Whilst eastern Germany has been able to double its economic output, this figure still stands around a third lower than that for the rest of Germany. In 2015, eastern Germany's per-capita GDP was 27.5 per cent lower than western Germany's. Labour productivity in eastern Germany currently stands at 77 per cent of the figure for western Germany. The unemployment rate in eastern Germany reached a new record low in 2016, falling to 8.5 per cent. However, this figure is still much higher than the 5.6 per cent recorded in the west.
Much has been achieved, but the economic catch-up process in eastern Germany has slowed down a great deal in recent years. This is due to the fact that the economy in western Germany, which is closely integrated in international value chains, is also growing. The gap between the two economies is therefore very slow to close.
2016 annual report highlights key fields of action
In September 2016 the Federal Government Commissioner for the New Federal States, Ms Iris Gleicke, presented the latest . The report shows that eastern Germany will need much stronger growth if it is to catch up with the western German states.
The real economy in the Eastern German states (except Berlin) grew by 1.9 per cent in 2016, which is less than the average for western Germany, which stood at 1.8 per cent. As eastern Germany is experiencing a decline in its population, its real economy is also losing track.
Other reasons given by the Annual Report include the piecemeal economic structures that can be found in eastern Germany, and the lack of large companies and HQs of large corporations, which also has a negative impact on the region's capacity to innovate. For these reasons, the economy in eastern Germany needs a boost, particularly for small and medium-sized companies. Other important steps to be taken include those that will lead to a complete convergence of pensions between eastern and western Germany. This is to be achieved by 2025. The report highlights that right-wing extremism, which comes in many different forms, poses a very serious threat to social and economic development in the western Länder.
New funding scheme to replace the Solidarity Pact after 2020
Since reunification, the Federation has been supporting the New Länder (including Berlin) in their efforts to pay off extra costs that have accrued as a result of the division of Germany and to close the infrastructure gap that still exists between eastern and western Germany. As the current fiscal equalisation system between the Federation and Länder, including the so-called Solidarity Pact II, will however expire in 2019, putting in place a new system is a key priority for Eastern Germany during this parliament. On 10 June 2016, the Federal Ministry for Economic Affairs and Energy published its expertise on the "priorities, structure, and possible design of a post-2020 pan-German scheme to support regions that are structurally weak". Among the proposals made by the authors of this expertise is extending the scope of some programmes hitherto designed to promote innovation in eastern Germany to include regions in the whole of Germany, as long as they are structurally weak. This would ensure continued funding for eastern German regions and prevent a situation whereby development in regions that are structurally weak would be hampered. Said the then incumbent Minister for Economic Affairs, Sigmar Gabriel: "We must ensure that they do not fall further behind on innovation, digitisation, and globalisation, but rather succeed in catching up with overall economic development."
At the end of 2016, the Federal Chancellor and the Minister Presidents of the German Länder agreed to reorganise the fiscal equalisation scheme to create a new system as of 2020. This must now be done following legislative procedure. Eastern Germany stands to benefit from the agreement. The new fiscal equalisation scheme will afford the states and municipalities in Eastern Germany the scope they need in order to be able to fulfil their tasks once the old system and the Solidarity II Pact have expired, and to invest in the future. The new scheme will take greater account of the differences that exist between different states, for instance in terms of municipalities’ financial situation or the presence of research institutes. This is to ensure that the new equalisation scheme for the post-2019 period continues to contribute to the objective of creating equivalent living conditions all across Germany.