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Deutsche mark and the Ostmark

Despite official parity between the Deutsche mark and the Ostmark, the black market rate in early 1990 was about ten Ostmarks for one Deutsche mark. What problems might setting the exchange rate at one Ostmark for each DM create for Germany?

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The basic problem is that at a one for one exchange rate the Ostmark will be overvalued relative to the Deutsche mark. Unless East German wages fall, East German industry will find their cost of doing business rising, without an offsetting gain in productivity. East German industry will become even ...

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