20 Years of Investment Despite Progress, Former East Germany Still Lags Behind

Billions have been pumped into the former East Germany, but 20 years after the fall of the Berlin Wall, its economy has not caught up with the West. A new report praises the progress so far but warns that the region needs well-educated young people and an influx of immigrants if it is to thrive.
An elderly woman walks down an empty street in Wittstock, eastern Germany.

An elderly woman walks down an empty street in Wittstock, eastern Germany.

Foto: Franka Bruns/ AP

When the Berlin Wall finally fell in November 1989, a wave of hope and optimism swept across Europe -- perhaps nowhere more so than in the once divided Germany. Hope, however, soon gave way to disillusionment as the collapse of the Socialist planned economies saw millions of people lose their jobs and many became nostalgic for their old way of life. In Germany, despite the pumping of massive funds into the former Communist East, the stark divisions in income and employment between the two halves of the country rapidly undermined the initial wave of enthusiasm for reunification.

Now, 20 years on, a new study on the economy in the former East has shown that while there has been huge progress in bridging that chasm, a significant gap still remains. While in the 1990s the two halves of the country saw their economies slowly converge, stagnation set in at the turn of the century and since 2008 they have actually begun to drift further apart again. The report by the German Institute for Economic Research (DIW) has found that there are still significant structural problems to be overcome. In particular the region has to battle a demographic slump and is in need of better qualified young people and immigrants to keep its economy growing.

'Exuberant Expectations' in 1989

The report, which was presented on Thursday in Berlin, assessed the economic development of the area that once made up the German Democratic Republic (GDR) and looked at the prospects for the future. DIW President Klaus Zimmermann said that expectations had been high in those heady days of 1989 that "good results could be achieved overnight and without huge investment." However, it had not been possible to meet these "exuberant expectations," he said. Still, he argued that there had been "positive progress" in the light of the 2.5 million jobs that were lost and the thousands of companies that were forced to close their doors immediately after reunification.

Back in 1992 the former East Germany had become a desolate wasteland of empty factories and only accounted for only 3.4 percent of Germany's gross domestic product (GDP). That figure is has now risen to 10 percent. And productivity had also seen a stark improvement. The gross valued added by each employee in the former East had been less than 25 percent of that of their western counterparts in 1991 but by 2008 this had made the leap to 78.3 percent. "After an almost complete deindustrialization, it has been possible to achieve significant industrial growth," Zimmerman said, adding: "Measured by the economic substance that was here 20 years ago, the glass is not half full or half empty, but at least two-thirds full."

The East's Brain Drain

Demographic change has had a huge impact. Since 1990, around 2 million people have opted to leave the former East, Joachim Ragnitz of the Ifo Institut in Dresden said at the presentation of the report on Thursday. The lack of attractive job opportunities and low wages had spurred the best and the brightest to build a life elsewhere . According to Ragnitz this demographic deficit could curb economic performance and productivity. Zimmermann urged people in the region to view the immigration of well educated people from East European positively rather than as a threat to jobs.

"We have to address these problems if eastern Germany is to stand on its own two feet -- that won't work if we continue to invest in concrete instead of minds," DIW President Zimmermann said, adding: "A prerequisite for future productivity is well educated people."

smd -- with wire reports
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