With a certain Donnie from Queens having just announced a historic meeting between himself and North Korean hipster dictator Kim Jong Un in a month's time, we thought we would look at the potential cost if, God willing, North and South Korea were to eventually unify.
Fortunately for us, Stephen Jen and Joana Freire of Eurizon SLJ Asset Management have beaten us to the punch. Yesterday they published a hypothetical research piece looking at the cost of unifying a peninsula, using as a guide Germany's reconstitution in 1989.
So what are their conclusions?
First, Eurizon starts by looking at the transfers from West Germany to East Germany in 1989, calculating a cost at around €1.7trn in today's euros, around 62 per cent of West Germany's current GDP, or roughly 8 per cent of the European Union's nominal GDP, according to the IMF.
The Korean populations are closer in size, with around 26m North Korean citizens compared to South Korea's 51m, a near 2-to-1 ratio versus West and East Germany's split of around 4-to-1. So all else being equal, the lack of a need for serious population flows from south to north should at least partly aid unification.
That is, until you remember East Germany still carried the legacy of the Nazis' bellicose wartime industrial efforts. From Eurizon's note:
Much of the industrial base in Germany that supported the war efforts during the 1940s were located in the former East Germany. Mercedes, BMW, VW, ThyssenKrupp, and Bosch, which are household names today, but all of them had major factories before May 1945 in support of Germany’s military operations. The industrial ‘culture’ has never disappeared in EG, even if it had faded somewhat under communist rule.
Together, these items suggest that population flows might be less of an issue....
(Excerpt) Read more at ftalphaville.ft.com ...
