German investment in the east falters Mercedes, others forced to curtail billion-dollar plans

"It's a small town," she says. "People would talk."

She's a single mother with two sons who lives in a two-room flat. She drives a Ford. Ahrensdorf itself may have more millionaires now than unemployed.

The mayor says only two or three people in the town are out of work. Ahrensdorf residents commute to jobs in Berlin, which is only 15 miles or so to the north, or to west Germany, which can be a long haul indeed.

But the unemployment rate is 16.6 percent in the county of

Zossen, where Ahrensdorf is, and about 73,000 people live in the county.

Zossen's unemployment rate is typical of eastern Germany, where the official rate hovers around 15 percent, up from about 10 percent last year. Unemployment hidden by make-work and training programs is routinely believed to add another 15 percent. Some experts say only half the labor force in east Germany is productively employed.

After the "heat wave"

More and more western German firms are scaling back investment in east Germany. Krupp Steel, for example, last month backed out of a deal to privatize east Germany's biggest steelmaker.

The auto industry, which has been a major generator of west German prosperity, now seems stalled by its own problems. Despite a upward blip in September, German car manufacturers face falling demand in their own country.

The "heat wave" created by transfer payments to easterners -- car crazy after years of driving slow, gasping East German "Trabbis" -- is over. West European car sales are down 1.5 percent through September.

The car industry's problems parallel those of the rest of German industry. Traditional German workmanship has crashed into contemporary Japanese technology. "Made in Germany" no longer necessarily carries the day, or the sale.

German productivity growth, which enabled German manufacturers to pay the world's highest wages, now lags behind European competitors, let alone Japan.

German auto workers got a $27 dollar an hour pay package in 1991. It's been estimated that it costs $450 less to produce a car in England; $950 less in Japan.

Now labor costs will cost jobs, according to industry analysts, 200,000 out of 1.7 million in the next few years.

Mercedes says it shelved its plans for the Ahrensdorf plant because of "structural problems" in the European truck industry, declining demand in west Europe and reduced prospects for the development of markets in East Europe.

Mercedes, meanwhile, owns 245 hectares of land just beyond the tavern in Ahrensdorf. The company says it will put a regional supply depot and a used car center there.

Mayor Borgwardt says she's heard rumors that a truck port with a service center and a hotel will be built on the site.

"I'll believe it when I see it," she says.