As a result of irreconcilable differences among the Allied powers, however, no peace conference was ever held. The issue of German reparations proved particularly divisive. The Soviet Union, whose population and territory had suffered terribly at the hands of the Germans, demanded large-scale material compensation. The Western Allies initially agreed to extract reparations but soon came to resent the Soviets’ seizures of entire German factories as well as current production. Under the terms of inter-Allied agreements, the Soviet zone of occupation, which encompassed much of German agriculture and was less densely populated than those of the other Allies, was to supply foodstuffs to the rest of Germany in return for a share of reparations from the Western occupation zones. But when the Soviets failed to deliver the requisite food, the Western Allies found themselves forced to feed the German population in their zones at the expense of their own taxpayers. The Americans and British therefore came to favour a revival of German industry so as to enable the Germans to feed themselves, a step the Soviets opposed. When the Western powers refused in 1946 to permit the Soviets to claim further reparations from their zones, cooperation among the wartime allies deteriorated sharply. As day-by-day cooperation became more difficult, the management of the occupation zones gradually moved in different directions. Even before a formal break between East and West, opposing social, political, and economic systems had begun to emerge.
Despite their differences, the Allies agreed that all traces of Nazism had to be removed from Germany. To this end, the Allies tried at Nürnberg 22 Nazi leaders; all but three were convicted, and 12 were sentenced to death (see Nürnberg trials). The Soviets summarily removed former Nazis from office in their zone of occupation; eventually, antifascism became a central element of East Germany’s ideological arsenal. But, since the East German regime denied any connection to what happened in Germany during the Nazi era, there was little incentive to examine Nazism’s role in German history. The relationship of Germans to the Nazi past was more complex in West Germany. On the one hand, many former Nazis survived and gradually returned to positions of influence in business, education, and the professions, but West German intellectuals were also critically engaged with the burdens of the past, which became a central theme in the novels of Heinrich Böll, Günter Grass, and many others.
On into the 21st century, the Holocaust casts a dark shadow across German politics and culture. Historians have debated the place of anti-Semitism in German history: How much did the German people know about the murder of the Jews? How many approved of the "final solution" carried out by the Nazi government? Was the Holocaust the result of a uniquely powerful and deeply rooted German hatred of Jews, as some historians have argued (e.g., Daniel Goldhagen in Hitler’s Willing Executioners: Ordinary Germans and the Holocaust [1996])? Or, did the Holocaust arise within the violent context of war, leading ordinary men to commit crimes that would otherwise have been unthinkable?
Beginning in the summer of 1945, the occupation authorities permitted the formation of German political parties in preparation for elections for new local and regional representative assemblies. Two of the major leftist parties of the Weimar era quickly revived: the moderate Social Democratic Party (Sozialdemokratische Partei Deutschlands; SPD) and the German Communist Party (Kommunistiche Partei Deutschlands; KPD), which was loyal to the Soviet Union. These were soon joined by a new creation, the Christian Democratic Union (Christlich-Demokratische Union; CDU), with its Bavarian sister party, the Christian Social Union (Christlich-Soziale Union; CSU). The leaders of this Christian Democratic coalition had for the most part been active in the moderate parties of the Weimar Republic, especially the Catholic Centre Party. They sought to win popular support on the basis of a nondenominational commitment to Christian ethics and democratic institutions. Germans who favoured a secular state and laissez-faire economic policies formed a new Free Democratic Party (Freie Demokratische Partei; FDP) in the Western zones and a Liberal Democratic Party in the Soviet zone. Numerous smaller parties were also launched in the Western zones.
Under pressure from the occupation authorities, in April 1946 the Social Democratic Party leaders in the Soviet zone agreed to merge with the Communists, a step denounced by the Social Democrats in the Western zones. The resulting Socialist Unity Party (SED) swept to victory with the ill-concealed aid of the Soviets in the first elections for local and regional assemblies in the Soviet zone. However, when in October 1946 elections were held under fairer conditions in Berlin, which was under four-power occupation, the SED tallied fewer than half as many votes as the Social Democratic Party, which had managed to preserve its independence in the old capital. Thereafter the SED, which increasingly fell under communist domination as Social Democrats were systematically purged from its leadership ranks, avoided free, competitive elections by forcing all other parties to join a permanent coalition under its leadership.
The occupying powers soon approved the formation of regional governmental units called Länder (singular Land), or states. By 1947 the Länder in the Western zones had freely elected parliamentary assemblies. Institutional developments followed a superficially similar pattern in the Soviet zone, but there the political process remained less than free because of the dominance of the Soviet-backed SED.
When it had become apparent by 1947 that the Soviet Union would not permit free, multiparty elections throughout the whole of Germany, the Americans and British amalgamated the German administrative organs in their occupation zones in order to foster economic recovery. The resulting unit, called Bizonia, operated through a set of German institutions located in the city of Frankfurt am Main. Its federative structure would later serve as the model for the West German state.
In the politics of Bizonia, the Social Democrats and the Christian Democrats quickly established themselves as the major political parties. The Social Democrats held to their long-standing commitment to nationalization of basic industries and extensive government control over other aspects of the economy. The Christian Democrats, after initially inclining to a vaguely conceived “Christian socialism,” swung to espousal of a basically free-enterprise orientation. In March 1948 they joined with the laissez-faire Free Democrats to install as architect of Bizonia’s economy Ludwig Erhard, a previously obscure economist who advocated a “social market economy,” essentially a free-market economy with government regulation to prevent the formation of monopolies or cartels and a welfare state to safeguard social needs.
When repeated meetings with the Soviets failed to produce four-power cooperation, the Western occupying powers decided in the spring of 1948 to move on their own. They were particularly concerned about the deteriorating economic conditions throughout occupied Germany, which burdened their own countries and awakened fears of renewed political extremism among the Germans. The Western powers therefore decided to extend to their occupation zones American economic aid, which had been instituted elsewhere in western Europe a year earlier under the Marshall Plan. To enhance the effectiveness of that aid, the Americans, British, and French effected a currency reform in their zones that replaced Germany’s badly inflated currency (the Reichsmark) with a new, hard deutsche mark, or DM. Western Germany’s economy responded quickly, as goods previously unavailable for nearly worthless money came onto the market.