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Eastern Germany

More than a quarter of a century after the fall of the Iron Curtain, the formerly communist eastern states of Germany are making slow but steady progress. Infrastructure is well developed and unemployment is down to single figures. However, per capita economic output has still not caught up with the rest of the country.

After the fall of the Berlin Wall and the end of the Iron Curtain 25 years ago, the Federal Government’s highest priority was to bring the standard of living in eastern Germany up to the level in the west. To achieve this, billions of euros’ worth of subsidies flowed eastwards to rebuild the newly acceded states, an investment that significantly increased the per capita income of the Federal Republic’s new citizens. However, as the resultant boom ebbed, the catch-up process came to a standstill and did not resume until 2001. Today the average eastern German has just over two-thirds of his western counterpart’s purchasing power.

The remaining gap is nowhere more apparent than in the DAX, the blue-chip share index of the top 30 companies listed on the German stock exchange: Not one of those companies is headquartered in eastern Germany. On the other hand, eastern Germany now boasts many small- and medium-sized businesses. The labour market is also healthier than it was a few years ago. However, this is the consequence not only of economic success, but also of the fact that many eastern Germans have left the region for lack of prospects. Though this depopulation has now stopped, the demographic transition will continue to affect many parts of eastern Germany. Only such attractive cities as Leipzig, Dresden and Berlin have a good chance of bucking the trend and continuing to grow in the future.

Klaus-Heiner Röhl

Klaus-Heiner Röhl

Senior Economist für Unternehmen

Tel+49 30 27877-103

Mailroehl@iwkoeln.de

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