For people living in the socialist camp countries, the German Democratic Republic seemed like a paradise and a land of universal prosperity. As Lenta.ru writes, rare lucky business travelers brought from there to the USSR "Madonna" dinner sets, clothing, wallpaper, and children's toys. And then they enthusiastically told friends and acquaintances that the Leipzig store was nothing compared to the city of Leipzig.
But then perestroika happened in the USSR. And in 1989, the Berlin Wall fell. After that, the GDR went one way, while the other socialist camp countries went another. At that time, the fate of East Germans seemed much more enviable than, say, that of Poles or Czechs. The latter had to independently organize their transition to democracy and a market economy. The GDR residents, meanwhile, immediately fell into the brotherly embrace of their Western compatriots and, as everyone thought at the time, were supposed to very soon forget their shameful Soviet past.
However, everything turned out differently. In April 2004, a team of experts conducting research commissioned by the German government was forced to state a fact that until then had been hushed up mainly for reasons of political correctness: the program for integrating West and East Germany had almost completely failed. "The East has stopped developing after the initial euphoria. It is becoming stupider, poorer, and older."
The 1.25 trillion euros invested by West Germany in the development of the so-called eastern states were largely wasted. Almost half of them went to various social benefits and pensions. Another substantial portion went to subsidies related to business development and job creation. However, of the 15 million residents of the former GDR, only 40% are working. The rest have either not yet reached working age, or have already exceeded it and retired, or are receiving unemployment benefits. Everyone with any ambition or qualifications left for the West long ago. The budget deficit of the federal states that were part of the GDR now stands at 45%.
The foundations of this policy were laid back in the early nineties. Before the GDR and the FRG became one country, the FRG government decided to do everything for the new citizens of the free state who had just freed themselves from communist oppression. For this purpose, a plan called Aufbau Ost ("Rebuilding the East") was adopted.
After the fall of the Berlin Wall on November 9, 1989, it became clear for the first time how far the GDR lagged behind the FRG economically. East Germans had no chance of withstanding the competition of their Western neighbors in the open market, and trade with the Warsaw Pact countries was a matter for the future. Even before the official merger of the GDR and the FRG, which took place on October 3, 1990, the West German mark was introduced in all eastern states.
At the same time, Bonn gave the new citizens a huge gift. Contrary to the actual exchange rate, almost completely devalued cash Soviet marks were exchanged at state banks at a ratio of one to one. Savings held in East German accounts were converted into West German marks at a ratio of two to one. 300 billion "wooden" marks were sold for 180 billion convertible marks. Thus, the FRG gave East Germans almost $110 billion at the then-current exchange rate.
Naturally, the state of telecommunications, road infrastructure, and water supply in the GDR also could not bear any comparison with Western European standards. By 1997, the FRG had spent 146 billion marks on rebuilding the infrastructure of the East. As a result, the eastern states now have the best telecommunications network in Europe. True, the condition of roads and water supply, from the point of view of German experts, still leaves much to be desired. As does the overall state of the East German economy.
As experts now believe, the main mistake made by Bonn was the "high-wage strategy." Remember Russia in 1992-1993. More precisely, your salary or the salary of your parents during that glorious period. But East Germans at that time received only 15% less than West Germans. And this happened not at all as a result of market mechanisms, but under pressure from the state and trade unions.
At the same time, one should not think that the "high-wage strategy" was adopted solely because Bonn wanted to make life easier for citizens of the former GDR. The fact is that if wages in the eastern states had been significantly lower, it would have led, on the one hand, to the migration from there of the most active and qualified population (which, by the way, happened anyway), and on the other hand, to an outflow of production to the east, where company owners would seek cheap labor. Then Germany would become a local demo version of the global division of labor, in which computers designed in the United States are assembled in China.
So, although by 1992 wages had reached the average level of, say, the USA, labor productivity was no higher than in Mexico. It is clear that such a situation could not continue forever. By 1995, 95% of enterprises in the former GDR had been privatized. More than 500,000 private companies and branches of national or international corporations were formed on the territory of the eastern lands. However, due to high wages and low labor productivity, their profitability was minus 40%. As a result, by 1997, the boom in East Germany had turned into a crisis, and 70% of employees lost their jobs and went on welfare.
On which they still remain. According to experts, another important mistake of the German government was the automatic extension of social subsidies and benefits (which in Germany allow even an unemployed person to feel relatively comfortable) to residents of the former GDR. Apparently, these people, accustomed to a quiet life in the socialist camp, began to enjoy all the socialist benefits of the FRG, without even considering the possibility of starting a business or fighting for a worthy place in the world of capital.
At the moment Germany is experiencing an economic downturn and cannot afford to support the backward eastern lands. At the same time, the former GDR, according to research results, is responsible for at least two-thirds of this downturn. Every year, western Germans donate 4% of their GDP to support their eastern brothers. At the same time, Germany's GDP growth rate barely exceeds 2%.
All these are long-known facts. However, the report published in April became the first official recognition of the failure of German policy regarding the reintegration of the West and the East. Now various experts are proposing approaches to overcome the current situation. There are three main proposals: the first is related to the introduction of tax and customs benefits for companies registered in the eastern lands, but such a policy contradicts EU rules; the second involves weakening administrative control over innovative businesses, on which the "easterners" place great hopes; the third is particularly radical: in regions where unemployment exceeds 50%, it is proposed to relieve entrepreneurs of the need to comply with the labor code and eliminate other legislative obstacles to the free development of business.
Euro officials will be closely watching the discussion of these options. After 10 new countries join the EU on May 1, many of which also have transition economies, the whole of Europe will have to learn from German mistakes.