East German revival picking up

East Germans make up 14% of the country’s overall population but remain underrepresented in elite positions in big German companies, universities and government. None of the 40 blue-chip businesses traded on the Frankfurt stock exchange are located in the five states that used to form the German Democratic Republic, where GDP per capita is about 22% lower than in the west.

But a boom in eastern German cities, and the clusters of industry that surround them, is changing the picture. After years of dragging behind the rest of the country, Berlin – divided during the cold war but geographically very much an eastern city – has seen its GDP rise above the national average since 2020. Surrounding Brandenburg has been lifted by the arrival of Tesla’s first factory for electronic cars in Europe.

As supply chains fray around the globe, branches of industry are choosing Germany’s east for their return to Europe. Chipmaker Intel announced in March it would build two semiconductor factories in the city of Magdeburg, while a Canadian clean tech company is building Europe’s first lithium converter in Guben, Brandenburg.

Ample space, locally sourced renewable energy and federal subsidies exclusive to the eastern states are proving incentives, as is a high-speed rail network completed in 2017, connecting Saxony, Saxony-Anhalt and Thuringia to Berlin in the north and Munich in the south.

A feeling of being “left behind” in a transforming economy, one analysis by the left-liberal thinktank Progressives Zentrum found, was now as likely to be found in western regions such as the Ruhr valley or the Saarland. “East versus west, that’s a story of the past,” said Andrä Gärber, of the Social Democratic party (SPD)-tied Friedrich Ebert Foundation.

A newfound swagger was also on display when Schneider last week hosted a delegation of UK Labour party delegates searching for lessons to be drawn for England’s north, which has been economically outperformed by eastern Germany for over a decade.

“Their challenges are in a different league,” said one SPD delegate in the Thuringian state parliament after a lunchtime discussion in the spa town of Bad Tabarz with Lisa Nandy, the British shadow minister for levelling up, housing and communities.

At last September’s vote, Scholz’s SPD swept to victory in part due to massive gains in the north-east, where it fought back the conservative Christian Democratic Union and the far-right Alternative für Deutschland (AfD) mainly by focusing on economic issues such as wages and leaving culture wars to one side.

Identity politics, Schneider said, were toxic to voters in the east: “Because the East German state invested so much effort in telling its people how to speak, people are absolutely allergic here to being educated through language.”

Yet eastern Germany’s economic success stories remain fragile. Half a year into its job, Scholz’s government has moved quickly to pass a new minimum wage increase to €12 (£10.20) an hour, which comes fully into effect as of 1 October and will benefit every third or fourth worker in low-income regions such as Brandenburg or Mecklenburg-Vorpommern. But as Russia’s war in Ukraine is massively driving up the cost of living with rising gas prices and spiralling inflation, such political victories may soon barely register with voters as vows on wages are put to the test over the coming months.

One instrument through which the SPD and its Green and liberal coalition partners have vowed to drive up wages and union memberships is the Tariftreuegesetz – a law to make sure public contracts are only awarded to companies that are party to collective bargaining agreements.

While similar laws are already in place in 14 out of 16 German states, they are not always enforceable. “If we can only find companies that aren’t bound by collective bargaining agreements, then we have to go with them,” said Diana Lehmann, an SPD delegate in the Thuringian parliament.

Near Erfurt, where Schneider gained a direct mandate at least year’s federal elections, the Chinese battery manufacturer CATL is now building its first non-Chinese production facility for €1.8m, which it says will offer about 2,000 jobs in the area in the long run. But, for now, the Chinese company has mainly brought in Chinese workers, with rumours that the management is put off from hiring locally by German labour laws requiring eight-hour working days. Wages are said to be lower than hoped for.

With public attention focused on gas pipelines and arms deliveries, the government has also barely started to make the politically sensitive case that Germany needs to find political answers not just to a shortage of gas to power its industry, but also of workers.

“We have a massive labour shortage in all areas,” said Schneider. “Germany will need 7 million more workers by 2030. For this reason we are going to introduce one of the most liberal immigration laws in the world. And we will do it in such a way that it won’t lead to wage dumping.”

https://www.msn.com/en-au/money/markets/a-new-confidence-the-east-german-economy-finally-gets-a-boom/ar-AAZLVNG?li=AAgfYrC