Newspaper article International Herald Tribune

Germany's Outlook Born in Past Pain ; Lessons of Reunification Help Explain Attitude toward Greek Bailout

Newspaper article International Herald Tribune

Germany's Outlook Born in Past Pain ; Lessons of Reunification Help Explain Attitude toward Greek Bailout

Article excerpt

When Germany wants to understand the crisis afflicting Europe it takes a cue from the trillions it spent trying to revive the former German Democratic Republic, still struggling 20 years later.

When Germany wants to understand Greece and the current crisis afflicting Europe it not only looks south to the Continent's periphery but also turns inward, to the former German Democratic Republic, still struggling more than two decades after German reunification.

The lessons provided by the experience with East Germany -- pouring in $2 trillion or more by some estimates to little immediate benefit -- inform the decisions of policy makers and the attitudes of voters, most of whom would like to see Greece leave the euro zone, polls show.

It is not just a matter of parsimonious Germans hoarding their funds, as so often portrayed, but a sense that subsidies do not breed successful economies. "Money alone doesn't help," said Simon Huber, 44, out for a stroll near Sendlinger Gate. "You're only saved when you save yourself."

Though regularly lectured by their colleagues across the Atlantic about the need for stimulus measures in countries like Greece and Portugal, German experts believe that they have a lot more experience with uncompetitive economies locked in currency regimes after nearly 23 years dealing with the former East Germany.

"We performed a real life experiment," said Hans-Werner Sinn, president of the Ifo Institute for Economic Research.

Where unemployment in the former West Germany is 6 percent, it remains stubbornly higher at 11.2 percent in the east. In 2010, gross domestic product per capita was over EUR 32,000, or about $40,000, in the former West and just under EUR 24,000 in the former East. Much of the narrowing in the gaps between east and west, experts say, is attributed to the migration of job seekers westward as much as any significant improvement at home.

There have been success stories in the revival of cities like Dresden and Leipzig, and some regions especially on the southern edge of the former East Germany are doing better. But the eastern part of the country today is known for perfectly rebuilt town squares that sit empty for much of the day, and new stretches of autobahn with few drivers on them.

"Germany made huge investment in infrastructure in East Germany. The hope that the rest would follow has not been fulfilled," said Klaus Adam, professor of economics at the University of Mannheim. "You need to get the productivity figures up."

While President Francois Hollande of France has garnered support for jointly issued debt as the solution to Europe's troubles, a vast majority of Germans reject the introduction of euro bonds. A representative survey of more than 1,300 Germans released Friday found 79 percent of those asked opposed them.

As the European crisis, now in its third year, has worn on, it has seemed harder, not easier, to find common ground between Germany and much of the rest of Europe. The demand for euro bonds sounds, to German ears, less like a technical solution than a way to use Germany's good credit rating to push off difficult but necessary reforms.

"You don't entrust your credit cards to anyone if you can't control the spending," said Jens Weidmann, president of the Bundesbank, Germany's central bank. Mr. Weidmann, who is also a former economic advisor to Chancellor Angela Merkel, was speaking on Friday to the French daily newspaper Le Monde.

"Pooling debt is not the right tool for growth," Mr. Weidmann said. "This would pose both legal and economic problems. I don't think we'll be successful in trying to resolve the debt crisis with more debt outside the regular budgets."

Ms. Merkel has dominated the political decision making in Europe for much of the crisis, culminating in the signing in March of the fiscal pact to reduce budget deficits by 25 of the 27 European Union countries. But countries like Greece and Spain have underperformed economically and been unable to rein in deficits as promised. …

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