Germany’s reunification, 33 years on: East-West divide persists

Thirty-three years after German reunification, wealth disparities still form the “most significant differences” between the former West and East, German government commissioner Carsten Schneider said, with a government stalemate blocking progress.

On 3 October 1990, the former parts of the German Democratic Republic (GDR) joined the jurisdiction of the German constitution, officially uniting the country after a wave of protests had taken down the Communist East-German government.

But three decades later, the results of Communist economic policy still affect the situation in Eastern parts of the country.

Most significantly, those differences can be seen in wealth differences, Carsten Schneider (SPD/S&D), the government’s Commissioner for East Germany, told journalists on Wednesday (27 September).

While the median household in Western Germany owns a net wealth of €127,900, in Eastern Germany, this is only €43,400, according to 2021 data by the German central bank (Bundesbank).

However, “on behalf of the Federal Government, I cannot say anything to you now about the instruments to counter this,” Schneider added, “because this is one of the points that are controversial as far as the question of tax reform is concerned”.

Economists such as Marcel Fratzscher, head of the German Institute for Economic Research (DIW), have called for a reform of wealth and inheritance tax in order to pay every young adult a “minimum inheritance”.

By increasing taxation on large private inheritances, every 18-year-old could be paid a lump-sum handout of €20,000, giving them more independence from their parents when deciding on their future education or life journey, which would also shift wealth from the West to the East over time.

While Schneider personally supports such an idea, the German government does not intend to do so. Any increase in wealth taxes was blocked by liberal coalition partner FDP (Renew Europe), he said on Wednesday.

“Personally, I am an advocate of more wealth-based taxation in Germany and I consider the concentration of wealth, be it cash, real estate or in shares or company assets, to be ultimately detrimental to merit,” Schneider said.

However, “in this coalition constellation – with the FDP, that can be said quite openly, they see it quite differently – there is no majority for that,” Schneider said.

In the government coalition treaty of 2021, German coalition partners of Social Democrats, Greens and FDP largely left taxation policy untouched, as the two bigger parties are advocating for a more progressive approach while pro-market FDP opposes tax increases and calls for a reduction of overall taxation.

A wealth tax has not been re-introduced in Germany ever since a 1995 decision by the Constitutional Court which declared the then-realised model to be at odds with the constitution, but trade unions and left-leaning politicians argue that it would be legally possible to do so.

While Germany does tax inheritances, large exceptions are granted for corporate property as the country wants to protect its medium-sized, often family-owned companies of the Mittelstand.

Impact of decade-long emigration

Even three decades on from the legal reunification, the Eastern parts of the country still face bigger challenges than the richer West, Schneider stressed as he presented a report on the “state of German unity”.

One of the biggest problems has been the decade-long exodus of young people from the Eastern parts of the country, as wages are significantly lower than in Western Germany.

“One generation is practically gone,” Schneider said, noting that this has resulted in severe labour shortages in the East.

“Accordingly, integration and immigration or even return migration to East Germany is the central factor for achieving economic prosperity in the future,” he said, noting that he has met many people who grew up in East Germany and have now returned after living in the West for some time.

While Eastern German rural areas have lost almost 15% of their population between 1995 and 2015, “this situation has now basically stabilised,” Everhard Holtmann, political scientist at Universität Halle-Wittenberg told the journalists during the presentation.

Compared to the initial population number, the population is now smaller, but “if the statistics are such that a downward trend does not continue unabated, then that is also a statement that can make us feel comparatively confident”.

Per-capita GDP and income in the East have converged continuously towards West German levels since 1990, and in 2021 reached a level of 90% compared to the West.

Don’t reduce it to the far-right, please

While Eastern Germany is a stronghold of Germany’s far-right AfD party, Schneider stressed that this was “not purely an East German problem”.

Next year, three of East Germany’s six federal states (Länder) will see state elections, with AfD being the polling frontrunner in all three.

West Germans would still often lack “acceptance for otherness and acceptance for life experience and life achievements” of their East German peers, and this had changed “relatively little” over the last decades, Schneider said.

“Reducing East Germany to the AfD issue alone does not do it justice at all,” he stressed.

Far-right surge could endanger East German businesses

As the far-right party Alternative für Deutschland (AfD) leads the polls in Eastern Germany, business and government representatives warn that a rise in xenophobia could endanger the region’s position in the global fight for talent.

[Edited by János Allenbach-Ammann/Nathalie Weatherald]

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