Newspaper article The Christian Science Monitor

25 Years Later, Western Germany Is Still Pumping Money to the East

Newspaper article The Christian Science Monitor

25 Years Later, Western Germany Is Still Pumping Money to the East

Article excerpt

The German city of Gorlitz, located in the east on the border with Poland, boasts a revitalized center, boosted by generous federal funds. But it has struggled to build a robust job base or stem a massive exodus of the young.

Almost 400 miles west, Dortmund, located in Germany's industrial Ruhr valley, is also struggling, hard hit by the decline of the traditional coal and steel industries.

Yet Dortmund regularly channels part of its budget to eastern districts such as Gorlitz.

Twenty-five years after the reunification of East and West Germany, western cities and districts continue to contribute funds to the federal budget for the east's development, under the government's fiscal equalization plan. But frustration at the burden has been on the climb, and a growing number of people in the donor districts argue that the transfer system is draining revenue they badly need themselves, and that it's time for Germany to rethink its notion of "solidarity."

Rebellion against solidaritySome $1.8 trillion - or almost $70 billion a year - has flown into the former East Germany since the Berlin Wall fell in 1990, as part of an aid package pushed through by Chancellor Helmut Kohl to help ex-communist regions reconstruct. "Solidarity" was the core principle of the 1993 roadmap. The notion is also enshrined in the Constitution, which guarantees the uniformity of living standards for all Germans.

The country's fiscal equalization plan required the more prosperous western regions to share tax money with the poorer east. In addition, a solidarity "surcharge" of 5.5 percent of people's income taxes would give the state leeway in financing general costs of reunification, and a "solidarity fund" of $13.7 billion would be given to each ex-communist state annually for rebuilding infrastructure.

Aid funds lifted Berlin and other eastern regions out of economic doldrums, gave rise to new universities and autobahns, and helped cover the heavy social costs, such as pensions for millions of Germans, who, under communism, neither had to worry about pensions nor contribute to the pension system.

But they also produced serious drawbacks over time, says Joachim Ragnitz, director of the Ifo Institute for Economic Research in Dresden. In some areas, they fostered a culture of dependency. And in many of the east's rural regions, they failed to scale back unemployment or improve industrial productivity. On many indicators, the east may need decades longer to catch up, if it ever does. …

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