East Germany: The Achilles heel of Europe
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East Germany: The Achilles heel of Europe

Why Achilles heel? Because the Bonn government - once the single-minded champion of European economic union - is paralyzed by problems in its own backyard. It has pumped billions of Deutschmarks and man-years of management into its five new Länder, but they show little sign of surviving without life-support. And Germany's slide into recession, in the west and the east, could jeopardize an early move to European economic and monetary union. David Shirreff reports.

On the Potsdamer Platz, which was once a wasteland between east and west Berlin, the contractors have made an inland sea. Cranes and barges shift earth for the foundations of the biggest development site in Europe. Men work below the dam, small and vulnerable as ants, separated from the wall of water by a few inches of steel.

For five years, much of east Germany has been a building site. At first the building stimulated a boom in consumption and construction, but it failed to spill over into productive sectors. Now the building continues grimly in the teeth of recession in the east and west. The industrial base in the east has collapsed; official unemployment is close to 20% (if you include job creation and early retirement it's more like 40%). For the whole of the country, the average unemployment rate is 12%. In its present economic state, but lacking its eastern region, Germany would be trying to revitalize growth rather than screw down spending. That's the view of Heiner Flassbeck, head of forecasting at Deutsches Institut für Wirtschaftsforschung (DIW) in Berlin.

But Bonn still deludes itself that absorbing the former German Democratic Republic (GDR) has meant no more than a slight course correction on the path to a united Europe.

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