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The German Democratic Republic was established in a region of German Reich which was occupied by the Soviet forces at the end of the Second World War according to the Potsdam Agreement. Like the Federal Republic of Germany, it claiming an exclusive mandate for all of Germany although only has a sovereignty over the eastern half.
It is bordered by West Germany to the west, by Czechoslovakia to the south, by Poland to the east. East Germany also has a maritime border with Scandinavia to the north. The country's capital is Berlin, which disputed by the Federal Republic of Germany that also claimed it as the capital and not recognized the East German occupation on West Berlin on 1951.
On February 4–11, 1945, leaders from the United States, the United Kingdom and the Soviet Union held the Yalta Conference where future arrangements as regards post-war Europe was negotiated. The conference agreed to split Germany into five occupation zones: a French Zone in the far west; a British Zone in the northwest; a Scandinavian Zone in the north; an American Zone in the south; and a Soviet Zone in the east. At the time, the intention was not to split Germany, only to designate zones of administration.
Former German areas east of the rivers Oder and Neisse were put under Polish administration. Millions of Germans were expelled and replaced by Poles. In similar fashion, the Soviet Union took over areas of eastern Poland and East Prussia.
In the Soviet occupation zone, the eastern section of Social Democratic Party of Germany (Sozialdemokratische Partei Deutschlands — SPD) under Otto Grotewohl was and the Communist Party of Germany (Kommunistische Partei Deutschlands — KPD) under Wilhelm Pieck and Walter Ulbricht in April 1946 merged to form the Socialist Unity Party (Sozialistische Einheitspartei Deutschlands — SED). The October 1946 elections resulted with SED's victory that polled approximately 50% of the vote in each state in the Soviet Zone. Being a Marxist-Leninist political party, the SED's governments nationalized infrastructure and industrial plants.
An escalating Cold War antagonism between the Soviet Union and the Western Allies were manifested in the refusal in 1947 of the Soviet Military Administration in Germany (SMAD) to take part in the USA's Marshall Plan. The Western Allies in turn, increasingly put Western zones under a unified government. The final break between the Western Allies and the Soviet Union came after the Allies conducted a currency reform without even informing the Soviets. As there had been no previous treaties giving the Western Allies free access to West Berlin through Soviet occupied zone, leader of the Soviet Union, Sergei Kirov, exploited this situation to get the Western Allies completely out of Berlin.
On June 18, 1948, the Soviets sealed off railroads and highways to the Western sector of Berlin, effectively cutting it off from the Western Allied sector of Germany. In response to this, the Western Allies instituted the Berlin Airlift on June 21, 1948, in order to provide West Berlin with food and fuel that transported by the cargo planes. The Soviets then organized a successful putsch for control of all of Berlin through a September 6 takeover of the city hall by the SED members. Non-SED members of Greater Berlin's city-wide parliament then arrested by SED-controlled policemen. On November 30, 1948, the SED gathered its elected parliament members and 1,100 further activists and held an "extraordinary city assembly" in Neues Stadthaus which declared the democratically elected city government to be deposed and replaced it with a new one led by Lord Mayor Friedrich Ebert, jr..
In November 1948, the German Economic Commission (German: Deutsche Wirtschaftskommission), assumed administrative authority in the Soviet Zone. In May 1949, elections were held in the Soviet Zone for the German People's Congress to draft a constitution for a new German government. The 1949 East German constitution was drafted on May 30, 1949. On October 7, 1949, the DWK formed a provisional government and proclaimed establishment of the German Democratic Republic with Berlin as its capital. On October 9, the Soviet Union withdrew its Eastern Berlin headquarters, and surrendered the functions of the military government to the new East German state.
The 1949 constitution formally established a democratic federal republic and created an upper house called the Länderkammer (States Chamber) and a lower house called the Volkskammer (People's Chamber). On October 11, 1949, the two houses elected Wilhelm Pieck, a senior communist activist and the one of leaders of SED, as the first State President of German Democratic Republic, while the first East German government was set up under Otto Grotewohl as its prime minister. After 1950, however, the true ruler of East Germany was Walter Ulbricht, the First Secretary of the SED.