Winners and wastelands: the Wall's economic legacy

By Paul Carrel

WEIMAR, Germany (Reuters) - Businessman Ulrich Weitz leans forward and produces a graph showing a 10-fold increase in his company's turnover in the last 15 years.

"We'll end this year with a profit," he says, a picture capturing the fall of the Berlin Wall hanging behind him in his office in the historic eastern German city of Weimar.

Weitz's business is a success story -- one of a clutch of technology firms in the East whose growth since reunification in 1990 has helped the region narrow the gap with the West.

Twenty years after the fall of the Wall, much of the eastern economy has cast off the shackles of its Communist past, thanks to over 1 trillion euros ($1.5 trillion) in state transfers from the West which have helped drive a wholesale restructuring.

Productivity has almost doubled since 1991 and economic output per inhabitant climbed last year to some 69 percent of the level in western Germany, up from 33 percent back in 1991.

The changes have come at a price. Whereas the German Democratic Republic (GDR) boasted full employment, vast swathes of the East now suffer stubbornly high unemployment, running at 11.8 percent. It is 6.6 percent in the West.

Many of the stinking, smoke-belching chemicals factories of the south so beloved of communist propagandists have shut down. The air is cleaner but traditional jobs have gone for ever.

Many young people are leaving the region, meaning companies will face a shortage of skilled labor in the coming years. The East's population has declined by about two million since 1990.

"There are flourishing landscapes and there are a lot of wastelands," said Udo Ludwig, an expert on the East at the IWH economic think tank.

The government is aiming for the eastern states to catch up with the poorest western states by the end of 2019 when the "Solidarity Pact," a package of special aid, will end.

In 2006-08 alone, eastern states received 45 billion euros in subsidies for investment in the economy and infrastructure.

SUBSIDY PAY-OFF

The East is finding its feet. In a report entitled "East On The Up," Deutsche Bank economists said they expected the region to suffer less from the global economic downturn than the West as it is less industrialized and export-reliant.

None of Germany's blue-chip DAX firms are based in the East.

"The East German economy no longer has an overriding reliance on economic development (aid), but instead is supported by increasingly independent small- and medium-sized firms, and by a few islands of big industrial production," they added.