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After the end of the Second World War, Germany was divided amongst the victorious powers. The Soviet Union got to control the land East of the Elbe River, whilst the Western Powers got the West. The capital city of Berlin, which was deep inside to Soviet portion, was split as well. France, Britain, and the US shared the West, and the Soviet Union got the East. The west also got a highway, canal, and three air routes into Berlin.
In 1958, West Germany had a much higher standard of living compared to the East, so it wasn't surprising that over two million East Germans had fled East Germany via Berlin (travel to East Berlin, drive across to West Berlin, and then take the highway into West Germany), causing East Germany to suffer a massive "brain drain". Nikita Krushchev saw this happening and demanded that the West leave Berlin, or else the Soviets would hand control of East Germany over to the Pankow Regime, with whom the West had no diplomatic ties or agreements concerning Berlin. The West didn't back down, but Krushchev did.
In March of 1959, Krushchev proposed a summit meeting with Dwight Eisenhower, and met in Paris in September. A moratorium was declared, and things looked good; the Paris Summit was set for may 16, 1960. Eleven days before the summit, the Soviet Union announced that they had shot down an American U-2 (high-altitude recconasaince plane). Krushchev demanded that Eisenhower apologize, give out appropriate punishment, and discontinue these flights; Eisenhower refused, which made Krushchev refuse to meet in Paris, saying he would not negotiate with the United States as long as Eisenhower was in power.
John Kennedy was elected, and agreed to a summit meeting in Vienna in 1961; at this meeting, Krushchev gave Kennedy an ultimatum, requiring the West to remove its troops from Berlin and create a free city. The Soviet Union then anounced that it had increased its military budget by 33%; Kennedy then raised the US military budget by three billion dollars and doulbling its current drafting rate.
Between January and June of 1961, 103,000 East Germans fled to the West, but Krushchev had a secret plan. On midnight of August 13, the border between East and West Berlin was permanently closed with only a few checkpoints that were very heavily armed; the fence was initially barbed-wire, but later developed into re-enforced concrete slabs, the Berlin Wall came in overnight. A mine-covered buffer zone with anti-tank devices was set up along the Eastern side of the Wall.
Krushchev was being labelled as weak by the politiburo, and proved his worth when he let Soviet tanks come nose-to-nose with American tanks from the 25 to the 27 of October. The Berlin Wall lasted until 1989, when the Warsaw pact dissolved, but until then, no one was allowed to leave East Germany.
This event increased the tension between the United States and the Soviet Union.
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