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05/11/2009East German economy catching up fast

Since the two Germanys reunified in 1990, the economic development in the East has been nowhere near as bad as people think, according to a new study.

Berlin -- As Germany prepares to celebrate 20 years since the fall of the Berlin Wall, a new study has shown that the former communist East German economy has caught up with the west much faster than most think.

Standards of living in the east have soared so much that the billions of euros (dollars) the west has transferred to boost the eastern economy will no longer be needed after 2019, when the programme expires, said the IW institute, a prominent private Cologne-based body.

Since the two Germanys reunified in 1990, "the economic development (in the east) ... has been nowhere near as bad as people think," the institute's director, Michael Huether, told reporters on Tuesday.

Gross domestic product (GDP) per capita, a key indicator of living standards, has risen in the east from 30 percent of that in the west in 1991 to 70 percent today, Huether said.

However, it is unrealistic to expect the eastern states to catch up completely with their western counterparts considering their condition when the country came together, he said.

"At the beginning of 1990, the Federal Republic of Germany was joined by a country with completely defunct infrastructure, manufacturing ... products that were totally unsellable on the market," he added.

Despite this, fears that east Germany would become some sort of central European Mezzogiorno -- referring to the depressed region in southern Italy -- have proved totally unfounded, he said.

Moreover, the global economic crisis has ironically helped the east catch up faster as the export-dependent industries of the west have been hit hardest by the drying-up of demand elsewhere in the world.

By 2020, average GDP per capita in the east could reach 80 percent of that in the west and the most prosperous eastern states could have overtaken the poorest of their western counterparts, the IW institute calculated.

In addition to the disastrous economic policies carried out by the communists, the eastern part has also suffered from natural disadvantages. It is more rural than industrial and lacks a financial centre such as Frankfurt.

Furthermore, the economy in the east took years to recover from the alignment of the old East German deutschmark with the West German currency, which pushed up labour costs in the east, reducing its competitiveness.

"Monetary parity was a catastrophe. But politically, there was no alternative, apart from keeping the Wall to prevent easterners from emigrating," said Karl Brenke, from the DIW economic institute.

Nevertheless, the relative strength of the eastern economy means there is no reason to continue the so-called "Solidarity Pact" beyond 2019, economists said.

Under the pact, western Germany was expected to transfer some 250 billion euros (366 billion dollars) to the eastern states from 1991 until 2019.

Some politicians have already called for the pact to be abolished but Chancellor Angela Merkel, brought up in the east, has stuck steadfastly to it.

But, in a small sign that priorities may be changing, the officials in charge of eastern reconstruction now report to the interior minister rather than the chancellor following Merkel's re-election in September.

Aurelia End/AFP/Expatica


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