The economic situation in Leipzig and Europe

This is a very interesting article about the economic situation in my city, Leipzig as well as the German attitude towards European bailouts:

Germans are reluctant to bankroll eurozone bailouts. But they proved the value of investing time and money after reunification.

In today’s eurozone crisis, it is little remarked upon that Germany has done financial bailouts before.

Nowhere is that more apparent than in Leipzig, one of the success stories of the former East Germany. Big companies such as Amazon and DHL, BMW and Porsche, have created thousands of jobs by moving operations to what is now an attractive business and cultural centre.

New roads, rail links and a redeveloped airport have acted like magnets for investment. The population has increased by 10% to 530,000 over the past 10 years.

But Uwe Albrecht, the city’s deputy mayor, is under no illusions about who needs thanking for the sudden renaissance. “Without the financial boost from the transfers from the west, it would not have been possible,” he says, referring to approximately €1.3 tn (£1tn), which has flowed from west to east since reunification.

The enormous costs that the country has shouldered since the Berlin Wall fell in 1989 have pushed many to the limits of their generosity.

Richer regions are complaining about constantly having to fork out for poorer states via the federal system of equalisation payments, and Bavaria has even filed a complaint with the constitutional court.

This has implications far beyond eastern Germany as it shows how German attitudes to fiscal transfers have hardened – just as the country is being called on to contribute the lion’s share of the bailouts to the eurozone’s struggling members.

They see that even thriving cities such as Leipzig require time and investment to claw their way back to prosperity, while other parts of the east continue to stagnate.

Leipzig suffered a huge slump after the wall fell. An important trade, financial and industrial centre before the second world war, during communist times it had become a city of heavy industry and manufacturing. Once the planned economy collapsed, most of Leipzig’s factories couldn’t compete with the west. “Within six months 96% of industrial jobs had disappeared,” says Albrecht.

It had been Leipzig where the movement that brought the end of the German Democratic Republic began, its people taking to the streets in Monday night marches that challenged the communist regime’s legitimacy.

Gerhild Minnemann, a 53-year-old librarian, took part in those marches in the hope of changing the political system. “Economically things weren’t that difficult before,” she says. “Then after the fall of the wall everything became much tougher for us.”

Some cities, such as Jena and Dresden, fared better as they had developed industries – optics and microelectronics respectively – that survived reunification. But by the mid-90s, Leipzig was firmly in the economic doldrums, with one of the highest levels of unemployment in the country.

A decade ago things began to improve. Money from the west funded an infrastructure splurge that brought new autobahns, rail links, a trade show centre and the development of Leipzig-Halle airport. DHL moved its European hub from Brussels and Amazon and Future Electronics of Canada both established logistics centres, while carmakers Porsche and BMW created thousands of jobs by establishing big production
facilities in the city.

“The infrastructure has been an essential requirement for investment,” says Albrecht.

Martin Rosenfeld of the Halle Institute of Economic Research says that efforts to rebuild the east should be viewed positively. It is like a miracle, he argues. “Really an incredible amount was achieved.”

But for all the success of cities such as Dresden and Leipzig, much of eastern Germany is still struggling to catch up. Living standards are stuck at about 70% of the average in the west, with lower wages and unemployment twice as high. Some regions, such as Mecklenburg Western-Pomerania, continue to be marred by depopulation and little
economic activity.

“The perception in the population is that we have spent a lot of money on east Germany and the results are not that good,” says Sebastian Dullien of the European Council on Foreign Relations.

Rosenfeld says every country has regional disparities, giving Liverpool and Detroit as examples. “One naturally cannot expect that every region and every city in the east can reach the same level as the west.”

Nevertheless, the patchy results have led to doubts about the effectiveness of massive fiscal transfers.

At first, most Germans in the west felt they had a duty to help their eastern compatriots who, it was felt, had borne most of the punishment for the second world war by ending up in the Soviet zone. Few could have envisaged how much they would have to pay and for how long.

“People feel these transfers will never stop, that the money will just keep flowing,” says Matthias Kullas of the Centre for European Policy in Freiburg, southern Germany.

This has coloured the way people view the bailouts to the rest of Europe, he argues, making them anxious about the true duration and costs involved. “People are pretty sure that it will constantly be a one-way street.”

“Germans are quite allergic when you mention a transfer union,” Dullien agrees. “They say, maybe we were willing to do this for other Germans, but we are not willing to do this on a much larger scale in a European context.”[YSaerTTEW443543]

TOEIC listening, question-response: How long did you work at ATZ corporation?[YSaerTTEW443543]

The situation of East Germany and of Greece are not equivalent or even similar.

East Germany only existed because the World War II allies divided the country up. Then East Germany was under the power of the Soviet Union, not by choice. “Bailing out” Eastern Germany is the correct thing to do in terms of reintegrating a “stolen” part of Germany and improving people’s lives there. The people of East Germany were not responsible for the state of their economy, and they had no say in the policies that caused the problem or in selecting their own leaders.

Greece, on the other hand, has gotten a lot of cash from stronger EU countries already, and they chose to use that, and take on more debt, in order to prolong an unsustainable welfare state. The Greek people voted for the politicians who engineered their decline, and they supported the policies that caused it.

So providing aid Eastern Germany is like giving food, clothing and a job to a person who has just been released from a concentration camp. Giving aid to Greece is like handing a drink to an alcoholic.

The Germans were the only people responsible for Germany being divided into two parts. They brought so much suffering and destruction that they deserved to be punished. The people of East Germany were responsible for the miserable state their economy was and has been in. There are lots of East Germans who haven’t been doing anything but whining and complaining for their entire lives. They have been fed by the state for decades. Giving money to them is not like giving a job because they will never start any job.[YSaerTTEW443543]

TOEIC listening, question-response: Did they discuss the new marketing plan?[YSaerTTEW443543]