Interesting exchange on Germany as a whole. How crucial is the stagnation of East Germany in the overall picture?
Following the severe losses by the SDP in the regional election in Sachsen-Anhalt in the East, coming in behind the PDS, the International Herald Tribune carried this item on the continued stagnation of the economy in the East.
Is it true that this is a main factor dragging German performance down?
And if the problem is getting worse, can it be remedied under the present polices instituted at the currency union of East and West?
This article does not address the severe deflationary effect of the 1:1 rate of currency unification, nor the centralised colonial imposition of West German culture. It's only answer is to suggest a neo-liberal exemption from a range of social and economic restrictions in the East. This would be some sort of surrogate, as far as I can see, for regional devaluation. I have left that bit out of the clip, and highlighted the data on the increased stagnation of the East and the size of the continued capital transfers.
>>>
Big setback to Schroeder in East shows widening gap John Schmid International Herald Tribune Thursday, April 25, 2002
FRANKFURT Chancellor Gerhard Schroeder's sharp setback in a regional election in Eastern Germany last weekend reflects a deep-rooted problem that is causing increasing worry here: Germany's East-West economic divide, which initially narrowed following reunification, has steadily widened since the mid-1990s.
Despite a massive campaign to integrate the fifth of the country that was once under Communist rule, at a cost so far of well over E800 billion ($718 billion) in taxpayer subsidies, the East has slipped into a downward spiral of diminishing jobs, ever slower growth and a mass exodus of the best and brightest young people to the West.
At the same time, the malaise in the East is draining the trademark vigor of the industrial powerhouse that once was West Germany, according to a growing consensus among political analysts and politicians. "People fail to see that the transfers to the East are pulling down the standards of excellence that we are used to in the West," said Stefan Collignon, a professor at the London School of Economics and former deputy director at the German Finance Ministry. Renate Koecher, managing director at the Allensbach polling institute, added, "The chances that Germany can catch up again in international terms depends more than many realize on what happens in Eastern Germany."
...
The election result last Sunday thrust the subject to the forefront of national politics. ... It was the only statewide electoral test this year before national elections Sept. 22, and the result was clearly a warning to Schroeder. No party since unification has won the chancellery without winning in Eastern Germany.
When he won the chancellorship in 1998, Schroeder did very well in the East, and he has spared no efforts trying to maintain that support.
But the chancellor has been unable to stem the continuing structural deterioration in the East, which Munich's Ifo research institute recently said has become Europe's "second Mezzogiorno," a reference to the poor southern region in Italy, which has failed to catch up to the north despite decades of efforts.
Eastern unemployment remains stuck around 18 percent, over twice the Western level. It also exceeds the jobless rates of most of the rest of Eastern Europe, according to the Geneva-based International Labor Organization. One reason may be that Eastern Germany has not set its own economic policies, but followed policies set by Western Germany that are more appropriate for a more advanced economy.
In the East, the number of employed people has dropped each year since unification. In Western Germany, job holders have increased in number each year without exception.
The Eastern economy outpaced Western Germany in growth rates from 1992 to 1996. But it has fallen behind the West every year since then. Last year the Eastern economy contracted for the first time since unification.
At the same time, Eastern German towns suffer a brain drain that has hollowed out cities and towns, leaving some areas without doctors. The net migration to the West, which slowed to a net outflow of 10,000 in 1997 (taking into account the Westerners who flowed East as well as the Easterners heading West), has increased each year since. At over 200,000 a year, the exodus has not been this relentless since 1991, just after the East German border opened for the first time in over 40 years. The exodus since 1989 surpasses 2.5 million.
..
An increasing concern is the effect on Western Germany of the burden of rebuilding the East. Klaus von Dohnanyi, a Western German politician who helped privatize East German industries, said many Germans mistakenly assumed the costs of reunification would be temporary. ...
His view is shared by Schroeder's opponent for the chancellorship, Premier Edmund Stoiber of Bavaria. In rallies in the East, he said, "If we cannot narrow the gap between the old and the new federal states, then Germany will remain in last place in the euro leagues."
...
Even before the Berlin Wall fell, West Germany was prone to bouts of weakness caused in part by inflexible labor markets and heavy regulation of business. But its industrial efficiency made it Europe's export champion, even while it maintained a generous welfare state and worker protections.
With unification, it has lost that balance. Stretching Western Germany's welfare state, more than 15 million Easterners drain nearly 5 percent of the nation's gross economic output each year. Even 12 years after the subsidies started, one of three euros spent in the Eastern economy comes from the West.
Full article:-
http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=55833
Chris Burford
London