Germany rejects specialeconomic zones to aid east

6th April 2004, Comments 0 comments

6 April 2004 ,

6 April 2004

BERLIN - The German government Tuesday rejected calls to create special economic zones in former communist eastern Germany to lift the region out of its economic malaise.

An Economics ministry spokesman said there were plans for a bill to cut bureaucracy on regional basis but that this had nothing to do with special economic zones which have never been tried in Germany.

The left-leaning government's "nein" follows calls for such zones by Klaus von Dohnanyi, the respected head of a commission advising Chancellor Gerhard Schroeder on eastern Germany, as well as opposition conservative leaders.

Dohnanyi, in interviews with Deutsche Presse-Agentur dpa and several newspapers, warns that Germany's overall economic woes are being fuelled by massive state subsidies flowing into eastern Germany which have failed to create sustainable growth.

"Eastern German rebuilding (policies) are responsible for at least two-thirds of the economic weakness of Germany," said Dohnanyi.

The German economy has been in stagnation for the past three years and in 2003 contracted by 0.1 percent. The government projects GDP growth of 1.5 to 2 percent for this year.

Dohnanyi said the EUR 90 billion in net annual state transfers from wealthy western Germany to the struggling east amounted to 4 percent of the nation's total GDP.

This is more than the 3 percent budget deficit allowed under eurozone rules which Germany has violated in past years and appears set to continue to breach.

Since the 1990 German unification a staggering EUR 1.25 trillion has been transferred from western Germany to the east.

Dependency has been established and without this aid at least one- third of the entire eastern German economy would collapse, said Dohnanyi.

"If developments in the east continue we will have a huge problem there in 10 or 15 years - with grave consequences for western Germany," he said.

Eastern Germany has an unemployment rate of almost 20 percent with far higher numbers of jobless in crisis regions of Brandenburg and Mecklenburg-West Pomerania states.

Young people continue to leave the area to look for work in the west and the population has fallen by 1.1 million to 17 million since 1991.

Dohnanyi and his 16-member council of economic advisers are due to make a series of recommendations in soon-to-be released report.

These include creating special economic zones in economically most depressed regions of eastern Germany along the Polish and Czech borders.

The zones would have to enjoy both deregulation and tax breaks, said Dohnanyi.

A further key point is to take subsidies away from consumption, bureaucracy and unneeded infrastructure projects and shift them toward making the region attractive for business.

Georg Milbradt, the Christian Democratic premier of eastern Saxony state, called for slashing Germany's centrally imposed social welfare and wage regulations which aim to create similar socio-economic conditions nation wide.

"The eastern German states need more freedom," said Milbradt in a Suedwestrundfunk Radio interview, adding: "We need to have less trust in the state because the state cannot subsidise away economic differences."

Saxony with its booming computer chip sector in Dresden and automotive industries in Leipzig and neighbouring Thuringia state have been far more economically successful than other parts of the eastern Germany.


Subject: German news


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