Economic Convergence in Germany: The East-West Gap and Strategies for Development

The reunification of Germany in 1990 marked a significant turning point in European history, bringing the former East and West together after decades of division. Despite the progress made, disparities still exist between the regions in terms of living standards, unemployment rates, productivity, and income. This article explores these differences, the historical context, and the strategies employed to promote economic convergence.

Historical Context and Initial Disparities

The fall of the Berlin Wall in 1989 signified a new era for Germany. However, the differences in living standards and economic conditions between the former East and West were prevalent even before the fall of the wall. After the German reunification in 1990, vast disparities became apparent in several critical areas:

Unemployment Rates

One of the most striking disparities post-unification was the unemployment rate. As of 2018, the unemployment rate in the former East Germany stood at 6.9%, compared to 4.8% in the former West Germany. This figure highlights the ongoing challenge in reintegrating the Eastern workforce into the modern economy.

Productivity and Per Capita GDP

Productivity also presents a significant gap. As of 2018, the per-capita GDP in East Germany was €32,108, while in the West, it was €42,971. This disparity underscores the need for further economic development in the eastern region to ensure balanced growth and shared prosperity across the country.

Income Disparities

Income levels are another critical aspect to consider. Per-capita disposable income in the former East Germany was €19,909 in 2017, significantly lower than the €23,283 in the former West Germany. These figures indicate that economic policies must focus on increasing income levels in the eastern regions to reduce inequality.

Economic Growth and Infrastructure

The economic growth figures further highlight the disparities. Many major companies are still headquartered in the Western regions, indicating that there is room for expansion and development in the eastern parts of the country. Additionally, significant investments in infrastructure are necessary to support this growth. Over €3 trillion was invested in upgrading infrastructure such as roads, railways, telecommunications, and water systems after 45 years of Communist neglect.

Historical Overview of Eastern Germany

The Soviets were reluctant to release the Central Germany assets to the Allies, leading to the stripping away of valuable resources. The Berlin Locomotive Works, power stations, and railways were reduced to a single track, while the Soviet occupation took over pressing, currency printing, and economic strategies.

The Deutsche Bank was founded under new notes printed in America, which included the Berlin notes. The Western Allies and Germans knew that currency reform was necessary, and Marshall Plan financing allowed for the purchase of American machinery, which contributed to the rebuilding of the nation. Much of the old equipment was added to the scrap that went to America, including military and steam locomotives.

By 1948, Krupp Werks had cleared out and begun repairing locomotives, with over 1,000 repaired for service. Krupp diesel designs were used for Soviet railways, and Essen built electric locomotives that were copied in large numbers. However, the Eastern railways did not construct high-speed tracks, as most investment went into restoring multiple tracks on the busiest routes. The four freight tracks from Breslau to Berlin were never restored, and steam locomotives were rebuilt, often to burn lignite and briquettes, until Russian-built diesels took over.

Economic Convergence Efforts

Efforts to bridge the gap between the East and West have been ongoing since the reunification. The government has implemented various strategies to foster economic convergence:

Investments in Infrastructure

Over €3 trillion has been invested in upgrading infrastructure, which includes roads, railways, telecommunications, and water systems. This investment is crucial for improving the quality of life and facilitating economic growth in the eastern regions.

Education and Training Programs

The government has launched extensive education and training programs to enhance the skills of the workforce in the eastern regions. These programs aim to provide modern and relevant skills to prepare the workforce for the demands of the modern economy.

Business Support and Investment Attraction

Public and private entities are working together to attract investment and support small and medium-sized enterprises in the eastern regions. This strategy includes offering incentives, tax breaks, and providing access to capital.

Overall, these efforts are significant steps towards achieving economic convergence in Germany. Despite the challenges, the progress made in the past three decades is noteworthy, and ongoing initiatives continue to help bring the eastern and western regions closer together.