Germany still divided? The differing fortunes of east and west

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Germany still divided? The differing fortunes of east and west

Germany still divided? The differing fortunes of east and west
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It is 25 years since the Berlin Wall came down and Germany’s reunification process started, along with the recovery from the collapse of communism.

At the time, few would have though that a quarter of a century later the country would still be dealing with the economic aftermath of that historic event.

During that time, Germany has spent an estimated two trillion euros on uniting the country and rebuilding.

But, in many ways the East is still playing catch up with the West.

There is a poverty gap in the five federal states that made up the former German Democratic Republic for 40 years.

Household income in the West is around one-third higher than in the East where there are more people living on less than 60 percent of the national average wage. In some areas, as many as 30 percent are lower earners.

Average monthly salary in the east is 2,317 euros, in the West it is over 3,000 euros.

Unemployment is 9.7 percent in the East and 6.0 percent in the West, while in some eastern towns the jobless rate is above 12 percent.

Westerners have long grumbled about having to subsidise the east, particularly through a 5.5 percent “solidarity” surcharge on their income tax bills.

That started in 1991 and has just been extended to 2019, showing how much still has to be done.

So in terms of economic output, productivity, income, wealth, unemployment and poverty, Germany is still clearly divided.

Euronews spoke to Karl Brenke, from the German Institute for Economic Research in Berlin.

Sigrid Ulrich, euronews: “We haven’t seen the “flourishing landscapes” that Helmut Kohl promised, but do we have something to show for this last quarter-century?”

Karl Brenke: “Yes, I think so. The expectations of 1989, which were fueled by politics, especially by Chancellor Helmut Kohl, were much too hopeful, but a great deal has been achieved in the last 25 years.

“The “New Länder” – the federal states – now have a very modern infrastructure. We have seen re-industrialisation and East Germany’s industrial economic performance, measured per capita, is now at the EU average. But in fact we have a number of problems. The East has to catch up in productivity, in wages, in income and employment. So, let me put it this way, the period of transformation is completed. Now we have a number of clearly visible regional problems. But these regional problems exist throughout all of Europe.”

euronews: “You’ve said that over the next two decades not much is likely to change in terms of convergence of living conditions. By that time the country will have been reunited for as long as it was divided…”

Karl Brenke: “We have about three quarter of the adjustment process done. What comes now is a little more difficult. There will be regions in the east which develop relatively well, for instance the traditional industrial centres, the high-density regions. And we have regions in the ‘New Länder where it’s hard. I mean the regions on the Polish border, on the Czech border, predominantly agricultural regions. But these are regions that were in difficulties already before the GDR – East Germany – came into being. They were in difficulties even back in the Kaiser’s times.

“I think we will see more differentiation within East Germany, as we also have differentiation within West Germany, where we have a considerable north-south divide, for example.”

euronews: “What role did the currency play? For many East Germans, Deutsch marks had a magical symbolic value. But many in the Bundesbank think the monetary union in August 1990 came too early.”

Karl Brenke: “Yes, economically speaking the monetary union in 1990 was a fatal error, a disaster. It particularly created enormous pressures for industry. We saw industrial production collapse by a half within a few weeks. The collapse would have been much worse if politicians had not responded with support measures. But politically the monetary union could not have been avoided. Without the monetary union people would simply have left. The East would have been bled dry economically without it.”

euronews: “At time they said: ‘If the Deutsch mark doesn’t come to us, we shall go to join it’ – wasn’t that how it went?”

Karl Brenke: “That was the point. The people in East Germany were counting on the monetary union. But on the other hand, it was economically not sustainable. It changed the currency overnight, removed the advantage of the low value, and except in the former communist countries that were being reformed – such as Poland or the Czech Republic – we saw all of a sudden (East German) goods became completely unsellable in international markets. What would happen to a VW Golf for example, that one day costs 20,000 euros and the next day would have to be sold for 80,000 euros – you would no longer be able to find buyers. And that’s exactly what happened back then to the GDR’s industry.”