Economic promise emerges in eastern Germany

26th November 2007, Comments 0 comments

Eighteen years after a popular uprising swept away the Berlin Wall, the long-promised flourishing landscapes of Germany's former communist east are finally showing signs of taking shape.

Just over 12 months ago, mass unemployment, the collapse of the key building industry as well as the slow pace of economic convergence with Germany's more prosperous west and the failure of industrial investment to materialize in many areas threatened to turn large parts of the nation's eastern half into a new mezzogiorno. 

Despite federal government support for the region at times hitting an astronomic 100 billion euros ($144.8 billion) a year, the economic transformation of Germany's former communist east appeared to have stalled resulting in the region becoming a drag on Europe's biggest economy. 

Instead of the flourishing landscapes in four years that former conservative German Chancellor Helmut Kohl had promised in the months following the fall of the Berlin Wall in November 1989, economists began saying that only in 30 or 40 years would the east close the economic gap with the west. 

But now signs of an economic revival appears to be taking hold with optimism across the region having climbed at one point this year to its highest level since the end of Germany's postwar divide and economists expecting growth next year in the country's east to outstrip the west. 

As a consequence, it is helping to shore up Germany's renewed sense of economic vigour after a protracted period of stagnation. 

"There have been considerable strides compared to the 1990s," said Udo Ludwig, senior economist at the Institute for Economic Research in the eastern German city of Halle. 

A projected slippageGrowth in the east, however, is projected to slip back a gear in 2008 in line with a slowing world and European economy. 

But Germany's leading economic institutes expect growth in the east to come in at a solid 3 percent this year, outpacing the around 2 percent average for all of Germany with a rebound in industry, notably in machine and engineering equipment helping to power growth in the former communist east. 

Apart from the new tourism industry that has emerged along eastern Germany's Baltic Sea coastline, a recent raft of high-profile investments in the region by leading companies such as carmakers Porsche and BMW and chipmaker Infineon AG have also started to pay off. 

More recently, German corporate giants E.ON and BASF announced plans to team up with Russia's Gazprom to launch a 5-billion-euro gas pipeline project bringing gas from Siberia into eastern Germany by 2011. 

This comes amid signs that some German companies have been pulling back from central and Eastern Europe, where costs have been rising and as a result closing the gap between eastern Germany and its former Soviet bloc partners.

Rapid growth

Representing barely 5 percent of eastern Germany's GDP in 1994, the region's export growth has also surpassed western German exports, increasing last year by 15 percent. 


In particular, underpinning eastern Germany's export machine has been the rapid-fire growth that has emerged in the region's neighbours such as the Czech Republic and Poland following their European Union membership three years ago. 

At the same time, research institutions and renewable energy companies, notably solar power groups, have been mushrooming across the east, in part drawn to the region by its modern infrastructure and lower labour costs, which are a third of the western German level.

Last month, unemployment in the east of the country stood at a still hefty 13.6 percent with a total of 1.16 million out of work.

But a decade ago, unemployment in the east was hovering around a staggering 20 percent with the recent strong performance of the German economy and the tough labour market reforms launched by former Social Democrat-led government of Chancellor Gerhard Schroeder helping to shore up the jobs market.

Economists believe the dole queues in the east could shrink next year with the numbers of unemployed falling below 1 million.

This also follows the moves by workers in the eastern part to abandon Germany's industry-wide collective wage bargaining system and opt for often lower wages through factory-based pay settlements as part of an attempt to head off their companies from collapsing.

More than 40 percent of eastern German firms are now opting out of industry-wide agreements.

26 November 2007

Copyright DPA with Expatica




0 Comments To This Article