German Reunification Will Spur Fast Growth, Many Say

Investments in East Germany expected to yield benefits

REUNIFICATION between East and West Germany will bring economic benefits much faster than many Germans have anticipated, say West German officials and economists. Bucking projections that West Germany will face substantially higher unemployment and accelerated inflation, they see only short-term ``budgetary strains'' from bankrolling East German labor and industry into a market-driven system. The East will soon develop into a productive part of the overall German economy, the country itself emerging as the leader of the 12-nation European Community (EC).

In short, says West German Finance Minister Theodor Waigel, ``economically speaking, the restructuring and modernizing of the GDR [German Democratic Republic] economy is an investment project.'' He intends to turn a good profit.

``The financial consequences of monetary union are clear. There will be no need for tax increases or special levies to finance German reunification, nor will the process make demands on the German economy or on the capital markets,'' he says.

West Germany's deficit, 3 percent of gross national product (GNP) this year, is expected to hit 3.5 percent in 1991, due to Bonn's financial outlays for an economic and social union with East Germany.

``This must be corrected,'' says Norbert Walter, the chief economist of Germany's largest commercial bank. ``Next year, 1991, will be the most severe year,'' he says, adding that ``tax revenues from the GDR will decelerate this deficit.'' Bonn's costs will soar, says expert

But Sol Sanders, a political analyst whose upcoming book examines the dimensions of the German-Soviet economic relations, offers a different assessment. ``There is no doubt that the West German government has underestimated the cost of reunification, and the time it will take. They've already doubled the fund for its infrastructure development,'' he says.

West German financial outlays will undoubtedly increase, Mr. Sanders says, despite the official estimates made by ``those swept up in optimism.''

Bonn's burden will keep climbing, he warns. Among less obvious costs, he says, is its recent commitment to the Soviet Union ``to pick up the cost of all Soviet troops in East Germany for the next three years, at least. It will run West Germany $730 million a year to feed and house those troops, and the Soviets are in no hurry to move them home from the Eastern zone.''

Mr. Walter recently tried to dispel German ``fears of disaster'' that come largely from a misunderstanding about the necessary closure of inefficient East German industries and the $300 billion-plus required to resuscitate its infrastructure. Housing, sorely needed on both sides of the border, is not included in that cost estimate.

East Germany's industrial output, produced by huge and grossly inefficient conglomerates, accounts for two-thirds of its GNP. More than a third of the country's total work force - 9 million strong - may lose their jobs as reforms take place.

West Germany, whose ``employment growth is at a high clip,'' according to Walter, can afford to absorb much of the skilled and unskilled labor from the East.

He says half of Bonn's official reunification budget for 1990 and '91 will go toward an elaborate safety net - welfare benefits including medical care, education, and compensation for the unemployed.

The faster investment pours into the East, the sooner unemployment can be overcome. ``The most important constraint [to East Germany's economic growth] is a physical constraint - how much can the GDR absorb,'' Walter says.

Finance Minister Waigel would like to see the East pushed to capacity. He has introduced a number of credit lines and tax incentives ``to promote job-creating investment ... and to prevent abrupt falls in activity with high unemployment.'' East's `conspicuous consumers'

Direct investments from West Germany and other Western countries are expected to complement Bonn's official government outlays for the construction and expansion of canals, railways, telecommunications, and housing in East Germany.

Investment in East German manufacturing will produce results, Waigel says. ``One of the main strengths of the GDR is a work force that is well-trained, highly motivated, and willing to engage in productive activity. ... Knowledgeable experts expect the coming years to bring productivity increases of between 10 and 20 percent a year.''

Walter asserts that West German firms recognize this. ``Just look at the [West German license] plates of cars on East German highways to see the activity,'' he says.

``It is not true that West German companies are going in,'' Sanders counters. ``Most Western companies know that the facilities are not worth buying.''

But it is precisely these investment opportunities coupled with consumer demands from the East, that West German officials say have spurred further growth in the West German economy.

Walter describes East Germans as ``very bourgeois ... they're conspicuous consumers'' preferring West German brands to less durable, poorer quality home-produced goods.

West German economic growth, expected to reach 4 percent this year, ``would hardly have been 4 percent in 1990 without reunification,'' says Horst Schulmann, managing director for the Institute for International Finance here.

West Germany's growth rate has been projected at 3 to 3.5 percent for 1991, a rate that would probably register a full percentage point lower without the stimulus of German reunification, he says.

``This comes on top of the dynamic effect EC 1992 has triggered,'' he says. German growth means European growth and the perfect situation for the US to reverse its trade deficit with the EC into a surplus.

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