-sum contribution of DM 300–500 million from the FRG to fund East German travel. He believed this would solve the immediate travel problem; the government could then return to the travel issue in the mid-1990s, presumably after solving its looming debt problems. He concluded, “At a later date (possibly the middle of the 1990s) we should examine to what extent opportunities exist to provide GDR citizens an amount in foreign currency every three years . . . for traveling abroad in the West.”55 Krenz held a meeting with the rest of the leadership on October 16 to discuss the travel question, and the group adopted Schalck’s strategy.
In pursuit of this objective, Krenz sent Schalck to Bonn on October 24 to open “informal discussions” with the FRG about new forms of cooperation. Schalck later wrote, “For the past two to three years, it was clear to me that the GDR was headed toward an economic confederation with the FRG. Only with West German financial power could the GDR be preserved. I certainly knew better than most of my comrades that the economic and financial support would come at the price of significant political changes.” As he left for Bonn, he wrote, “I still hoped that the price would not be self-sacrifice.”56 He described his orders from Krenz for the negotiations: “I should explore the possibility of closer economic cooperation, while upholding [the GDR’s] socialist system. Meanwhile, it was clear that travel would be unlimited—it was only a matter of time. I thought pragmatically of the costs associated with this for the GDR. New border crossings and an expansion of transit routes [would] increase the need for hard currency. I knew that we did not have the money for this. One had to get the Federal Republic to pay, through a packaged deal if necessary: money in exchange for expanded travel.”57
Schalck’s first meeting took place with Rudolf Seiters and Wolfgang Schäuble, senior ministers in the Kohl government. Schalck attempted to stand by his orders to increase cooperation while also upholding the GDR’s socialist system. He told Seiters and Schäuble that it was “the firm intention” of the party leadership to implement “extensive renewals and reforms” through “a comprehensive dialogue with all levels of society.” But, he maintained, “the socialist system of the GDR is not up for debate” and “the SED will continue to play the leading role . . . in the process of renewal.” He then informed Seiters and Schäuble that the GDR would be implementing a new travel law that would dramatically expand the foreign travel of East German citizens, particularly to West Germany. In view of the “clear additional economic burdens” such a law would impose on the GDR, Schalck told Seiters that the two sides should find “shared solutions” to the problem. In sum, he said that the SED leadership foresaw the possibility of raising inter-German relations to “a new level” as long as it was based on “the principles of equality, regard for sovereignty, and non-intervention” in each other’s internal affairs.
Seiters and Schäuble responded with questions and concerns of their own. First and foremost, they told Schalck that officials in the Federal Republic “observed with great attention and also with concern the economic development of the GDR in recent years.” They were concerned “particularly about the effectiveness of the GDR economy and the growth in debt.” Because any new forms of cooperation between the two states would require West German money, they would only be justifiable “from the standpoint of the Federal Republic if the GDR thought through important questions in its economic policy” and took decisions that increased “the efficiency in the economy.” To the Kohl government, “it would be necessary, for example, to cut subsidies and take steps to ensure the international competitiveness of East German companies.” Lastly, because they anticipated that East German travel laws would stress the capacities of West Berlin, both sides should explore “in what ways the interests of West Berlin” could be addressed “in other areas.”58 With the first hints of conditionality lingering in the air, the two sides parted ways to consult with their respective governments.
Krenz was furious upon reading Schalck’s detailed report. To him, the intentions of the Kohl government were now obvious. As he wrote in his memoirs, “It is not about their ‘brothers’ and sisters’’ freedom of movement at all. Bonn is not interested in whether or not East Germans can travel. Bonn wants everything; Bonn wants the GDR.”59
Two days later, on October 26, Kohl and Krenz spoke for the first time by phone. After an exchange of greetings, Kohl said he had high hopes for Krenz’s announced Wende. In particular, he told the general secretary that he believed resolving three issues was “especially important”: a new law on the freedom to travel, an amnesty for political prisoners arrested during the recent demonstrations, and “a positive solution” to the question of refugees. “If one can connect your name with a generous step,” Kohl said, “it will not only have a very considerable effect here [in the FRG], but also in the GDR.” This was politely veiled conditionality, and Krenz saw it for was it was. He replied, “A turn [Wende] does not mean upheaval [Umbruch].” He informed Kohl that the SED leadership had made the decision “under the complete sovereignty of our country” to implement a new travel law. However, the law would bring “considerable additional economic burdens” with it for the GDR, which he hoped the FRG could cover. He pressed Kohl for the earliest possible agreement on financing the law, but the chancellor refused to discuss any specifics or make a clear declaration of financial support. Instead, he played for time and committed to making Seiters and Schäuble available for further discussions.60
Schalck, who sat next to Krenz during his conversation with Kohl, wrote in his memoirs that “something decisive happened during this phone call.” He wrote, “Up to that point, the Federal Republic had simply followed the events in the GDR attentively, [but] now Kohl presented demands for the first time”—new rules for the freedom of travel in East Germany, an amnesty for political prisoners, and a positive resolution to the embassy refugee crisis.61 “That, and not November 9 [when the Wall fell], was for me the key situation. That was the Wende. On the same day we came up with a package of measures to implement the points raised by Kohl. From that moment on, the Federal Republic ruled the GDR.”62 In the days that followed, the Interior Ministry and the Stasi began drafting the new travel law.63
A key component of Krenz’s Wende was to make the real economic situation of the country clear to the full Politburo and Central Committee. In late October he tasked Schürer, Schalck, and the other economic leaders with writing a comprehensive report on the economy for discussion at the Politburo meeting on October 31. The report, “An Analysis of the Economic Situation of the GDR with Conclusions,” served as a stinging indictment of Honecker’s Unity of Economic and Social Policy and an urgent call for change. “The debt to the West has grown since the 8th Party Congress [when the Unity policy had been announced] to such a level that it calls into question the solvency of the GDR.” Higher domestic consumption than domestic production had caused “debt to the West to grow from 2 billion VM in 1970 to 49 billion VM in 1989.”64
The economists made plain that the debt now left the country completely dependent on Western capital. In their words, “1989’s planned hard currency income can only cover about 35% of the hard currency payments. . . . 65% of the payments must be financed through bank credits and other sources.” For a country like the GDR, this was unusual and precarious. They continued, “In the analysis of a country’s creditworthiness it is internationally assumed that the debt service ratio . . . should not be more than 25%. 75% of [the money received from] exports should be available to pay for imports and other expenses. Based on its hard currency exports, the GDR has a debt service ratio of 150%.” They outlined the implications of this position for the domestic economy. “If we are to prevent the debt from rising in 1990, . . . [it] would require a reduction in consumption by 25–30%.” An export surplus of VM 2 billion would have to be achieved in 1990, and this number would have to grow to VM 11.3 billion in 1995 merely to keep the debt level stable.65
If this did not happen, the economists told the Politburo, the penalties would be stiff. “The consequences of imminent insolvency would be a moratorium (debt restructuring), in which the International Monetary Fund would determine what must happen in the GDR,” they concluded. The IMF would “demand that the state renounce its right to intervene in the economy, the re-privatization of companies, the restriction of subsidies with the aim of abolishing them entirely, [and] the renunciation of the state[’s right] to determine import policy. It is necessary to do everything to avoid going down this path.”66
What did they propose for the years ahead? “The basic task of the new economic policy lies in bringing output and consumption back into agreement.” The country could “only consume domestically what is available after the deduction of the necessary export surpluses.” Furthermore, wage increases would need to be connected to higher performance, prices would need to be raised and subsidies would need to be cut, and the planning and administrative mechanisms of the state would need to be reduced at all levels. The politics of breaking promises lay ahead.67
To soften the burden of breaking promises, they proposed the government look for ways to expand cooperation with as many Western countries and companies as possible: “It is essential for the assurance of solvency in 1991 to negotiate with the government of the FRG at the appropriate time about 2–3 billion VM in finance credits above current credit lines.” They ruled out “any idea of reunification with the Federal Republic or the creation of a confederation.” But they also recommended that the SED make clear to the FRG that “conditions could be created” in the years to come that would make “the currently existing form of borders between both German states superfluous.”68 This last line was struck from the version published after the Politburo meeting because of its political sensitivity, but its erasure did not eliminate the fact that leading state officials were now considering ransoming the opening of the Berlin Wall for loans from West Germany in order to extend the GDR’s existence.69
Krenz recalled his reaction to the document: “The biggest problem of the analysis for me is the debt to capitalist countries.” He noted the particular challenge this posed to the GDR: “Is that state bankruptcy? Not at all. A state does not go bankrupt if it has debts. Otherwise the majority of the countries in the world would have to perish or would have perished long ago. Our problem is that we have debts to a political adversary who is working towards the liquidation of the GDR. This is the real danger.” The looming 25–30 percent reduction in consumption convinced him of the proposal’s urgency. He stated, “With their warning about the ‘un-governability of the GDR’, the authors of the document emphasize just how existentially necessary it is for the GDR [to implement] a fundamental change in its economic policies.” The SED needed to implement this transformation because the authors made clear that it was necessary “to exclude the dictates of the International Monetary Fund from the GDR.” He also noted that the economic analysis was “connected with far-reaching political conclusions,” most importantly the suggestion that the current borders between the two German states could be slowly dismantled. Such a change would clearly require the consent of the Soviet Union, Krenz wrote, but he nevertheless believed the “Analysis” should be put to the Politburo unaltered on October 31 for discussion.70
In times of crisis, it had been a forty-year tradition for the leader of the GDR to seek refuge in Moscow’s protection. Krenz was no different, and so, on November 1, he flew to the Soviet capital for his first meeting with Gorbachev. He believed Soviet economic, rather than military, support was the key to his country’s survival. “If we are unable to raise the necessary economic cooperation with the Soviet Union to a higher level, the renewal of our society will remain a dream,” he wrote. Packing Schalck’s and Schürer’s “Analysis” in his briefcase, he knew it would “be a crucial point of [his] talks in Moscow.”71
Gorbachev had long been urging the SED, and particularly Honecker, to undertake political and economic reforms, but with Krenz now in power, the merits of reform were a settled issue. Instead, the issue at the heart of the November 1 meeting was resources, specifically whether the Soviet Union could increase its economic support to its most important ally in its time of greatest need. Krenz quickly steered the conversation to his first priority—the economy. It was, for him, “the decisive problem.”72 He told Gorbachev that by the end of 1989, East Germany’s debt would reach $26.5 billion, or VM 49 billion; he also said that the country would have $5.9 billion in income in 1989 with which to pay $18 billion for debt service and imports. This would leave the GDR with a $12.1 billion shortfall, which meant the GDR would have to take out new loans from Western banks and governments.73 Krenz said, “Our job is to maintain solvency. If the International Monetary Fund gets a say in [our affairs], it will be bad for us.”74 Through a variety of sources, Gorbachev was well briefed on the state of the GDR economy. Nevertheless, he was “astonished” to learn of these numbers and asked whether they were precise because “he had not imagined the situation to be so precarious.” Krenz confirmed that they were and told Gorbachev that if the standard of living was based “exclusively on the country’s own production,” it would have to be lowered “by 30% immediately.” This, he said, “was not politically feasible.”75
For Gorbachev, this was now a familiar refrain; he had heard variations of it from Hungarian and Polish officials in recent years. He told his East German counterpart that he had to come clean with the population and confront them with the nation’s economic reality. The SED leadership, he told Krenz, “had to find a way to tell the population that it had lived beyond its means in the last few years.”76 The Soviet Union would do its best to meet the raw material deliveries it had already committed to in the 1986–1990 Five-Year Plan, but it could provide nothing above and beyond this.77
To fix the GDR’s economy, Gorbachev therefore told Krenz to look to the West. This, he said, was what Hungary and Poland had done. “They, after all, had no choice in this matter,” Gorbachev said. “It was often asked what the USSR would do in this situation. But it could do very little in economic terms. It was an absurdity to think that the Soviet Union could support 40 million Poles.” In Hungary, “Comrade Kádár was given an ultimatum by the IMF in 1987; in case of non-compliance with the numerous demands, a suspension of the loans was threatened.”78 These two statements appear to have sent a clear and lasting message to Krenz. In his memoirs, he quoted these words exactly and then wrote, “I understand Gorbachev as follows: You cannot expect additional economic assistance from the Soviet Union, but don’t let it come to joining the International Monetary Fund under any circumstances. Help yourself, as best you can!”79 After four hours of conversation and a comradely lunch replete with vodka toasts to the future of socialism, Krenz boarded his plane for the GDR with the weight of such thoughts on his shoulders.
He returned to a country in free fall. Under the threat of strikes from workers, the government decided on November 1 to repeal its earlier decision to close its borders to the Eastern Bloc. Immediately, the refugee problem resurfaced, as 4,000 East Germans filled the West German embassy in Prague once more. Fearing a spillover destabilization, the Czechoslovak leadership pressured East Berlin to fix its travel regulations quickly. To make matters worse, the Federal Republic’s permanent representative to the GDR informed the SED that the West German mission in East Berlin would soon reopen, two months after closing for “renovations” (in fact, it had closed to prevent refugees from filling it as they had the embassies in Prague and Warsaw). Its reopening would surely mean a massive refugee crisis in the heart of the GDR. As pressure from east and west mounted, it also surged on the streets of the capital. On November 4, an estimated half a million people flooded Alexanderplatz in East Berlin to demand reform.80 Continuing the chant first used in Leipzig weeks earlier, “Wir sind das Volk!” (We are the people!), they dared their leaders to take their slogans about democracy seriously and demanded a say in their country’s future.
Amid the public upheaval, Schalck quietly traveled again to Bonn for another conversation with Seiters and Schäuble. This time he arrived with the more concrete offer that the GDR was “prepared to implement generous regulations for travel between the capital of the GDR and West Berlin via newly opened border crossings” as long as the Federal Republic was prepared to cover the “significant financial and material costs.” Additionally, he informed his interlocutors that the GDR was seeking “long-term loans up to ten billion VE [accounting units, most likely DM]” over the next two years that would be “paid back over a period of at least ten years” to support new forms of cooperation, such as “joint ventures and equity investments” from West German companies. On top of the DM 10 billion, Schalck said his government “saw the necessity of discussing additional lines of credit in hard currencies that could begin in 1991 and total DM 2–3 billion annually.” This would be required “to meet the demands” of new levels of cooperation. The KoKo chief made it clear, in short, that if the Wall was going to be bought and sold, its price was going to be extremely high.
But while Schalck’s price had increased, so too had the Federal Republic’s. Schäuble told Schalck that much depended on Krenz’s upcoming speech to the East German Central Committee on November 8. Krenz would have to make clear “the credibility of the Wende course” and would need to appoint “credible and new people” to implement the announced reforms. “A fundamental problem in this context,” Schäuble said, “was Article 1 of the GDR constitution, which guaranteed the leading role of the Marxist-Leninist party.” Schäuble “strongly advised” that the SED make it clear that it was willing to allow a “peaceful transition supported by all political, social and religious organizations” and to constitutionally change “the leading role of the SED into a constructive, consensus-building cooperation with all democratic forces in the interests of socialism and the GDR.” He also told Schalck that the “state border with West Berlin” should be made “more permeable” and that the West German government continued to assume the GDR would “decisively dismantle its subsidies” to the economy. In closing, Schäuble suggested “urgently once again, that General Secretary Krenz take up the ideas expressed [in this meeting] in his speech. Otherwise Chancellor Kohl would not be able to justify in the Bundestag financial assistance from West German taxpayers.”81
Schalck went straight to Krenz upon returning to East Berlin. In his memoir, Krenz termed the demands made at their meeting “blackmail.”82 Schalck expanded further, “Diplomatically it was an outrage [Ungeheuerlichkeit]—an interference in the internal affairs of the GDR. Historically, it was consistent. For the West German government, there were no internal affairs of the GDR anymore. Due to the political upheavals and the desperate economic situation of the GDR—I brought to the conversation a demand for credit in the amount of 10 billion Deutsche Marks—the internal affairs of the GDR had become intra-German.”83
While Schalck met with Seiters and Schäuble, East German newspapers published a preliminary draft of the new travel law in hopes of appeasing the population’s demand to leave the country. It failed spectacularly. Most importantly, the law still required East Germans to obtain a visa before being allowed to exit, which could be denied at the state’s discretion. Even if a citizen received a visa, the law provided no commitment on behalf of the state to finance foreign travel with hard currency. Because Schalck had not yet secured from the FRG a means of paying for East Germans’ foreign travel, the government still had no way to pay for all the travel that was to come. Clearly, this was no sign of progress, and more than half a million people jammed the streets of Leipzig the same day in protest.84
That evening, after learning of the Leipzig protest and receiving a report from Seiters and Schäuble about their conversation with Schalck, West German policy makers met to discuss their next move. The document prepared for the discussion noted that the conversation with Schalck showed that “the new government [in the GDR] seeks a fundamental restructuring of the economy . . . but would like to avoid fundamental reforms of the political structure.” In particular, the GDR leadership did not appear “open to a restriction of the SED’s monopoly on power and to concessions in the direction of pluralism.” Instead, “they expect massive financial and material support from us for their restructuring efforts and simultaneously our renunciation of efforts to work towards a change in the political system.” However, the enormous scale of Schalck’s financial request also made clear that “the GDR—at least in the short and medium term—does not expect to obtain the necessary amounts of economic assistance from anyone other than us. The alternative would, in fact, be a policy of austerity.”85 This left the FRG in a powerful negotiating position, and the Kohl government knew it. After being briefed by Seiters and Schäuble on their meeting, Kohl decided the time had come to set firm preconditions for his government’s financial support.
The next day, Seiters called Schalck to transmit a message directly from Kohl for Krenz. The chancellor told Krenz he needed to “declare publicly that the GDR is prepared to guarantee that opposition groups will be permitted and affirm that free elections will be held within a period to be announced if the GDR wants to receive material and financial assistance from the FRG. This applies also to the financial arrangements regarding travel.” The message continued, “It should be noted that this path is only possible if the SED relinquishes its claim to absolute power.” The party “should be prepared to work on equal terms, and in consensus, with all societal forces, churches and religious communities to discuss a true renewal, with the goal of achieving democratic socialism.” Seiters told Schalck that if these conditions were met, “the Chancellor thinks a great deal can be achieved and every option can be explored.”86 Krenz again called this “blackmail” and “a crude attempt to interfere in the internal affairs of the GDR.” But he saw no alternative. “Once again it is clear how constrained my political freedom of movement is,” he wrote. “Ultimately, everything depends on the economy.”87 The next day, Kohl further increased the pressure by publicly announcing these conditions during his “State of the Nation” address.88
With their first attempt at publishing a new travel law proving to be a disaster, the Politburo reconvened on November 7 to work out a new policy. Because their Czechoslovak comrades were now threatening to close their border with the GDR if the government did nothing to stop the flow of emigrants, the leadership decided to immediately put into effect the portion of the travel law allowing East German citizens to permanently emigrate. As they moved on to preparations for the upcoming meeting of the Central Committee, the Politburo handed responsibility for drafting the revised law to the Interior Ministry and the Stasi.
At this point, it is worth reflecting on where the GDR was headed on November 8, the day before the Wall opened in dramatic and accidental fashion. The country’s financial position and the Soviet Union’s inability to provide extra economic support had driven the leadership to embrace four policy positions. First, financial dependence on the West was not the only factor restraining the leadership from using violence, but it was an important one. Second, Krenz and the Politburo had not endorsed an uncontrolled opening of the Berlin Wall, but they had endorsed a strategy of trading opening the Wall in return for hard currency. Third, this strategic choice and the anticipated financial shortfall of the early 1990s had led the leadership to negotiate with the Federal Republic as a means of avoiding insolvency and negotiations with the IMF. The leadership’s choice to negotiate with the FRG was therefore a strategic decision based on its belief that the FRG’s demand for the freer movement of people posed a smaller risk to the GDR than the IMF’s demand for austerity and structural adjustment. Exit was safer than Austerity. Finally, the protests in the GDR drove the Kohl government to expand its conditionality in the early days of November beyond the freer movement of people to include demands for a complete reform of the East German economy and a renunciation of the SED’s one-party state. As part of his Wende, Krenz had shown a vague inclination to couple political liberalization with economic reform, but by November 7, the Federal Republic’s conditionality left him with no choice but to implement this strategy.
In other words, even before the Berlin Wall fell, the GDR’s circumstances were already pointing the country down the path recently taken by Poland and Hungary. The opening of the Wall may have been accidental, but the collapse of the country was not. By the afternoon of November 9, that collapse was a historical certainty, one that derived from the potent combination of emigration, demonstration, and Western financial leverage. What remained to be determined—and what the opening of the Wall decisively influenced—was how and how fast the GDR collapsed.
On the morning of November 9, officials from the Interior Ministry and the Stasi met to draft a revised travel law. Their orders from the Politburo were to immediately authorize permanent emigration from the GDR to the FRG and—crucially—West Berlin as well. After seeing the reaction to the first draft law, Gerhard Lauter, the senior Interior Ministry official at the meeting, felt that allowing permanent emigration but not temporary travel would only stoke popular resentment, so he rewrote the law to immediately authorize both permanent and temporary travel. All historical evidence suggests that he received no direction from his superiors to make this change, and it certainly did not conform to Krenz’s and Schalck’s strategy of leveraging freer travel to gain more hard currency. Thus, it stands as a decisive moment of contingency in which a local actor altered the trajectory of his nation. Nevertheless, as Lauter himself would later say, it was a change in how fast policy would be implemented, not a change in policy itself. In explaining his mindset that morning, he said, “We still had the task ahead of us to put forth a draft of the travel law in 1989 that would bring about the freedom to travel. In principle, November 9 could also have been December 21, and then it would have happened legally and not been surprising. We had all of this in the back of our minds.”89 Lauter’s group sent the new law up the bureaucratic chain of command, where it reached Krenz by noon on November 9.
Since he had overthrown Honecker in mid-October, Krenz had placed all his hopes for the renewal of the SED and the launch of an economic reform program on the Tenth Meeting of the Central Committee, set to take place November 8–10. The first day and a half had not gone according to plan, as the meeting had gotten bogged down in endless debates about the reorganization of the party leadership. In midafternoon on November 9, Krenz interrupted the meeting to gain approval of the revised travel law. “Comrades! . . . You are aware that there is a problem that wears on us all: the question of exit [from the GDR],” he said.90 The general secretary read the full draft of the new law to the committee, and eager to get back to what they considered bigger issues, the members had only minor tweaks to suggest. The draft was quickly approved, and Krenz gave it to Günter Schabowski to announce at a press conference to be broadcast live on East German television and covered by international news outlets that evening.
As the press conference came to a close, Schabowski announced the travel law revision almost as an afterthought. Haltingly, he told the world, “We have decided today (um) to implement a regulation that allows every citizen of the German Democratic Republic (um) to (um) leave the GDR through any of the border crossings.” After a barrage of questions burst forth, Schabowski decided it would probably be a good idea to read the precise law. “Applications for travel abroad by private individuals can now be made without the previously existing requirements. . . . The travel authorizations will be issued within a short time. . . . Permanent exit is possible via all GDR border crossings to the FRG.” Asked when the regulation would come into effect, Schabowski looked down at his papers and found the word “immediately.” He answered, “That comes into effect, according to my information, immediately, without delay.” And what about West Berlin? “Does this also apply for West Berlin?” someone asked. Skimming the document again, he found the words, “Permanent exit can take place via all border crossings from the GDR to the FRG and West Berlin, respectively.” Well, then, what about the Berlin Wall? “What is going to happen to the Berlin Wall now?” someone asked. Here, at the logical but unresolved end point of the past four weeks of negotiations over trading the freer movement of people for hard currency, Schabowski realized he had no answer and quickly ended the press conference.91
As word spread that the government’s new law allowed all citizens to travel or emigrate immediately through any border crossing, East Berliners took to the streets to test out the new reality. They began showing up in droves at crossings in the Wall demanding to be let through. Because the travel law was, in fact, not supposed to go into effect until the next day (despite its talk of “immediately”), the border guards were caught completely unprepared. For five and a half hours after the press conference, tension and confusion reigned while the guards tried to seek clarification. Receiving none by 11:30 p.m., Harold Jäger, the officer on duty at the Bornholmer Street crossing, accelerated the course of his country’s history and ordered his subordinates to open the gates to the thousands of East German citizens pressing to get across. Within an hour, the Berlin Wall had fallen.92
Five days after the Berlin Wall opened, Schalck and König wrote to Schürer to tell him they had been lying to him about the debt for the past eight years. “The debt is actually 12.6 billion VM lower than you previously thought,” they wrote. Detailing the secret accounts KoKo and the Ministry of Finance had maintained since the 1970s to store extra hard currency, they told Schürer the actual debt at the end of 1989 would be roughly VM 38 billion, or $20.6 billion. Despite the difference, they maintained that the billions of deutsche marks stored in their accounts were still “not enough to solve the liquidity problems arising in 1991/92.”93
Nine years later, the German Bundesbank was not so sure. In 1998, the bank went back to examine the GDR’s balance of payments situation in the 1970s and 1980s. It discovered that even Schalck—keeper of the country’s financial secrets—did not accurately understand his country’s financial position. Rather than $20.6 billion in debt, the Bundesbank found that the GDR in fact only had $10.8 billion in debt at the end of 1989.
East German leaders believed they confronted a financial reality in 1989 that threatened the existence of their regime, but it was in many ways a false reality. In retrospect, all the numbers cited in this chapter turned out to be inaccurate. The GDR’s financial position in 1989 was so threatening only because its leaders believed it was. The real financial picture, although not without problems, was much less foreboding. The Exit/Violence/Austerity dynamics derived their power from a socially constructed reality built on faulty foundations, but they were no less powerful for it. Social constructions derive their power precisely from their ability to determine what is real and what is not.