E. Germany begins slow recovery

May 19, 1991|By Ian Johnson | Ian Johnson,Special to The Sun

BERLIN IZB — BERLIN -- While many businesses in the east grind to a halt under the pressure of market conditions, some entrepreneurs like Bernd Schultze are adapting.

"I haven't had a holiday in a year and never seem to spend time with my family, but we're surviving," said Mr. Schultze, who has rejuvenated his family's 120-year-old gold finishing business.

Along with his 72-year-old father, who remembers how to run the business under capitalist conditions, the 35-year-old craftsman has revamped his business and tapped a dormant market for high-quality restoration and renovation work.

Mr. Schultze's modest success illustrates the first tentative steps toward an economic recovery in former East Germany.

Ironically, his success seems all the more striking against the backdrop of gloomy economic statistics, including predictions that the area's unemployment rate could rise to 50 percent by the end of this year.

The once-Communist territory is plagued by serious problems, including plunging productivity. And the painful economic restructuring has even slowed the powerful economic machine of western Germany.

Meanwhile, the nation has yet to prove that it can create a unified economy for its unified people. Many economists warn that without more public and private investment -- and a rethinking of government spending priorities -- the ongoing recession may be longer and more painful than necessary.

Still, there are signs that the first stage of a recovery is beginning.

One of the region's biggest problems -- infrastructure -- is being addressed by massive programs to build roads and to upgrade the archaic telephone system. Dialing time is already down -- to a few minutes per call -- and people who have been waiting for decades for phone installations finally are getting a hookup.

Even more important is a recent decision that should clear up property ownership questions. It will allow businesses to invest in eastern factories without having to worry that some previous owner might reclaim the property.

Another problem area, the lack of qualified civil servants and the resulting delays in obtaining building permits, is being overcome by partnerships between west and east German state governments. The government reports than more than 10,000 civil servants from western states are training and organizing their eastern counterparts.

Despite these positive signs, the current situation is grim. Unemployment reached 9.5 percent last month. But add 2 million short-time workers -- people who work less than 40-hour weeks -- and underemployment is more than 30 percent.

The weakness of the eastern economy is shown in other figures recently compiled by the government. The eastern gross national product (GNP) totaled $62 billion for the second half of last year. This is only 8 percent of the western total although eastern Germany's work force is one-third the size of the western work force.

The eastern economy was so weak -- GNP fell 15 percent last year -- that it couldn't satisfy local demand. About $21 billion worth of goods and services had to be imported from the west last year.

Eastern Germany's trend toward declining production and increasing demand has triggered massive budget deficits, which are slowing down the entire German economy.

The nation's budget deficit could top 5 percent of GNP this year, largely because of the rising cost of unemployment benefits in eastern Germany.

The GNP for the western part of the country, which rose a smart 4.6 percent last year, is expected to increase by only 2.5 percent this year.

Meanwhile, Germans are debating when the overall recovery will kick in -- and how strong it will be.

On the more optimistic side are the government and some industry leaders.

"The train is in motion, and we'll soon experience it picking up speed," Daimler-Benz chief Edzard Reuter said at a recent meeting of industrial leaders.

In a survey of 4,000 German businesses, the Ifo Institute in Munich reports similar optimism. Businesses pointed to the better infrastructure and the clarified property rights as reasons why more private investment should be expected.

Also hopeful is the Economy Ministry, which reports that 1 million of eastern Germany's 8.36 million work force had found new jobs and that 300,000 new businesses have been founded in the past year.

More cautious, however, are some consultants and think tanks, which believe that the economy will pick up only if government and industry make massive investments and resist the already loud call for wage parity between east and west.

"For a long-term pickup there's a need for visions and concepts. Simply to stand by and say the pickup is coming isn't enough," said Herbert Henzler, head of the German branch of the McKinsey consulting firm.

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