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 2016, eastern Germany's per-capita GDP was around 27 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.
2017 Annual Report concludes that consistent funding for regions that are structurally weak is key requirement for inclusive society
In September 2017 the Federal Government Commissioner for the New Federal States, Ms Iris Gleicke, presented the latest . The report focuses on the challenges that the government is facing in its efforts to establish equivalent living conditions across the whole of Germany, and, by extension, to strengthen the social fabric.
The report shows that there have been some very encouraging developments on the labour market and where incomes and subjective life satisfaction are concerned, but also that are still considerable differences between the respective economic strength of individual regions in Germany. Overall, gross domestic product per capita in eastern Germany amounted to 73.2% of the comparable figure for western Germany in 2016. This is mainly due to piecemeal economic structures in eastern Germany where only a small number of large corporations are headquartered, resulting in comparatively low levels of innovation. For these reasons, the economy in eastern Germany needs a boost, particularly for small and medium-sized companies. The relevant economic weaknesses are further compounded by adverse demographic change in the many rural areas of eastern Germany, which leaves them held back in their economic development and causes issues with essential public services and utilities. If there is to be a good supply, and the funding is to be secure in the long term, the services need to be tailored to changing needs. It is very important for quality of life and social cohesion that this is also achieved in regions that are structurally weak and particularly hard-hit by demographic change.
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. 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.