Germany Looks East for Economic 'Miracle'

Sunday Business (London, England), October 8, 2000 | Go to article overview
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Germany Looks East for Economic 'Miracle'


C

AN one draw parallels between post-war Germany and the German Democratic Republic after the end of the cold war? Will the eastern German states surpass those to the west and be home to another economic boom or "Wirtschaftswunder"?

It is clear that the groundwork is being laid for an economically strong eastern Germany. After decades of languishing under the ill-fated five-year plans of the communists, the five eastern states are being upgraded at a faster pace than many regions in the west. New telecom networks are of the highest standard and the infrastructure of the region has become a Berlin priority.

In a speech taking stock of 10 years of reunification, chancellor Gerhard Schrsder said 59% of investment in roads and 45% of investment in railways is going into eastern Germany, which has only one-fifth of the country's population.

More importantly, if something is built in eastern Germany it is built to today's standards, which gives parts of the region a technological edge compared with the west and, in some cases, the world. Leipzig is soon to be home to a Porsche production plant and Volkswagen is finishing its factory in Dresden.

Germany's public television network just completed work on one of the world's most modern stations and TV production facilities in Leipzig. Infineon produces chips in Dresden and the plant of General Motors unit Opel in Eisenach is said to be one of the most modern in the world.

Eastern German states showed explosive growth in the first few years after reunification. An expansion of state GDP to the tune of 25% was in some cases the norm, but the growth was only the result of the region's low starting point. Once the market economy began to take root, economic growth sagged. For example, GDP rose nearly 30% in Saxony in 1992; in 1997, it failed to grow 1%.

Economic expansion in eastern German states is now in some cases above the national average. Schrsder says it would be even higher, if it were not for the lacklustre building industry: "The different growth rates between eastern and western Germany are solely due to the problems in the construction industry. Indeed, the latest forecasts suggest that we can even expect the economy of eastern Germany to keep pace with the western one next year."

The national economy grew about 1.8% last year, according to preliminary data from the federal statistics office. Saxony, which has eastern Germany's largest economy, saw its GDP rise 2.6% in 1999. Thuringia's economy grew 3%, while Brandenburg's expanded 2% last year. However, in Saxony-Anhalt GDP was up only 1.7%.

Eastern growth has its price. According to the IMF, Germany has transferred Dm1,400bn ([pound]460bn) into the east since 1990. Some 30% has gone to direct subsidies for industry and infrastructure and 20% was used to improve the job market.

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