Breaching the East-West Economic Divide | Business| Economy and finance news from a German perspective | DW | 22.09.2004
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Breaching the East-West Economic Divide

When the German cabinet presented its annual report on the state of German unity Wednesday, it reached the unexpected conclusion that the economic gap between East and West has, in fact, begun to close.


A glimmer of hope on the horizon?

Coming weeks after President Horst Köhler's controversial comment that the former East would never have the same living and employment standards as the rest of the country, few would have expected the positive results laid out in the report.

Catching up

Contrary to perception, "with the exception of the building sector, slowly but surely eastern Germany is managing to catch up economically," the report stated.

It therefore looks as though the government is indeed reaching its goal of equalizing living standards across Germany.

Manfred Stolpe Aufbau Ost

Manfred Stolpe

The report, presented by Manfred Stolpe (photo), Minister of Transport, Building and Housing and the government's special representative for the eastern states, showed that despite the broader trend of economic downturn, production in eastern German industry grew an average 5.5 percent per year over the last decade and reached 74.6 percent of the western German standard.

Engineering, the food, car and electrical industries are enjoying a particular upswing, proving that the process of successful reindustrialization is well underway.

Were it not for the slump in the building sector, the report pointed out that the rate of growth in the former East between 1992 and 2003 could have reached 3.7 percent, considerably higher than in the West.

Baustelle, Berlin

Berlin is one of the few cities in the east, where construction is an active industry

As it is, however, the construction industry crisis is one of the main reasons for the ongoing rise in the region's joblessness. In 2003, unemployment hovered around 18.6 percent, almost twice as high as in the rest of the country. Consequently, the region also suffers from a young people drain.

Restructuring reconstruction aid

Shaken by the results of the recent state elections in Brandenburg and Saxony, which saw considerable gains for far right parties, the government has decided to restructure its reconstruction aid for eastern Germany in order to develop what it calls 'growth clusters' and prompt improved competitiveness, reported the daily Süddeutsche Zeitung from Munich.

This would involve closer ties between investment and research, for example, and subsidize programs better focused on existing regional strengths.

Verfall in Oberschöneweide

Dilapidated factory buildings are still easier to find than new plants in many regions of eastern Germany

The report stressed that one of eastern Germany's most pressing problems is its lack of big business, and that states should use funds from the Solidarity Pact for eastern reconstruction, consisting of €156 billion ($191 billion) until 2019, "with as broad an intensity possible". The state governments were also criticized for investing too little in infrastructure.

Questioning label of failure

The report paints a different picture of eastern Germany's economy to the one the country is used to.

"Without ignoring the specific problems of the eastern German states, such as high unemployment and overall economic weaknesses, it's time to question the label of 'failure'," wrote the daily Berliner Zeitung.

"The brutal reality is that the general mood is considerably worse than the reality," argued Manfred Stolpe.

Gemeinschaftswerk Aufschwung Ost in Magdeburg

"Upswing East," reads the graffiti, but many eastern Germans don't feel that's happened in the past 15 years.

He also referred to the increasingly strained relationship between eastern and western Germany, stressing the need to avoid mutual resentment.

"We have to protect ourselves from prejudice," he said. "There are signs of increasing bitterness on both sides."

While the government report admitted that unemployment rose rise in 2003, it emphasized that the region has also seen "remarkable progress."

"All in all, the eastern German economy is on track to achieving an internationally competitive and sustainable structure," concluded the report.

Stolpe also took the opportunity to defend the controversial Hartz IV welfare reforms, insisting that they would make Germany more competitive and help create jobs.

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