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Restructuring in Eastern Germany

Clockwise from top left, a highway interchange, ICE train, a research lab, renovated building next to deteriorating building. Source: Federal Government

Restructuring activities in eastern Germany illustrate solidarity at its best and the success achieved over the past 17 years in turning around the economies in the new federal states.

Rebuilding the country’s eastern states is of key importance to Germany as a whole.

German reunification is a success story. The new federal states have seen great progress – something that becomes much clearer if we think back to how things were in 1989.

1989: The year of reunification

In 1989, the GDR was in a dismal state, both economically and socially. It was burdened with huge environmental legacies and its industry faced economic collapse. These were the findings of an analysis conducted by the Governmental Planning Commission (SPK) following Honecker’s downfall. Productivity matched only about a third of that in western Germany.

Tremendous progress

Against this backdrop, the achievements attained in the past 17 years cannot be praised highly enough. Lifestyles and consumer behaviour in the old and new states are now more or less on a par. Modern infrastructure is in place and environmental hazards have been removed. The region once so close to collapse is now a region with a future.

The German government has been instrumental in these developments, having invested some 64 billion euros in eastern Germany’s transport infrastructure between 1991 and 2005. This represents around 39 percent of transport investment in the country as a whole. The money went to improving the region’s railways, roads and waterways. With its cutting edge infrastructure, eastern Germany is now an excellent choice for businesses seeking an easily accessible production and services location. Sound infrastructure is a prerequisite for economic growth and an upswing in the new federal states.

The economy in Germany’s new federal states is growing apace. In 2006, gross domestic product was up by 2.8 percent. This exceeds growth in the old states, where the economy saw only a 2.5 percent gain in the same period. Forecasts for 2007 indicate growth of over three percent for eastern Germany’s economy.

Growth drivers

Manufacturing industry has served as a growth driver for a number of years: at 11.5 percent, gross value creation in eastern Germany in 2006 was significantly higher than the 4.8 percent achieved in western Germany.

The mechanical engineering sector is a key growth driver in the new federal states, enjoying significantly higher growth rates than in the west. Compared with 2005, eastern Germany’s engineering sector saw growth of 8.3 percent in 2006.

Renewable energy has become a core growth sector in Germany’s new states and the forecasts for the coming years are excellent. This is especially the case concerning wind and solar energy. With around 30 companies based there, eastern Germany is now a leading region in photovoltaics. The town of Freiberg in Saxony heads the field, followed by Frankfurt an der Oder and the Bitterfeld region. This trend is fostered by the high technological level in eastern Germany’s research environment and in its business base. Around one third of the facilities are still under construction. Other photovoltaics firms have announced plans to invest in the new states. The German government’s successful Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG) and a targeted investment grant scheme for the new federal states support the solar sector in eastern Germany.

Jobs wanted

Despite the successes achieved, one thing must not be overlooked: at best, the most well-developed economic regions in eastern Germany attain the same level as the less well developed ones in the west.

To provide equal living standards, it is particularly important to promote eastern Germany’s private industry. The new states still need jobs and training places. The only way to combat unemployment is to provide job opportunities so people can earn their own living. This goes hand in hand with efforts to stop outward migration of the region’s dynamic and innovative young people.

The German government thus wants to improve economic growth, employment and innovation in eastern Germany. It also wants to foster regional and social cohesion. The ultimate aim is to boost the region’s competitive standing.

Solidarity Pact II - Investing in the future

"The German government wholly accepts its responsibility for improving economic and social conditions in eastern Germany. The goal is to provide the same living standards for people all over Germany”, said Federal Minister Wolfgang Tiefensee.

The key investment instrument comes in the form of the Solidarity Pact II, which runs until 2019. This is a realistic timeframe in which the German government believes it is possible to harmonize living standards and economic conditions across Germany.

Solidarity Pact II

In Solidarity Pact II, the national and state (Länder) governments have agreed to support the eastern German states in overcoming their division-related burdens. Special funding has been allocated for the purpose. Solidarity Pact II was negotiated to follow on from the Solidarity Pact I agreed in 1993.

The German government has made some 156.5 billion euros available to promote investment in eastern Germany during the period 2005 to 2019. The region’s economy and infrastructures stand to benefit most from the scheme. The most pressing problem remains the need to improve job opportunities: at 14.7 percent (May 2007), unemployment in eastern Germany is still almost twice that in the west.

Investment and innovation are to be promoted to provide a sustainable and expanded economic base and thus create jobs. Regional and sector growth centers will also receive support to help in the search for well-qualified employees.

Source: REGIERUNGonline

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