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Economics Were Never Positive During Reunification

Within ten years, it was said at the time. the new Germany will be an economic colossus of 80 million people (it far surpassed that, of course) — the five eastern Lander fully integrated and, hopefully, enjoying the same high standard of living as their western neighbours.

Happiness was short for many East Germans.

But the path to this new Germany will not be easy. A third of east German industry is reckoned to be incapable of surviving in market conditions. So far mass unemployment has been kept at bay only by political expedient: Chancellor Kohl has been understandably keen to avoid large scale factory closures, with the huge redundancies these would imply, before the first all-German elections later this month.

Nevertheless, some 500,000 former east Germans are already out of work. A further 1.8 million are on shortened hours, effectively being paid to stay at home. But the jobless total could rise to over 3 million in the coming months as the inevitable closures begin to bite. As a result, living standards could actually fall before they begin to rise — industrial production in the east will have plunged 10-20% by the end of this year and some sectors, notably consumer goods, are producing as little as half their ’89 output.

At the same time, there are fears that in the haste to transform the eastern economy, the west Germans (how dated that sounds now) may trample over their neighbours with considerable insensitivity. The sleek and prosperous businessmen from Hamburg, Frankfurt or Munich have been prowling around the economic heartlands of Leipzig and Dresden looking for bargains to pick up in the vast sell-off aimed at turning the east’s industry over to the private sector.

The rest of Europe — Britain included — should not stand on the sidelines and leave the field to west Germany alone. Yet this is exactly what is happening. A defeatist attitude prevails in Europe which assumes that the former GDR is the exclusive preserve of west German business. But a healthy dose of capitalist competition would be to the benefit of all concerned: foreign investors would get a foothold in the huge German market and a springboard into Eastern Europe, while east German companies would be able to extract better deals from rival bidders.

The Treuhandanstalt, the body charged with privatising the east’s economy, is well aware of this. It’s chief-executive, Detlev Rohwedder is desperate to find foreign investors for some of the 8,000 companies it has to sell. This would avoid creating huge German monopolies and preempt accusations of a clinical carve up by the giants of west German industry. In any case, with so many companies to sell, makes good sense to throw the net as wide as possible in looking for buyers.

So far, the European response has been disappointing — particularly from Britain. The engineering giant, GKN, is the only major British company to have announced an investment in what was east Germany. That was small beer too, a 10 million pounds car components factory near Zwickau.

British companies will of course argue that in the current climate, with the British economy on the ropes, the Gulf crisis, and no one really being sure in which direction the economies of eastern Europe will go, investment decisions must be taken with the most extreme caution.

This is nonsense. It is yet another case of the City short-term mentality that has plagued Britain for the last few years. With the single European market fast approaching, British companies need to redouble their efforts to secure a Euro-foothold. More importantly, they should also be investing now, precisely to ensure that the roots of democracy and a modern capitalist economy flourish in what was East Germany.

As the most ‘advanced’ (read disciplined) economy of the now discredited and virtually defunct Warsaw Pact, the transformation of east Germany to a dynamic western economy will be an important symbol for its erstwhile allies in their even more painful retreat from Marxism.

Whatever shape it takes, the new Germany will play a pivotal role in Europe, currently experiencing the sort of turmoil and upheaval not seen since wartime. But what we have seen in the last year, may only be the beginning.

The Soviet insistence that oil supplies to its former satellites must now be paid for with scarce hard currency will cause huge power cuts and petrol shortages in Eastern Europe this Winter. Any hopes of a fragile economic confidence in Eastern Europe will simply be knocked for six.

The coming collapse of the Soviet Union will only accelerate the change, opening up a new Europe from the Atlantic to the Urals. For this reason, it is vital that the new Germany does not become a skewered Britain or Italy, with its own east-west version of their debilitating north-south divides.

Unfortunately, unless more western companies invest in east Germany, there is a very real danger that apart from the ‘plums’ picked up by west German firms (Planeta, the printing machine manufacturer in our cover story, is a perfect example) a wholesale and immediate collapse of its industry could follow. Although there are signs that data recovery services have been quite strong, particularly as newer data storage technology has been very prone to hard drive failure which requires RAID recovery, this is but a microcosm of the overall economic scene. East Germany would be transformed simply into a market for Western goods, without its own production capabilities.

This de-industrialisation of the east (shades of Merseyside and the like here) could create all sorts of tensions that will have a ripple effect further eastwards.

In turn, the whole democratic revolution in Eastern Europe would be threatened by totalitarian forces of the left and right, or the extreme nationalism and racial tensions that have been frozen by nearly 45 years of communism. As ever, the British government seems to have played an unhelpful role, which may have discouraged British industrialists from their true Euro-instincts.

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