Germany Questions West-to-East Aid

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This story is based on a radio interview. Listen to the full interview.

Audio Transcript:

Aaron Schachter : Germany, of course is no longer divided between east and west, the country was reunified in 1990. After reunification, Germany embarked on a massive effort to rebuild the eastern part of the country. More than 2 trillion dollars worth of aid has flowed to the east but now with certain states and cities in the western part of the country feeling the economic pinch, some are beginning to question whether the money sent east is money well spent. The Worlds Clark Boyd has been following this story. Clark, give us some background here, 2 trillion dollars, what's its been spent on and why?

Clark Boyd : Well, the why part is soon after reunification, it became clear that the eastern part of the country was going to need a serious upgrade when it came to infrastructure, its industries were ailing, there was a feeling that those industries were never going to compete. Now its a part of a federal western European state.and so they decided to transfer money to the East to build up mostly infrastructure projects and to revive the industry there, because, one of the main things they were concerned about was that you know, soon after the reunification all the people from the east were going to move to the western part of the country and take jobs there. So the idea there was can we build up the industry, in the east again to the point again were the people will stay.

Schachter : And how is this money been collected?

Boyd : Well, that's interesting, to get the answer on that I called up Thomas Kleine-Brockhoff, who is with the German Marshall Fund to the United States and he filled me in.

Thomas Kleine-Brockhoff : There was tax levied on everybody. An income tax surcharge labeled as temporary enabled those transfers.

Schachter : So temporary tax, some 22 years later, I can imagine people aren't especially happy about that.

Boyd : Yeah, I think you can sense in that clip Aaron, a level of frustration that many Germans feel about this particularly from the western part of the country. So now you do have cities and areas in the west who are complaining about this and they say that its time that we stop this.

Schachter : Its not just the taxing though, its how that tax money is being spent at this point.

Boyd : And actually in someways its actually a success story because they have pumped trillions of dollars in there, they have infrastructure in parts of the east are actually better now than in parts of the west and so these cash strapped western cities and mayors and regions are looking at this and saying, hey, isn't it time that we just stop doing this

Schachter : And can these cities and towns do anything about this.

Boyd : Some of them have approached German constitutional courts and they are arguing against that. Now the reason they have gone to the constitutional court is a great background part of this story because the German federal state after the war in 1949 actually set up a system of transfer payments between parts of West Germany. So the richer states in West Germany have been giving to poorer parts of West Germany for a long time. There are parts of Germany now, Bravaria in particular, which is saying, not only do we not want to pay for the East anymore, we don't want to pay for the poorer parts of the West anymore

Schachter : And you can imagine how galling it is for places like Bravaria, because not only are they having to pay for other cities in the west , not only are they having to pay for other cities in the east, they are having to fund Greece's bailout.

Boyd : Now that is exactly right Aaron, now the reason this issue within Germany is becoming such a sticking point right now ha is exactly because of all of the bailout talk that has been going on about Europe in general and you know, many are saying its really interesting to look at the situation within Germany right now with these transfers and then compare it. Its like a microcosm of the larger problems of the Euro zone.

Schachter : The Worlds Clark Boyd, thanks a lot.

Boyd : You're welcome, Aaron.