German Reunification Will Spur Fast Growth, Many Say Investments in East Germany Expected to Yield Benefits

By Amy Kaslow, writer of The Christian Science Monitor | The Christian Science Monitor, August 8, 1990 | Go to article overview

German Reunification Will Spur Fast Growth, Many Say Investments in East Germany Expected to Yield Benefits


Amy Kaslow, writer of The Christian Science Monitor, The Christian Science Monitor


REUNIFICATION between East and West Germany will bring economic benefits much faster than many Germans have anticipated, say West German officials and economists.

Bucking projections that West Germany will face substantially higher unemployment and accelerated inflation, they see only short-term "budgetary strains" from bankrolling East German labor and industry into a market-driven system. The East will soon develop into a productive part of the overall German economy, the country itself emerging as the leader of the 12-nation European Community (EC).

In short, says West German Finance Minister Theodor Waigel, "economically speaking, the restructuring and modernizing of the GDR (German Democratic Republic) economy is an investment project." He intends to turn a good profit.

"The financial consequences of monetary union are clear. There will be no need for tax increases or special levies to finance German reunification, nor will the process make demands on the German economy or on the capital markets," he says.

West Germany's deficit, 3 percent of gross national product (GNP) this year, is expected to hit 3.5 percent in 1991, due to Bonn's financial outlays for an economic and social union with East Germany.

"This must be corrected," says Norbert Walter, the chief economist of Germany's largest commercial bank. "Next year, 1991, will be the most severe year," he says, adding that "tax revenues from the GDR will decelerate this deficit." Bonn's costs will soar, says expert

But Sol Sanders, a political analyst whose upcoming book examines the dimensions of the German-Soviet economic relations, offers a different assessment. "There is no doubt that the West German government has underestimated the cost of reunification, and the time it will take. They've already doubled the fund for its infrastructure development," he says.

West German financial outlays will undoubtedly increase, Mr. Sanders says, despite the official estimates made by "those swept up in optimism."

Bonn's burden will keep climbing, he warns. Among less obvious costs, he says, is its recent commitment to the Soviet Union "to pick up the cost of all Soviet troops in East Germany for the next three years, at least. It will run West Germany $730 million a year to feed and house those troops, and the Soviets are in no hurry to move them home from the Eastern zone."

Mr. Walter recently tried to dispel German "fears of disaster" that come largely from a misunderstanding about the necessary closure of inefficient East German industries and the $300 billion-plus required to resuscitate its infrastructure. Housing, sorely needed on both sides of the border, is not included in that cost estimate.

East Germany's industrial output, produced by huge and grossly inefficient conglomerates, accounts for two-thirds of its GNP. …

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