This chapter explores the question of why West Germany, with the most powerful economy within the European Union (EU), chose to give up its stable, highly prized deutsche mark to join the European Monetary Union (EMU) and accept significant constraints on its fiscal and monetary policies. The answer for Germany lies in a series of historical stages after 1945, each reflecting an increasing acceptance of the need to abandon balance-of-power politics for a multiple-level shared sovereignty through economic and political integration with other EU member states. In domestic policy, West Germany developed a “social partnership” in which power and decision-making was shared among major interest groups. In foreign policy, the parallel system was called a “security partnership” with major and minor powers in Europe and North America. As a result, Germany based its international actions on multilateral institutions such as the United Nations, the North Atlantic Treaty Organization, the Council of Europe, the Conference on Security and Cooperation in Europe, and the European Community (later European Union). Internally this approach ensured that no major interest, neither big business nor labor, would dominate. Internationally the multilateral policy encouraged other states to accept Germany's increasing economic strength without fearing it would be harnessed to national political ambitions. The ultimate proof of the wisdom of this approach was the relative ease with which Germany's neighbors, allies, and rivals accepted the unification of the Federal Republic of Germany and the German Democratic Republic.

The surprise that all students of the Cold War felt when the Berlin Wall was breached on 9 November 1989 remains a vivid memory. Other surprises followed as we came to know more about the socities that had existed behind the Iron Curtain. A surprise that has been widely commented upon was the hollow quality of the Communist regimes, such as those in the German Democratic Republic (GDR) and in Czechoslovakia, that had appeared from the Western perspective to be so solid. Not only did these regimes collapse quickly but it also became apparent, and was in itself surprising, that their economies had been highly dysfunctional. Some officials within the Communist states realized the seriousness of their economic problems. But in the absence of market prices and interaction with market economies to test how these systems really functioned, outside analysts consistently overestimated the productivity of all of the member states of the Council for Mutual Economic Assistance (COMECON). More surprising was the fact that the Soviet military and the leadership of the Soviet Communist party allowed the governments of Eastern Europe to be overthrown when it could be clearly forecast that one result would be the forced withdrawal of Soviet troops from the former satellites. It is now reasonably clear that as the revolutions of 1989 gained momentum, Mikhail Gorbachev and some of his close advisers came to accept this result, just as it is equally clear that the vast majority of the Soviet military, the leadership of the Communist party, and the KGB (Committee of State Security) did not want to relinquish control of Eastern Europe.