This paper analyzes some of the consequences of economic and monetary union of the two Germanies. Particular emphasis is given to the real implications for the supply side of the German Democratic Republic and for resource flows between two economic regions.

Germany is generally regarded as the nominal anchor for Europe. Its participation is the sine qua non of EMU. It has been the largest net contributor to EU finances, the leading proponent of greater economic and political union, and the leading example of the virtues of fiscal and monetary...