German reunification

East and West Germany formally reunified on October 3, 1990, converting East German ostmarks to deutsche marks at a politically-set rate widely seen as overvaluing the East German economy and making its industry instantly uncompetitive. The federal government spent well over a trillion deutsche marks (and, later, euros) over the following decades on infrastructure, welfare payments, and modernization in the former East, funded partly through a 'solidarity surcharge' tax still partially in effect today. Unemployment in eastern states remained persistently higher than in the west through the 1990s and 2000s, and the fiscal burden of reunification is often cited as one reason German growth was comparatively sluggish through that period, ahead of the Hartz labor reforms of the mid-2000s.