Now, residents are looking toward Greece and other countries that have needed bailouts and worrying that history may be repeating itself.
Across Europe, calls have been growing for Germany to abandon its adherence to the doctrine that countries can only get back on track through austerity. Instead, many politicians and economists are saying, the focus needs to be on reinvigorating economic growth. But Germany – Europe’s powerhouse economy – has remained very cautious about committing any more money to help the struggling neighbors that share its currency, the euro.
“German unification shows how incredibly costly it is to support a poorer part of a country within a currency union through just fiscal transfers,” said Clemens Fuest, an economist at the University of Oxford and an adviser to the German finance ministry. “The German situation is really a warning.”
When Germany reunified in 1990, the west — a country of sleek BMWs, rebuilt cities and robust exports — was suddenly grafted together with a country that had a weak currency, uncompetitive industries and infrastructure that had been neglected since World War II. Millions of workers who were guaranteed employment by the East German state were suddenly out of jobs, and entire industries went bust in a matter of months. To avoid economic armageddon, the rest of the country trained a firehose of cash toward rebuilding the east.
The results: The east has a brand-new network of roads, beautifully renovated buildings and an unemployment rate that, at 11.3 percent, is nearly double the rest of the country. Some eastern cities, like Dresden and Leipzig, are bustling with new economic activity. But entire regions have emptied out, and private investment has been spotty, while eastern workers are 80 percent as productive as their western counterparts. The price tag is mounting, and Germans see it on their paychecks, where a “solidarity” tax of up to 2.5 percent will be taken from their earnings until 2019.
Other parts of Germany, meanwhile, have felt neglected, and they are increasingly speaking out. Late last month, a group of mayors in the struggling Ruhr Valley area of western Germany called for an end to the solidarity programs that they say are driving their cities into deeper debt.
“We’ve increased our problem when we’ve been trying to get rid of it,” said Joerg Stuedemann, the city manager of Dortmund, a former steel city of 580,000 that is $1.7 billion in debt and has 13 percent unemployment. Though channeling resources eastward was once necessary, now it’s more complicated, since areas of the west are now struggling just as much, he said. “We have to discuss the future of the solidarity pact.”