Ifo: Eastern Ger­many to con­tinue to lag be­hind in the next 25 years

Financial Mirror (Cyprus) - - FRONT PAGE -

The economies of the eastern fed­eral states will lag be­hind those of the western states in the years to come, as “ev­ery­thing sug­gests that eastern Ger­many will not be able to catch up over the next 25 years”, said Joachim Rag­nitz, deputy head of the Ifo Dres­den of­fice to mark a quar­ter cen­tury of Ger­man uni­fi­ca­tion.

“The con­ver­gence be­tween eastern and western Ger­many in terms of eco­nomic out­put came to a halt 20 years ago. Since 1995, GDP per capita has re­mained at 75% of the western Ger­man av­er­age. We should aban­don the il­lu­sory idea of a con­ver­gence of liv­ing con­di­tions in east and west”, Rag­nitz ar­gued.

This GDP per­cent­age would be sig­nif­i­cantly lower if only the ar­eas of the for­mer GDR are com­pared with the ter­ri­tory of the for­mer Fed­eral Re­pub­lic, in­clud­ing West Ber­lin. In terms of net in­come per capita, how­ever, there is a much higher per­cent­age of con­ver­gence in the stan­dard of liv­ing. The rea­son for this is the re­dis­tri­bu­tion within the tax and trans­fer sys­tem, from which the eastern states ben­e­fit dis­pro­por­tion­ately.

Rag­nitz based his pes­simistic prog­no­sis on struc­tural fac­tors that can­not be changed in the short term, such as the lack of highly pro­duc­tive large en­ter­prises in eastern Ger­many.

The rea­son for this de­fi­ciency, ac­cord­ing to pre­vi­ous stud­ies by the Ifo In­sti­tute, is par­tic­u­larly the pol­icy of rapid wage con­ver­gence, a pol­icy that re­sulted from the proxy wage ne­go­ti­a­tions con­ducted by the western Ger­man so­cial part­ners prior to the pri­vati­sa­tion of the Treu­hand en­ter­prises.

“Presently, a de­clin­ing and ag­ing pop­u­la­tion are slow­ing down eco­nomic mo­men­tum.

“How­ever, it should not be over­looked that a num­ber of suc­cess­ful busi­nesses have been es­tab­lished in eastern Ger­many and that there is in­deed a pos­i­tive out­look for in­di­vid­ual growth cen­tres, like Dres­den, Leipzig, Jena as well en­vi­rons”, he added.

Ex­pe­ri­ence in western Ger­man states shows, how­ever, that the catch­ing-up of in­di­vid­ual eco­nomic ar­eas is the ex­cep­tion rather than the rule. Even in for­mer West Ger­many, there is a large num­ber of struc­turally weak re­gions such as Lower Bavaria or North Hesse, which de­spite enor­mous re­gional pol­icy ef­forts have not man­aged to con­verge on the stronger

as Ber­lin


its re­gions.

“The ‘equiv­a­lence of liv­ing con­di­tions’ guar­an­teed in the Con­sti­tu­tion is not based on eco­nomic power and can­not be mea­sured solely on the ba­sis of ma­te­rial vari­ables”, Rag­nitz stated.

To mark the 25th an­niver­sary of Ger­man uni­fi­ca­tion, the Ifo In­sti­tute has sched­uled var­i­ous events, such as a co­op­er­a­tion with the Po­lit­i­cal Academy Tutz­ing, and a high­pro­file con­fer­ence in Dres­den on Oc­to­ber 8.

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