GERMAN UNIFICATION: IMPLICATIONS FOR EUROPEAN UNION

The German experience of unifying two dis-similar economies may provide invaluable insights to Europe as it struggles with monetary union. The purpose of this paper is to examine the impact of German unification on interest rates, inflation and the value of the DM in an effort to assess implications for European economic union. The results of this study suggest that Germany achieved unification with relatively minor interruptions to its international parity relationships and financial stability. In order for the European community to experience a like transition, members would most likely need to provide for a cooperative, consistent monetaty policy.