For a detailed discussion of the events which led to the unification of Germany and of the problems resulting from "generous" conversion rate of the East German mark
and the wholesale take-over of western Germany's legal and institutional framework see OECD, Economic Survey of Germany, 1990 and 1991.
The problem, it seems widely accepted, stems from the decision of then-chancellor Kohl to speed up unification by exchanging West German and East German marks
at near parity.
It shows my friends and me as we passed through the infamous Checkpoint Charlie to exchange worthless old East German marks
for bottles of champagne.
In 1990, Kohl acted with uncharacteristic boldness to reunify his country, welding the two uneven sides of Germany with his decision to swap worthless East German marks
for rock-solid Deutsch marks at a rate of one to one.
Sales were based on East German marks
at a supposed exchange rate of 1.
Given the partly conflicting targets of minimizing the risk of inflation, strengthening the competitive position of the East German business sector, containing budgetary cost and satisfying the high expectation of East German population, the rates for converting East German marks
into D-Marks were seen as a compromise (general conversion rate for financial assets and liabilities of one D-Mark for two East Marks, preferential rate of 1:1 for limited amounts of private savings and for contractual payments such as salaries, wages and rents).
Market participants feared that the conversion of East German marks
into West German marks would result in a worrisome increase in German monetary aggregates or unleash pent-up demand for German products.