Integrating the East German States into the German Economy: Opportunities, Burdens and Options

Abstract

There was rarely ever such a wide range of opinions and forecasts on the future development of a country or a region as one can presently observe for the former GDR. Some people argue that, after a period of transition, output will grow at high rates, repeating, if not exceeding West Germany’s so-called “Wirtschaftswunder” during the years following the currency reform in 1948. Others fear that the enormous structural distortions of East Germany’s industry, the rotten infrastructure, a labor force not used to working efficiently and a largely incompetent or uncooperative local administration will assign to this part of Germany the role of a depressed region for a long time to come, if not permanently. They point to other backward areas in Europe, such as northern England or southern Italy, which despite considerable financial transfers have not managed to catch up with the rest of the respective economy. The Italian government, for instance, has invested into its “Mezzogiorno” an estimated 100 bill. dollars between 1950 and 1984 and has scheduled for the period 1985 to 1993 another 115 bill. dollars. Nevertheless, economic growth rates of southern Italy are below the average of the country, per capita income is only half as high as in northern Italy, unemployment is four times as high and outmigration of qualified labor continues (Bender, 1990).