Mecklenburg-Vorpommern Economy

A new confidence: The East German economy is finally getting a boom | Germany

In over 30 years since the fall of the Berlin Wall, East Germans have been given several reasons for lagging behind the West: an uncompetitive industry, a lack of jobs, a lack of young workers.

But the new federal government believes that the former socialist “workers’ and farmers’ state” is still missing something: the trade unions.

“We have too few collective agreements in the East, too little democracy in the companies,” said Carsten Schneider, who was appointed Federal Commissioner for the East by Chancellor Olaf Scholz, the Guardian in an interview. “For decades workers in the East have been told to stand in line and it drives me nuts to see how some of them have internalized that.”

In the old German Democratic Republic, the dominant trade union was controlled by the ruling party and labor disputes were effectively forbidden. Today, only about 40% of the workforce is collectively paid, compared to 50% in the more affluent west. Schneider, a social democrat from Erfurt in southeast Thuringia, says his goal is to close the gap.

“The dentist who parks a Land Rover in front of his practice can only afford it because his assistants go home with 1,800 euros gross a month and don’t dare ask if they shouldn’t earn a little more,” he says. It marks a sharp change of tone at the top of the federal government after 16 years in which Angela Merkel’s conservatives fought for lower wages in the East as a locational advantage. It’s also part of a broader attempt to play a more optimistic game about a region whose economic performance is beginning to belittle its reputation.

Parliamentary Secretary of the SPD Carsten Schneider. Photo: Ina Fassbender/AFP/Getty Images

“There is a new generation with a new self-confidence when it comes to their own prizes, and I would like to support them,” Schneider continued.

East Germans make up 14% of the country’s total population, but remain underrepresented in elite positions in major German companies, universities and government. None of the 40 blue-chip companies traded on the Frankfurt Stock Exchange are located in the five countries that formerly formed the German Democratic Republic, where GDP per capita is about 22% lower than in the West.

But a boom in East German cities and the industrial clusters surrounding them is changing the picture. After years of lagging behind the rest of the country for years – divided during the Cold War but geographically a very eastern city – Berlin’s GDP has risen above the national average since 2020. Surrounding Brandenburg was boosted by the arrival of Tesla’s first electric car factory in Europe.

As supply chains around the globe fray, industries are choosing East Germany for their return to Europe. Chip manufacturer Intel announced in March that it would build two semiconductor factories in the city of Magdeburgwhile a Canadian clean tech company is building Europe first lithium converter in Guben, Brandenburg.

Generous areas, renewable energies from the region and federal subsidies exclusively for the eastern federal states are just as much an incentive as a high-speed rail network completed in 2017, which connects Saxony, Saxony-Anhalt and Thuringia with Berlin in the north and Munich in the south.

A feeling of being “left behind” in a changing economy an analysis found by the left-liberal think tank Progressives Zentrum was now also to be found in western regions such as the Ruhr area or Saarland. “East against West, that’s a thing of the past,” said Andrä Gärber from the SPD-affiliated Friedrich Ebert Foundation.

A newfound boast was also on display when Schneider hosted a delegation of British Labor MPs last week looking for lessons for the prosperous north of England surpassed of East Germany for over a decade.

“Your challenges are in a different league,” said an SPD member of the Thuringian state parliament after a lunchtime meeting in the spa town of Bad Tabarz with Lisa Nandy, the British shadow minister for equalization, housing and local authorities.

In last September’s vote, Scholz’s SPD won in part on massive gains in the Northeast, where they sidelined the conservative Christian Democratic Union and the far-right Alternative for Germany (AfD) largely by focusing on economic issues such as wages and culture wars.

Identity politics, said Schneider, is poison for voters in the East: “Because the East German state has invested so much effort in teaching its people to speak, the people here are absolutely allergic to language education.”

But East Germany’s economic success stories remain fragile. After six months in office, the Scholz government quickly passed a new minimum wage increase to 12 euros an hour, which will come into full force on October 1 and benefit every third or fourth low-income worker in regions such as Brandenburg or Mecklenburg-Western Pomerania. But with Russia’s war in Ukraine driving up the cost of living, with soaring gas prices and rising inflation, such political victories may soon go unnoticed by voters as wage promises are tested in the coming months.

One tool the SPD and its Green-Liberal coalition partners have promised to use to boost wages and union membership is the Collective Bargaining Act – a law ensuring that public contracts are only awarded to companies that are party to collective agreements.

In 14 out of 16 federal states, similar laws are already in force, but not always enforceable. “If we only find companies that are not subject to collective bargaining agreements, we have to go along with it,” says Diana Lehmann, SPD member of the Thuringian state parliament.

Near Erfurt, where Schneider received a direct mandate at least in the federal elections, the Chinese battery manufacturer CATL is now building its first non-Chinese production facility for 1.8 million euros, which it says will provide around 2,000 jobs in the region in the long term. But for now, the Chinese company has mainly hired Chinese workers, with rumors that German labor laws mandating an eight-hour workday are preventing management from hiring locally. Wages are said to be lower than expected.

With public attention focused on gas pipelines and arms shipments, the government has also barely begun to take the politically thorny stance that Germany needs to find political answers, not just to the lack of gas to fuel its industry but also its workforce take care of.

“We have a massive shortage of workers in all areas,” said Schneider. “Germany needs 7 million more workers by 2030. That’s why we’re introducing one of the most liberal immigration laws in the world. And we will do it in such a way that wage dumping does not occur.”