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 as Berlin and its 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 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 high-profile conference in Dresden on October 8.
