Booming economic regions, restored old buildings, new motorways – that is the reality in many parts of the former East Germany today. Big cities threatened with bankruptcy, decrepit neighborhoods, and potholed tracks instead of streets – that is the reality in many parts of the western German state of North Rhine-Westphalia.
The state premier, Hanelore Kraft, has had enough of this new East-West divide. The member of the center-left Social Democrats is in Berlin on Monday, the day after the celebrations to mark the 25th anniversary of the fall of the wall, with a proposal that is nothing short of radical. After a quarter century of programs to rebuild the former East Germany, known as “Aufbau Ost,” she wants the country to pursue a new strategy to save the West.
Her message is clear: To prevent the demise of entire regions in the West, such as the industrial Ruhr zone, which is located in her state, the massive revenue redistribution program from West to East must come to an end.
The central focus is the so-called solidarity tax, which has been imposed on income earned across the country since 1995.
The intention was always to use that tax revenue to support “areas that are particularly weak structurally – which at the time was the East,” Norbert Walter-Borjans, Ms. Kraft’s finance minister in North Rhine-Westphalia, told Handelsblatt.
“In the future, special funding for all structurally weak areas should be financed from this – naturally that includes the Ruhr zone.”
SPD officials in the state are furious that despite having debt burden of about €140 billion ($174 billion) and enormous investment needs, North Rhine-Westphalia still pays €2 billion a year into the federal redistribution system.
Germany’s industrial center will be threatened if the infrastructure and the environment no longer satisfy modern requirements and entire urban districts suffer from continuous decline. Ruhr Initiative (IR) , Concept Paper
“That's exactly as much as Saxony gets from the inter-state fiscal adjustment,” says Mr. Walter-Borjans, referring to the eastern German state. What angers Ms. Kraft’s treasurer is that his state is criticized for creating debt, because of its budget deficit, while Saxony is praised for its budget surplus. “And yet we have the lowest per-capita expenditures of all German states,” he says.
North Rhine-Westphalia no longer has any financial leeway. While seven states expect to eliminate new borrowing in the next fiscal year, and five are even paying off debts, the government in Düsseldorf, North Rhine-Westphalia’s state capital, is planning to take up about €2.3 billion in new debt in the coming year.
Business leaders in North Rhine-Westphalia support Ms.Kraft’s proposal to put an end to the redistribution program from West to East.
“Germany’s industrial center will be threatened if the infrastructure and the environment no longer satisfy modern requirements and entire urban districts suffer from continuous decline,” reads a concept paper by the Ruhr Initiative (IR) approved in a general meeting on Saturday in Essen.
The group includes 67 companies representing a total of €630 billion in sales and 2.25 million employees. The circle wants to see “Aufbau Ost” followed by a modernization of the Ruhr zone, so that “the region’s industry can remain a powerhouse of the German economy.”
It is one of Germany’s strongest regional economic alliances, bringing together industrial heavyweights such as EON Chairman Johannes Teyssen, Peter Terium, head of the German utility RWE, and Heinrich Hiesinger, chief executive of steelmaker Thyssen-Krupp. A total of 50 top executives attended Saturday’s general meeting.
The group approved a paper titled “Strong Industry Needs a Modern Environment.” The message of the 20-page document, a copy of which Handelsblatt has seen, is politically charged: the industrial leaders argue that it is time to put an end to special subsidization of the states in the former East Germany and to support those in western Germany.
“To follow Aufbau Ost with a successful modernization of the Ruhr region, thereby preserving and strengthening the region’s industry as a powerhouse of the German economy, the Ruhr region is in urgent need of investment: in the transportation infrastructure, in a state-of-the-art logistics and mobility environment, and in sustainable concepts of industrial site and community development,” the concept reads. “A lot has been achieved in the eastern German states in the past 25 years through the solidarity contribution. But at the same time, the problems in some parts of western Germany have slipped into the background since 1990. This is especially true of the Ruhr district, Europe’s industrial center.”
A few days ago, the chancellor said that the new states had managed to catch up, thanks to incredible help from the old states. Klaus Engel,, CEO Evonik
Ruhr Initiative moderator Klaus Engel, head of specialty chemical maker Evonik, will submit the concept to the federal economics minister, Sigmar Gabriel (SPD), in mid-November. “It is now time to focus on the Ruhr region and support it as it continues on its way back to the top,” he told Handelsblatt.
He is preaching to the choir with Mr. Gabriel. The minister has long been critical of the growing imbalance between West and East when it comes to the distribution of tax revenues. As a guest at the Ruhr Initiative’s general meeting in Essen in the spring, he recommended developing a concept to address the issue. That means that when Ms. Kraft speaks in Berlin on Monday, she will do so with the support of business leaders and politicians at the federal level.
The Ruhr Initiative is appealing to the federal government for a fundamental change of focus. “A few days ago, the chancellor said that the new states had managed to catch up, thanks to incredible help from the old states,” said Mr. Engel.
But cities like Duisburg, Gelsenkirchen, Essen and Dortmund have suffered as a result of structural change for years. In the last three decades of the 20th century, the Rhine and Ruhr regions lost hundreds of thousands of jobs in the steel and coal industry. Attempts by the respective state governments to transform the Ruhr region into a science and hi-tech hub have been only partially successful.
Unemployment is higher in the Ruhr cities than the state and federal averages, and almost every major city in the region has neighborhoods on the verge of collapse, with plunging real estate prices, little economic clout and a much higher-than-average number of recipients of welfare benefits.
In many poorer neighborhoods, it is “critical that steps be taken to fix the problems immediately before they turn into real hot spots.” As far as the infrastructure goes, the region has been “drawing down its resources for many years,” says the Ruhr Initiative. Streets and bridges are in poor shape, while traffic jams and detours are causing “substantial economic losses.” But the Ruhr Initiative isn’t just calling for investments in the transportation infrastructure. It also wants a “modern broadband network.”
The solution proposed by the region’s business leaders is nothing short of a program to rebuild the West.
Jürgen Flauger reports on the energy sector for Handelsblatt, Klaus Stratmann is based in Berlin, where he reports on politics for the paper. To contact the authors: [email protected], [email protected].