Rebuilding East Germany

BERLIN (Reuters) - Germany's bid to modernise its former communist eastern states with 1.25 trillion euros (830 billion pounds) of transfers since 1990 has failed, and the region will remain a serious drag on the wider economy, according to a leaked report.

The study, commissioned by Economy Minister Wolfgang Clement and Transport Minister Manfred Stolpe, concludes that the 90 billion euros Berlin spends annually on rebuilding the so-called new federal states is largely wasted, weekly news magazine Der Spiegel reported.

The 13 experts on eastern Germany charged with compiling the report, including former Hamburg Mayor Klaus von Dohnanyi, industry and union officials and economists, said the east has ground to a halt and the west is falling into ruin as a result.

"The ongoing internal west-east transfer of cash and other consequences of German unification are directly or indirectly responsible for about two thirds of the country's economic weakness," Der Spiegel quoted the report as saying.

Chancellor Gerhard Schroeder promised in 1998 when he took office that rebuilding the eastern states would be a top priority for his coalition of Social Democrats and environmentalist Greens.

Recently, however, opposition politicians including Christian Democrat leader Angela Merkel, an east German, have accused him of ignoring the east's woes as reforms to the wider economy, terrorism and other issues have taken centre stage.

Heinz Schmalholz, an economist specialising in structural change at the Ifo Institute's branch in Dresden, eastern Germany, said that while it is easier with hindsight to identify mistakes made after reunification, no politically viable alternatives have been put forward.

WESTWARDS MIGRATION

"One of the main criticisms has been that wages rose much too quickly after reunification," boosting unemployment, he told Reuters.

"But what would people then have done without that? They would of course have migrated to the west where there were higher wages," he added. "I don't know whether the politicians would have wanted to take responsibility for that."

Although east Germany makes up just a quarter of the total German labour force, it accounts for half the nation's unemployed, said Lehman Brothers' economist Sandra Petcov.

That meant that nearly half of the gross transfers to the east during the second half of the 1990s was spent on social security payments. Investment accounted for just 15 percent.

The leaked government report suggests some remedies to reverse damage caused to the east's economy in the last decade and officials in four working groups are currently evaluating which can feasibly be implemented, Der Spiegel said.

The suggestions include long-term tax relief for eastern German companies and cash incentives for guaranteed jobs; concentration of economic aid in specific growth centres; a new reconstruction master plan; and the inclusion of at least one eastern German firm in tenders for government contracts.

Some analysts, including Lehman's Petcov, are more upbeat about the process of reunification and suggest former Chancellor Helmut Kohl's goal of creating "blooming landscapes" in the east is gradually being achieved.

"It may well be that another 10 or 15 years are required until full convergence has been achieved, but the costs of getting there are likely to decline as the goal is approached," Petcov said.

"An optimist might even argue that if current structural reform plans are implemented, Germany may yet eventually emerge economically stronger than west Germany ever was," she added.

Minister Stolpe, who is also responsible for rebuilding east Germany, said on Monday that the government needed to re-think funding for the east and a "readjustment" was in order.

Removing the welfare system would create millions of McJobs.

As foreigners it might be hard to understand this I guess, but its their country, and noones exactly suffering, so whats the problem?

Some people don't want to do what it takes to better themselves so they stay in crappy low-paying jobs and believe it or not, many of them are happy.

tired

25% of the total amount of taxes (=Solidaritätszuschlag) is paid by the east-germans (still living in East-Germany) themselves.

They SAY they understand the need for reform but they bitch like hell when it affects them.

i am sure if the germans had their time again the east-west reunification process would not have occured so hastily.

it was purely down to helmut kohl and his boys seeking another election win.

As far as Im concerned, sitting in the office all day is just the boring part of life that pays for the rest, the more important aspects, like developing rich life experiences and forming meaningful relationships with people.

If anything, a low-paying, low-stress, low-responsibility job would free up time for me to concentrate on the things I am really on this planet for, connecting with people, having fun, learning stuff, joking around, adding to the list of experiences, eventually having a family...

Seems to me the only way to get more than that out of work in our society is through education - which allows people to avoid the kind of mindless, repetitive, fruitless labour that you mention - and get to a position where they can do something more fulfilling.

Now, after thousands of years of inventing labor saving devices, we have to spend about 40 hours per week working, just to pay for the labor saving devices!

In Roman times, the average working week was 30 hours.

you can't dispute America's economic success.

@jeremy
I didn't say America is paradise. I said the American economic model is, for the most part, fair and that it works. There are reasons that America is No. 1 economically and that's because of the American form of capitalism. There are plenty of reasons to criticize America and I AM NOT waving the flag but you can't dispute America's economic success.

Yes, and there are reasons why Germany is a safer country to live in than America and that is exactly because they don't have the American form of capitalism here.

There are reasons that America is No. 1 economically and that's because of the American form of capitalism.

Poor people stay poor.

Pardon me my Irish colleague but that is plain old bullshit - in the States high school kids are forced to recite some silly pledge to the flag every morning , is that brazen nationalism/facism/propoganda/brainwashing ? Sure it is.
Does it help American CITZENS to feel AMERICAN - you betya - and it works.
Nothing to do with capitalism - leaving these losers to hang around all day on our welfare state and plot bombing campaigns against "the man" is far more dangerous. Much better stickin them into McJobs.

Payments for those out of work, but more money for workers in Government schemes. Even if its some stupid scheme

No pardon me. I have absolutely no idea what the pledge of allegiance has to do with the fact that America is more 'dangerous' a place to live. And to suggest that somehow to force the handful of muslims that are planning bombing campaigns into McDonalds jobs would somehow help, is the only thing stinking of shit in this whole thread, my Irish colleague.

The guys who planned 9-11 were mostly from European and Suadi cells

Living standards in the U.S. are much higher than 20 years ago

I agree that most European counties could do more to integrate their immigrant populations, but forcing them into low skill, low esteem jobs ain't gonna do it, sorry. And I don't see what this has to do with a) why Germany is a safer place to live in than America b ) social welfare expenditure

Anyway, I did see a program about Muslims in Germany, all of whom did condemn the attacks.

How can you exclude modern conveniences?

I didnt see such a program , but come on then , see if you can find it and I'll download it.

I have done more that my fair share of shitty jobs too, so try not be so lecturing about it, like a good lad. Ireland has the lowest social welfare payments in the whole of Europe and they still have long term unemployed and far more junkies than Germany. So what is your point? Junkies are unemployed because they are Junkies, not the other way round.

Couldn't be arsed mate. It was one of the Stern TVs or Spiegel TV episodes. If you don't believe me, I can live with that.

And anyway, as you still haven't answered my main points, I'll just take it that your one of those that Big C was referring to.

Germany is safer, because it has a fairly high social safety net and a few Muslims who have a problem with our way of life has nothing got to do with it.