In the light of the twentieth anniversary of German unification, successes and failures of the process of convergence between the East and the West have been thoroughly analysed and broadly discussed in Germany recently.
Compared to the former German Democratic Republic (GDR), eastern Germany’s GDP has doubled nominally in the last two decades, disposable income has increased 50%, modern infrastructure was newly developed and historic centres carefully renovated.
However, since then many tend to compare the economic situation of eastern Germany with the West, which drastically changes the picture and provides mixed results. Although Federal Interior Minister and Commissioner for the Affairs of the New Länder, Thomas de Maizière recently emphasised the increase of the economic strength in the East to 72 per cent of the western German average, sceptics point to the financial transfer of 1.3 billion euros from West to East over the last two decades. The New Länder, including Berlin, still receive an annual financial support of 70 to 80 billion euros, mainly via social insurance benefits. Almost a fifith of the money spent in the East has in fact been generated economically in the West. Therefore, the eastern economy is not self-supporting, according to Joachim Ragnitz, economist at the Ifo-Institue.
Ragnitz points to the gap in labour productivity, which hardly narrowed over the last decade. “The structures are fundamentally different, the eastern economy is mainly shaped by the agriculture sector; highly-productive industries are missing.”
In fact, according to the Federal Statistical Office (Destatis), the earnings level of full-time employees in the eastern part was just over three quarters of that of their western counterparts in 2009.
The percentage of recipients of unemployment benefits amounted to 17% of the population in the new Länder and Berlin in 2008 and was thus twice as high as in the former territory (8%).
IWH president Blum explained, that the percentage of the public service sector is still much higher than in the West, however, thanks to government funded research infrastructure of new universities and public institutes, innovative companies and highly productive factories developed in many places, such as the micro-chip industry or mechanical engineering suppliers for the solar industry.
According to the German Federal Government and several economic research institutes, eastern Germany will have reached the economic level of some the economically underdeveloped Länder in West Germany by 2020.
However, it remains unclear, how much the demographic change and migration will affect the economic reality.
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