BONN, FEB. 12 -- Chancellor Helmut Kohl's government proposed an emergency aid boost of $7 billion a year to cities and states in the former East Germany today to prevent them from going bankrupt.
The surprise move, accompanied by an acknowledgment that the Bonn government had underestimated the depth of eastern Germany's financial crisis, is likely to mean tax increases even larger than those anticipated to cover Germany's financial contributions to the Persian Gulf War.
Kohl won reelection in December on the promise that no new taxes would be needed to pay for reconstruction of the moribund Communist society of East Germany, which was absorbed into West Germany last fall. But Kohl conceded last month that Germany's pledge of more than $11 billion to the U.S.-led military coalition prosecuting the war in the gulf would require higher taxes.
The new domestic aid expenditure announced today by Economics Minister Juergen Moellemann is designed to speed rebuilding of the infrastructure in the east, create jobs and pave the way for private investment.
The government said it will immediately send $3.4 billion to the eastern states to ease the threat of bankruptcy in localities where the collapse of Communist-era industries has virtually eliminated the tax base. In addition, Kohl said he would move to stem the rapid rise in unemployment in the east by doubling to 260,000 the number of jobs to be created by public-works projects. Nearly 3 million people in a work force of about 10 million in the region are now jobless.
"We need quick action," Moellemann said. "I have to admit we underestimated the problems. . . . The achievement of the economic and social unity of Germany is clearly more difficult than expected."
Eastern German leaders of all political stripes have told Kohl that the economic situation in their states is desperate and threatens to bring massive strikes and street protests next summer. Only the distraction of the gulf war has kept the seething temper in the east from boiling over, state premiers there say.
Opposition leaders said Kohl is proceeding as they had predicted during last fall's election campaign, when Social Democratic challenger Oskar Lafontaine warned that massive public investment -- and higher taxes -- would be necessary to keep unemployment at an acceptable level and encourage private investment.
Only six weeks into the new year, Bonn has already sent to eastern Germany nearly half the $24 billion allocated for this year's German Unity Fund, Bonn's primary source of help for the former East Germany. Moellemann said he did not know where the new funds for the east would come from, but a Finance Ministry spokesman said it would require higher taxes.