* East German GDP per capita at two-thirds of western level
* Unemployment still higher in east but gap is narrowing
* Has grown faster than some other eastern bloc countries
* Town of Sonneberg shows how far eastern Germany has come
By Michelle Martin
SONNEBERG, Germany, Nov 3 (Reuters) - Once hemmed in by the Iron Curtain, the eastern German town of Sonneberg has undergone something of an economic miracle, proving that the long, painful transition from communism can bear fruit at last.
Within months of the Berlin Wall being pulled down in 1989, what had been the centre of East Germany’s toy industry was in crisis. Unable to compete on a global market, factories were being shut down while buildings were falling to pieces and unemployment queues were growing rapidly.
But just as western Germany achieved an economic miracle in the decades after World War Two, Sonneberg offers hope that the east can complete its recovery from the collapse of communism and narrow the gap with west even further.
As the 25th anniversary of the fall of the Wall approaches on Nov. 9, Germans still express frustration at how far behind the eastern economy remains. But Sonneberg, which nestles in the forested hills of Thuringia about 320 km (200 miles) southwest of Berlin, contradicts many assumptions.
During the 1960s and early 1970s, even East Germans had difficulty visiting Sonneberg as the authorities feared they might try to escape across the nearby border with West Germany, lined with fences, watch towers and minefields.
But since 1990 and the end of the centrally-planned economy about 100 firms have flocked to the town of 24,000 people. Economic output has grown more than fourfold and unemployment, which hit almost 13 percent by 1997, has dropped to 3.5 percent, the lowest in the east and rivalling even the most prosperous areas of western Germany.
This, says Sonneberg’s mayor Sibylle Abel, is evidence that the “flourishing landscapes” - promised in 1990 to the eastern states by the first chancellor of the reunited Germany, Helmut Kohl - are within arm’s reach.
“Back in 1990 the streets of Sonneberg were in a state of disrepair, the houses in the town centre were crumbling and some firms weren’t economically viable. That has all been remedied now and there are hardly any differences when compared with a town in the former West Germany,” she said.
Chancellor Angela Merkel, who was brought up in East Germany, believes Kohl’s promise has been fulfilled, albeit a long time after he had envisaged. “Today we have the flourishing landscapes that Helmut Kohl once talked about,” she said in a podcast, adding that mass emigration from the east had ceased and people were starting to move back.
Sonneberg is not yet typical, as it has grown far faster than the rest of eastern Germany. Per capita tax revenues of the federal states that once formed East Germany were only around half the west German level last year. None of the 30 top German companies in the DAX stock index is based there.
Unemployment in some eastern towns is above 12 percent, pay is lower and opinion polls suggest easterners are unhappier than westerners. This may have contributed to a surge in support for the Alternative for Germany, a eurosceptic protest party, in recent elections in three eastern states.
But overall, the east is gradually catching up. Gross domestic product (GDP) per capita has reached two thirds of the western level, up from one third in 1991, according to KfW state development bank. This is no small feat for a region that was on the brink of bankruptcy at reunification.
Its economy has grown faster than countries in eastern Europe such as Poland and lies in the European mid-field in terms of GDP per capita, well above Greece and only just below major euro zone members such as Italy and Spain, KfW says.
Karl Brenke, an economist at the DIW think-tank, said eastern Germany even compares favourably with France on some measures because it has re-industrialised. It creates 3,400 euros of industrial revenue per inhabitant a year compared with 2,900 in France, he said. It also beats Britain on this measure.
“After reunification, eastern Germany experienced a huge industrial crash and people worried it would de-industrialise,” Brenke said. “That happened for a while but then they really ramped up industrial production, whereas in France there has been a sort of creeping decline for around 20 years.”
Sonneberg, which before World War One produced a fifth of the world’s toys, quickly saw reunification as an opportunity. It secured subsidies to improve its infrastructure and built five industrial parks, four of which are full.
Alongside a small number of surviving toy firms, the town is full of factories processing plastic, metal and ceramics and making machines and car parts.
On the outskirts lies a complex of factory and warehouse buildings run by Mann+Hummel, the area’s biggest industrial employer.
Originally opened in 1903, this factory later churned out clothes pegs, plates and car parts under the communists. After reunification Mann+Hummel bought it in one of the many takeovers of eastern enterprises by western firms. Today it supplies components to big names in the auto industry such as BMW, Daimler and Toyota. Staff have grown from 100 in 1991 to 450.
“Since reunification we’ve made a huge leap forward technologically and in terms of our buildings and the qualifications of our employees, so you can certainly say we’ve got a good basis for ‘flourishing landscapes’ here now,” said Thomas Lange-Stalinski, head of Mann+Hummel’s Sonneberg factory.
All that remains of the factory’s East German past are a few workers employed before reunification and a traditional sausage barbecue for staff every Friday morning.
Another example of Sonneberg’s success is PIKO, a model railway maker set up in 1949 as the then Soviet military administration tried to boost morale in the eastern bloc. It was taken over by a westerner in 1992 and has increased its staff from 90 to 550, spread between Sonneberg and China.
Sales to markets including Russia, the United States and western Europe have roughly doubled in the last 10 years. Marketing director Jens Beyer said the transition from state-run firm to private company was tough but ultimately successful.
“It was important to restructure production and make it more efficient, improve processes and of course increase production, and it was especially important to crank up marketing and to present the product accordingly,” he said.
Such examples of prospering firms in eastern Germany strengthen KfW’s argument that the transformation is “an unparalleled success story”.
Westerners have long grumbled about having to subsidise their fellow citizens in the east, particularly through a “solidarity” surcharge on their income tax bills.
But the Sunday edition of the Frankfurter Allgemeine newspaper recently went against the grain by saying “Danke, Ossis!” (“Thanks Easties!”) in a headline. In the accompanying article, it argued that the burden of rebuilding the east had forced Germany to reform its economy long before other euro zone countries. This in turn had helped Germany to avoid the worst of the bloc’s crisis in the past five years.
The eastern states are now 76 percent as productive as their western counterparts, up from 35 percent in 1991. While unemployment is higher, the gap has narrowed to 4.2 percentage points from 10.1 in 2003. In real terms, easterners’ disposable income has reached 89 percent of the west German level.
“In many ways it’s astonishing that East Germany has managed to reinvent itself and re-industrialise in a relatively short time after 40 years of being a planned economy,” said DIW.
Back at Sonneberg town hall no one has much time for “Ostalgie”, a nostalgia for the communist state officially called the German Democratic Republic (GDR) that was explored in the 2003 hit movie “Goodbye Lenin”.
“We’ve really benefited from reunification; we wouldn’t want to have the GDR back,” said Mayor Abel. (Writing by Michelle Martin; Editing by Stephen Brown and David Stamp)