Keeping Eastern Germany Afloat as the EU Expands

When the EU's expansion throws open Germany's borders to Eastern Europe on May 1, the already nervous governments of eastern German states could break out into full panic.

The cheaper labor and potentially more attractive investment opportunities in new EU members Poland and the Czech Republic have been ghosts haunting politicians from eastern German states in the months leading up to expansion.

"We're going to be ground up between the stones," said Bernhard Lange, who works in the economic ministry of the northeastern state of Mecklenburg Western-Pomerania.

Federal politicians have been quick to soothe frayed nerves. Economics Minister Wolfgang Clement said that a large portion of Germany's exports currently go to Eastern Europe. Once EU membership opens up trade even further, all of Germany will benefit even more.

"A market will open up that is of immense importance to us," Clement (photo) said in a recent interview with the newspaper Handelsblatt. "If the economies (there) experience an upswing, then it will also be good for German business … of course there will be risks, but I believe the economic advantages will be greater."

Eastern Germany gets rich - on paper

But while waiting for the upswing in Eastern Europe, Brandenburg, Mecklenburg, Saxony, Saxony-Anhalt and Thuringia won't be able to draw on the EU subsidies that have provided "missing capital" to the troubled economic region. Once the new, comparatively poorer countries in Eastern Europe join, eastern Germany's classification as a poor region needing subsidies will change.

Though more than €15 billion ($18.3 billion) is still guaranteed from Brussels until 2006, the amount will most likely sink as the new countries soak up more of the EU's budget. The four eastern German states might no longer count among Europe's poorest regions.

"They'll calculate us as rich overnight, even though we have not one euro," Harald Ringstorff, the premier of Mecklenburg Western-Pomerania told the Süddeutsche Zeitung.

High-tech companies get preference

Federal officials say weaning the east off these funds is crucial to making the region more competitive. In light of the shrinking financial resources available, Manfred Stolpe, the government's transportation minister, has proposed being more discerning about where the money goes in the future.

"What we're talking about is an adjustment" in the plan to rebuild the east, Stolpe said.

Highly innovative and future growth fields such as biotech and optical technology will get a larger share of the dwindling money pot. The government will also shift more money to the economic strengths of each region: Tourism in Mecklenburg Western Pomerania, which borders on the Baltic Sea, will get a larger share of funding as will microelectronics, a burgeoning industry in Saxony.

"We need to make the strong stronger without leaving the weak behind," said Stolpe.