Panel Reveals Plans to Revive Eastern Germany

The experts around the former Social Democrat mayor of Hamburg, Klaus von Dohnanyi, believe that the way the massive west-east financial transfers have been handled since reunification has been a complete failure. The government itself brushed off the criticism as unfounded, but promised nonetheless to look into the panel’s recommendations.

Fourteen out of the 16 members of the advisory panel agree that the government under German Chancellor Gerhard Schröder, a Social Democrat, has ignored the real economic hardships in eastern Germany since it came to power in 1998.

They claim that despite the fact that huge sums have been transferred from the affluent west to the depressed east, not a single core economic problem there has so far been resolved. They point to eastern companies’ weak capital stock and an unemployment rate twice as high as that in western Germany.

Using funds more efficiently

Panel spokesman Klaus von Dohnanyi called on the government to quickly revise its fiscal policy towards the east. He and most of his colleagues don’t want more money to be pumped there -- they want the money to be used more efficiently.

Dohnanyi argues that it's high time to stop making infrastructure projects in the east a top priority when a good proportion of regions in the east already have a better infrastructure than those in the west.

"Money is limited and we transfer from the powerhouse west to east Germany per annum about €90 billion to 95 billion ($109 billion to $115 billion,)" he said. "The money should be targeted on clusters, it should be targeted on businesses and it should not be targeted primarily on infrastructure. It should be targeted in a way that the federal state does not come into too much conflict with local interest."

The advisory panel suggested using the bulk of the transfer money to promote selected innovative industries. Many of these are believed to have the potential for creating sustainable jobs, for instance in the fields of biomedicine and environmental technologies. The panel also called on the government to reconsider tax exemptions for newly founded companies in the east, particularly for small and medium sized firms.

This, the experts argued, should in fact ensure their survival in a heavily contested market. They say it makes no sense to boast of the number of start-ups when each year the number of new companies in the east consistently equals the number of new insolvencies.

Talk of a low-wage sector

Dohnanyi also said that more thought should be given to the promotion of the low-wage sector in the east.

"We have a new competition also now from eastern Europe and we must see that these people in east Germany can make a living," he said. "Therefore we discuss things like the earned tax credit systems in the United States, etc. -- something that we should add to the wages in order to be competitive and at the same time have an adequate living in the comparatively high cost country Germany."

Dohnanyi raised eyebrows in the Berlin cabinet by suggesting to reinstate a special commissioner for eastern Germany. This implicitly calls into question the work of Transport Minister Manfred Stolpe, who’s currently responsible for eastern Germany’s economic development together with Economics Minister Wolfgang Clement.

Critique from eastern German politicians

While saying that he agreed with most of the panel's suggestions, Stolpe made it clear that he did not want to turn over responsibility for eastern Germany to a cabinet member who would focus on the reconstruction effort in eastern Germany.

"That's clearly enticing, but he will have to beg and struggle to achieve something," he told Berlin public broadcaster RBB, adding that a ministry like his own had better resources to deal with the problems.

Other political leaders from eastern Germany -- Stolpe himself served as premier of the federal state of Brandenburg that surrounds Berlin before joining the federal cabinet -- also voiced their opposition to the panel's suggestions.

Dieter Althaus, the Christian Democratic premier of the state of Thuringia, called the panel "superfluous" and added that proposed cuts to funding of local infrastructure improvements would have "fatal consequences."

It’s not yet clear to what extent the Schröder government is willing to listen to the expert panel’s suggestions. In fact, the very future of the panel seems to be at stake, as it has been heavily criticized in the past for indiscretion and infighting among the experts.