[Marxism] Report claims subsidies to east ruining west Germany

Fred Feldman ffeldman at bellatlantic.net
Tue Apr 13 20:31:58 MDT 2004

East driving Germany to ruin, says leaked report
By Iain Rogers in Berlin
April 7, 2004

Germany's effort to modernise its formerly communist eastern states with
€1.25 trillion ($2 trillion) of transfers since 1990 has failed, and the
region will remain a serious drag on the wider economy, a leaked report
has found.

The study, commissioned by the Economy Minister, Wolfgang Clement, and
Transport Minister, Manfred Stolpe, concluded that the €90 billion ($143
billion) Berlin spends annually on rebuilding the so-called new federal
states is largely wasted, the news magazine Der Spiegel reported in this
week's edition.

The 13 experts on eastern Germany who compiled the report said the east
has ground to a halt and the west is falling into ruin as a result. "The
ongoing internal west-east transfer of cash and other consequences of
German unification are directly or indirectly responsible for about
two-thirds of the country's economic weakness," the report said.

Felix Stenschke, a spokesman for the Transport Ministry, also
responsible for eastern German reconstruction, on Monday acknowledged
the existence of the study but said there had been plenty of successes
in the east and the situation was not as serious as the magazine

When he took office in 1998, Chancellor Gerhard Schroeder promised that
rebuilding the eastern states would be a top priority. Recently,
opposition politicians, including the Christian Democrat leader, Angela
Merkel, an east German, have accused Mr Schroeder of ignoring the east's
woes as reforms in the wider economy, terrorism and other issues have
taken centre stage. 

Heinz Schmalholz, an economist specialising in structural change at the
Ifo Institute's branch in Dresden, eastern Germany, said: "One of the
main criticisms has been that wages rose much too quickly after
reunification [boosting unemployment]. "But what would people then have
done without that? They would of course have migrated to the west, where
there were higher wages. I don't know whether the politicians would have
wanted to take responsibility for that." 

Although east Germany makes up just a quarter of the total German labour
force, it accounts for half the nation's unemployed, said a Lehman
Brothers economist, Sandra Petcov. That meant that nearly half of the
gross transfers to the east during the second half of the 1990s was
spent on social security payments. Investment accounted for just 15 per
cent. The problems of brain drain and a greying population have worsened
considerably since 1900 as young, highly qualified east Germans migrate
westwards in search of higher salaries and better living standards.

The report suggests some remedies to reverse damage and four working
groups are evaluating which can feasibly be implemented. The suggestions
include long-term tax relief for eastern German companies and cash
incentives for guaranteed jobs; concentration of economic aid in
specific growth centres; a new reconstruction master plan; and the
inclusion of at least one eastern German firm in tenders for government

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