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Business

Minister Proposes Low-Wage Zones in Eastern Germany

Following a damning report on Germany's efforts to rebuild its once communist East, Transportation Minister Manfred Stolpe has proposed setting up special low wage zones in the east. Labor unions are up in arms.

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Eastern Germany's moribund economy is in need of remedy.

Also charged with rebuilding Germany's five former communist eastern states, German Transportation Minister Manfred Stolpe on Tuesday weighed in on the furious debate sparked by the publication of a controversial government-commissioned report last week on Germany's disastrous bid to modernize its eastern states since 1990.

Manfred Stolpe

Manfred Stolpe

Stolpe (photo) said he was in favor of setting up special low wage sectors in the eastern states, where the State would pay out a part of the salaries. "It's a thought that one must seriously pursue," Stolpe said in an interview with business daily Handelsblatt.

The minister added that the so-called wage subsidies, which would amount to welfare benefits being rebundled as cash incentives instead of as entitlements, could be tied into a law for "Regions for Innovation" currently being drafted by Economics Minister Wolfgang Clement. "We must examine, how far we can get it into the program of the economics minister," Stolpe said.

The "Regions for Innovation" law, which Clement is expected to introduce this year, aims at cutting red tape and repealing certain regulations in construction and planning laws in order to boost the depressed economy in the east.

Proposal takes up commission's recommendation

Stolpe's plan for wage subsidies for Germany's eastern states echoes a key proposal put forth by the government-commissioned panel of 13 experts headed by former Hamburg mayor Klaus von Dohnanyi last week.

The commission's report -- openly critical of the government's reconstruction plan for the former communist east ever since German reunification in 1990-- largely concluded that the €90 billion ($107.9 billion) Berlin spends annually on rebuilding the so-called new federal states is wasted and that stagnant eastern Germany is now dragging the wealthier west into ruin.

In addition to cash incentives for guaranteed jobs, the commission also suggested a new master reconstruction plan, long-term tax relief for eastern German companies, concentration of economic aid in specific growth centers and the inclusion of at least one eastern German firm in tenders for government contracts to counter years of flawed eastern policy.

Fears of EU expansion

Stolpe has defended his plan of special low wage zones in eastern Germany by pointing towards the likely consequences of the European Union's expansion in May when it takes in ten new mainly former communist eastern European countries.

The minister warned that enlargement would lead to a flood of workers from neighboring eastern European countries taking up most low wage jobs in eastern Germany. Stolpe pointed out that it would be an unacceptable situation, particularly because long-term unemployment in eastern Germany is on the rise from year to year. The Dohnanyi report pointed out that chronically high unemployment of almost 20 percent is exacerbating the region's problems.

The minister has argued that it's thus all the more important that workers in low cost sectors in eastern Germany have the possibility of a wage supplement in addition to welfare benefits.

Unions irked by plan

However Stolpe's proposal is expected to run into stiff opposition from the country's powerful labor unions, many of whom fear that it would water down hard negotiated wage agreements with industries.

DGB-Vorsitzende Michael Sommer

Michael Sommer

Michael Sommer (photo), head of the German Federation of Trade Unions, shot down the suggestion on Tuesday. "If special economic zones were a successful model, then eastern Germany should have been a flourishing landscape in the face of lower wages and longer working hours," Sommer told daily Tagesspiegel.

He added that the discussion wasn't just wrong, but also dangerous. "Conservative politicians want to exploit the woes of the east, to first catapult the special economic zone and then the whole country into the past," he thundered.

Criticism of the plan has also emanated from German industry, which is struggling to recover from a recession. "If something is right, why should it just take place in eastern Germany," asked Klaus Zimmermann, president of the German Institute for Economic Research. "Now the whole of Germany is a special economic zone."

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