Get article background
“ONLY one person promised blossoming landscapes,” says Peer Steinbrück. Looking proudly at Germany's booming economy, falling unemployment and bulging state coffers, the finance minister is trying to deflect objections that the five states of former East Germany have never enjoyed Helmut Kohl's 1990 pledge of economic nirvana. It takes a generation to help the new states to their feet, he says. Mr Steinbrück has no plan to change the “solidarity pact”, under which western Germany will subsidise eastern Germany until 2019.
Almost 17 years after unification, the new states have at least made some progress visually. A walk through the streets of central Rostock reveals the well-stocked flower beds, brightly coloured houses and outlets of Kaufhof, a department store, McDonald's, a fast-food chain, and Tchibo, a coffee shop, that are found in most western German towns. As Rostock prepares for the G8 summit in early June in nearby Heiligendamm, the mayor has planted signs saying “welcome” in 20 languages.
Yet appearances are deceptive. Since unification, some €1.5 trillion ($2 trillion) has been transferred east. Western Germany still hands over 4% of annual GDP, a net €80 billion, to eastern Germany, which is not being weaned off subsidies. Average unemployment of 15.2% is twice the western rate, and far higher than most other bits of central Europe (see chart). Wages are about one-third lower than in western Germany.
The government wants to aim subsidies more sensibly. “We used to spray our funds evenly everywhere to kick-start consumption, but now we need to focus on investment in areas of growth,” says Mr Steinbrück. Productivity is one-third below western levels. Annual sales of the 100 biggest companies in the five new states add up to those of Siemens. Of the top 500 German companies, only 19 come from the former East Germany.
In Mecklenburg-West Pomerania, Germany's poorest state, cities like Rostock are among the growth areas, thanks to a revival of shipping and tourism. Rostock has been through a rough patch. After unification, shipyards sacked thousands because the Russians, their main customers, could no longer afford their ships. But today the port makes money on ferry traffic to Scandinavia. Liebherr, a big maker of cranes, set up a new production site two years ago. Hotels are doing well: in the past 17 years, they have doubled their capacity. These are the region's new “lighthouses”.
Inland the picture is gloomier. Mecklenburg-West Pomerania is a flat agricultural state with 2,000 lakes, including Lake Müritz. Farm employment has dwindled from 200,000 in 1989 to 20,000, says Jürgen Seidel, the state's economics minister. There are few manufacturing employers. One is Mecklenburger Metallguss, in Waren, on the shore of Lake Müritz. It produced 130 propellers last year, including the world's biggest, weighing 130 tonnes with a diameter of 10 metres. Another booming business is a foundry in Torgelow in the state's east. It is a sign of a recovery, albeit from a low base, that 13,000 new jobs have been created in the state since April 2006, says Mr Seidel.
Yet there is little sign of growth in many parts of West Pomerania that border Poland, in the Altmark region in Saxony-Anhalt or in the region of Prignitz in Brandenburg. “Some of these towns and villages will slowly die,” predicts Mr Steinbrück. Unemployment in Demmin, in eastern Pomerania, is almost 30% of the workforce. The city's population has shrunk by a fifth in a few years. It is a fief of the far-right NPD, which won enough votes to enter the state parliament last September.
To close the gap, eastern Germany must grow by more than the rest of the country, points out Karl-Heinz Paqué, a former finance minister in Saxony-Anhalt. This is already being done in areas around Magdeburg (car components), Dresden (electronics) and Jena (optics). The rest of Eastern Germany has only 12 more years to discover more such “lighthouses”.
|Copyright © 2007 The Economist Newspaper and The
Economist Group. All rights reserved.|