Economic weaknesses become strengths in East Germany during COVID-19

Federal Government Commissioner for the New Federal States, Marco Wanderwitz (CDU), spoke of the challenges and opportunities for the East German economy following the pandemic. [EPA-EFE | Abir Sultan]

The “new” East German states are economically weaker than their western counterparts, lacking large industrial hubs of international corporations. However, this proved to be an advantage during the pandemic. EURACTIV Germany reports.

The first East German Growth Day should actually have taken place as a massive event, where top politicians and business leaders shake hands and discuss what East German companies need to succeed.

Instead, experts met on Tuesday (8 September) in an intimate gathering in front of a live stream camera.

But the pandemic changed not only the format but also the content. The central question was now: Did the crisis have a stronger impact in the eastern regions than in the west? And if so, how can companies there still grow?

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By 2038, Germany’s last coal-fired power plants are expected to be shut down. To reorient the regions economically, however, they are to be replaced by research institutions and companies. A coordination committee will now begin allocating the funding, EURACTIV Germany reports.

New states: Less affected thanks to smaller companies

The coronavirus crisis revealed the economic differences between East and West. However, the East did not emerge worse off, as the cliché would have us believe, said Marco Wanderwitz (CDU), the Federal Government Commissioner for the new states.

While at the start of the crisis it was still unclear whether the East would be more or less affected, it is now becoming clear that “the thesis of less affected is correct,” Wanderwitz said.

A traditional weakness of the East German states – the lack of large industrial centres focusing on exports – became a strength.

It was precisely these centres that became a problem in the pandemic, because supply chains were interrupted and foreign sales markets broke away. “This is where the crisis hit the hardest,” Wanderwitz explained.

However, this relative economic weakness also led to special challenges, as East German companies have a thinner equity base, said Wanderwitz, and this often made it difficult to secure liquidity during the crisis as the main local banks were often unwilling to provide the money.

According to Wanderwitz, this had been a “permanent problem” for East German companies, which was further aggravated by the pandemic.

Company-university partnerships

The solution lies in targeted state funding, said Jürgen Ude, state secretary for the Ministry of Economics, Science and Digitalisation of Saxony-Anhalt. Small and medium-sized companies need even more support in the crisis, as they account for almost 90% of East German companies.

In particular, their innovative strength must be stimulated. In Saxony-Anhalt, for example, small companies are brought together with universities to promote research and development.

In the end, Ude hopes, large companies will settle in the Eastern states in the future after all. Saxony-Anhalt is pursuing an active relocation policy and one of the advantages of the location is the low rents.

Regional leader: Without cohesion, Europe cannot stand

As the EU faces the deepest recession in its history, the bloc’s long-contested Cohesion Policy – its regional development instrument – has now become central to the recovery plan. EURACTIV spoke about it with the President of the European Committee of the Regions, Apostolos Tzitzikostas.

“We live off the European structural funds”

Cooperation with the EU is also essential.

“The East German states in particular naturally live off of the European structural funds, which we absolutely need,” said Ude. These funds are particularly important for the implementation of the innovation strategy.

Looking to the future, Ude highlighted two more key challenges for the region of Saxony-Anhalt, beyond the coronavirus crisis: structural change in the lignite industry and in the automotive industry.

To these, Wanderwitz also added digitalisation.

With such innovative technologies “the aim must be that the economy in the new federal states can take a big slice of [this innovation],” he said. These investments will be particularly beneficial, because “people are a little hungrier there.” Also, “there is land there where you can build without three citizens’ initiative immediately opposing it.”‘

[Edited by Zoran Radosavljevic]

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