Bloomberg News

Germany Best of European Union With BMWs of Reunification

March 31, 2014

Porsche Factory in Leipzig

An employee polishes the chassis of a Porsche Macan sport-utility vehicle (SUV) in the paint shop of the newly expanded Porsche AG factory in Leipzig. Photographer: Krisztian Bocsi/Bloomberg

Twenty-five years ago, Leipzig was the center of protests that exploded across communist East Germany and ultimately brought down the hard-line regime of Erich Honecker and then the Berlin Wall.

Back then, the few people who owned cars mainly drove Trabants running on a stinking mix of gasoline and oil. There were strip mines on the edges of the city. The airport was a third-rate East Bloc hub served by Soviet Aeroflot and the not-at-all-lamented East German national airline, Interflug.

“The city was crumbling, grim and gray,” says Dietmar Busse, 48, a Leipzig resident who took part in the 1989 anti-communist protests and is now a construction engineer for TAG Immobilien AG. “All the roads were kaput except the one used by Honecker for the two international trade fairs each year. They’d paint the facades and plant flower beds along it so he’d have a nice Potemkin village.

‘‘We used to joke that the airport was a country landing strip,” Busse continues. “There was a story that when the Bavarian prime minister, Franz Josef Strauss, who flew his own airplane, was due to land for the Leipzig trade fair, he wanted to abort because he couldn’t believe that such a small, shabby barrack could be the airport for a city with half a million people.”

DHL Hub

A quarter of a century later, Bloomberg Markets will report in its May issue, the Leipzig airport operates 24 hours a day as the European hub for global flights by Deutsche Post AG’s DHL parcel and airfreight service. In a 48,000-square-meter (517,000-square-foot) hall near one of the two runways, conveyor belts totaling 6.5 kilometers (4 miles) in length allow the automatic scanning and sorting of 100,000 parcels and letters an hour.

In December, DHL began a 150 million euro ($206 million) expansion that will double the facility’s size.

As for automotive culture, Leipzig is now home to a Volkswagen AG factory producing the Porsche Cayenne SUV and the new Macan SUV. Down the road, there’s a Bayerische Motoren Werke AG plant churning out four BMW models, including the i3 electric car.

Leipzig is only one story of renewal in the east since the reunification of Germany in 1990. Dresden is another, Potsdam another, Jena another.

‘So Good’

“Twenty-five years after the peaceful revolution, Thuringia is one of the most competitive regions in Germany and in Europe,” Christine Lieberknecht, the premier of the eastern state, said in an e-mailed reply to questions. “Our economic strength has tripled since 1991.” She goes further: Her state and Germany as a whole, Lieberknecht says, “have never had it so good.”

The transformation of the east hasn’t been easy, and, above all, it hasn’t been cheap: Public investment in the east since 1990 has reached 1.8 trillion euros -- an amount roughly equal to Germany’s gross domestic product at the time of reunification -- according to Joachim Ragnitz, managing director of the Munich-based Ifo Institute for Economic Research.

It has been a commitment without modern parallel; this is the age of separatism, not of integration. And it has worked. “German unity has turned out much better than people thought,” says Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. “Back in 1990, the economic cognoscenti almost all believed it would end in tears.”

German Growth

Instead, Germany’s economy is the largest and among the healthiest in Europe, producing more than 25 percent of the GDP of the euro area. German GDP will expand 1.8 percent this year and 2 percent in 2015, the Economy Ministry forecast in its annual economic report published on Feb. 12. Unemployment, which stood at 6.8 percent in February in seasonally adjusted terms, may fall to a post-unity low this year. Germany had a balanced budget in 2013, its first since reunification.

“Size matters in global political and economic clout,” Erixon says, “and without its eastern wing, Germany wouldn’t have been as strong a factor in European politics over the past two decades.”

Germany has devoted 33.9 billion euros to the transportation infrastructure in the east, which now boasts the finest autobahns in this car-crazed nation. Remote sections, such as the A15, which hits the Polish border at the German city of Forst, and the A20, which skirts the Baltic Sea, are loved by speedsters because the pristine, pothole-free conditions allow them to get their Porsches and BMWs to more than 250 kilometers an hour.

West Complains

The eastern infrastructure is now so modern that western Germans are grumbling and demanding equal attention for their comparatively decrepit bridges, roads and railways. “Now, it’s west Germany’s turn,” Hannelore Kraft, prime minister of North Rhine–Westphalia, Germany’s most populous state, told the business newspaper Handelsblatt in 2012.

Eastern Germany isn’t just catching up economically. Its people are running the country. Chancellor Angela Merkel, 59, and President Joachim Gauck, 74, both grew up in the communist east. She was a physicist, and he was a dissident pastor in the Lutheran church. Leading roles for easterners were unthinkable after the first all-German elections, in 1990. In Chancellor Helmut Kohl’s first post-unity cabinet, easterners were relegated to second- and third-tier positions. He made Merkel minister for women’s affairs and dubbed her “my girl.”

Third Term

Merkel, Germany’s first female chancellor, was re-elected to a third term in September. She may even be on the cusp of an oil boom in her eastern election district: Central European Petroleum GmbH plans to start production in 2017 in Brandenburg and Mecklenburg–Western Pomerania. Proceeds from drilling rigs, operating costs, royalties and taxes may pump $27.6 billion into eastern Germany’s economy during the next 25 years, according to data provided by the oil company.

Eastern Germany still lags behind the western part of the country in most economic indicators. The unemployment rate -- which rose to 18.7 percent as recently as 2005 -- was 9.9 percent in February, compared with 6 percent in western Germany, according to the Federal Labor Agency. The east, with about 20 percent of Germany’s total population of 81 million, produces 15 percent of the nation’s GDP. Wages and salaries in the east are on average 70 percent to 80 percent of those for comparable work in the west.

Struggles like these suggest that 25 years isn’t a long time when set against 45 years of communist rule.

Cut Off

“The communists meant four decades of being cut off from the global economy,” Hartmut Vorjohann, Dresden’s Mayor of Finances, said in an interview. “This all had even graver, deeper and more sweeping consequences than we imagined 25 years ago when we set about rebuilding east Germany.”

All major businesses were confiscated by the state in the Soviet zone of occupation -- what would become the German Democratic Republic, or East Germany -- after World War II. So were large farm and forestry holdings. The GDR was locked into the East Bloc and subject to shortages of anything and everything. The East German mark, though officially pegged to the West German mark, bought less and less.

“They pretend to pay us, and we pretend to work,” was the joke.

Still Struggling

There are still regions of eastern Germany that are struggling economically, including parts of Saxony-Anhalt, Mecklenburg–Western Pomerania and Brandenburg states. Here you see what infrastructure spending can’t do. Several state-funded projects in Brandenburg have failed, including the EuroSpeedway Lausitzring racetrack and a bid to build zeppelins for transporting freight.

The giant hall built for the now-dead zeppelin company, Cargolifter AG, has been sold and converted into an indoor swimming pool and resort called Tropical Islands.

Brandenburg is also home to Germany’s most-notorious delayed and over-budget project: Berlin’s new airport, which was supposed to open in 2011. After the repeated cancellation of announced opening dates, there’s still no concrete time frame for completion; 2016 is being held out as a possibility. The price for the project, originally set at 2.8 billion euros, is approaching 5 billion euros.

Stasi Spy

There are many broken work and life biographies in eastern Germany, especially for people now ages 50 to 70, who in many cases saw their jobs vanish as huge state-owned factories were shut down or sold and made drastically smaller. Other people saw their qualifications made worthless overnight, such as those who had received degrees in Marxism-Leninism. Still others were branded by having worked for the hated Stasi, the East German secret police.

Fifty-six-year-old Rainer Rieck was one. He was a policeman in Guben, a town on the German-Polish border. “When the Stasi came to recruit me, I wasn’t man enough to say no,” he says. Rieck says he lost his job in 1991 after his bosses found out about his Stasi past. Then, he says, his wife left him. He was a metal worker until 2003 and has been unemployed since.

“For me, they might as well rebuild the Berlin Wall,” he says. “I’ve never found my bearings in unified Germany.”

About a two-hour drive southwest of Berlin, in the hilly state of Thuringia, is the city of Jena, which has been a center of higher education and technology in Germany for centuries. Famed lens maker Carl Zeiss AG, among other stalwarts of the Mittelstand (the small and midsize companies that are at the heart of the German economy), was founded here in 1846. A post-reunification spinoff of Carl Zeiss, the optoelectronics company Jenoptik AG, is among Jena’s largest employers.

Housing Boom

Jena, with a population of 105,000, has one of the strongest property markets in central Germany. The average price of a home rose 27 percent from 2009 to 2013, and the rental market has been swept clean, with just 1 percent of apartments empty in the city, according to a study by real estate company Immowelt AG.

“The people moving into management positions here are aged around 35, meaning they were 10 when the Berlin Wall came down,” says Christian Graf von Wedel, a real estate investor and head of Frankfurt-based GW Wohnen GmbH, which owns thousands of apartments and several office buildings in the east. “So they don’t have all this communist stuff in their heads. Easterners are more ambitious and harder working than west Germans. They don’t have the luxury of inheriting, and so they’re hungry and want to get ahead.”

IT Surge

Wedel says the 15-story office building his company owns in Jena, one of the city’s two skyscrapers, was 70 percent empty when he bought it in 2011. It’s now 100 percent rented. Wedel says reducing the size of rental units to cater to information technology startups had led to the surge of tenants. The city lists 45 IT companies on its website.

Twenty-five years after he joined the anti-communist protests centered at Leipzig’s Nikolaikirche, or St. Nicholas Church, Busse, the construction engineer who helped rebuild the city, has bought a house in Leipzig, and he and his wife are raising their three children there.

“History has been good to us,” he says. “That’s why we have three kids.”

Aside from political and economic freedom, Busse says, the thing he most appreciates about modern eastern Germany is the clean air and water. In his youth, Leipzig’s canals were filthy and stinking; now, he boats on them with his family. On the edges of the city, he visits lakes and parks built where the East German government once tore up the ground to mine cheap, dirty coal.

“I go there once a week to clear my head,” Busse says. “What a change!”

To contact the reporter on this story: Leon Mangasarian in Berlin at lmangasarian@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Daniel Ferrara


We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus