Eastern Germany's economic success leaves voters cold

Maria Martinez and Rene Wagner, Reuters

EISENACH: Statistics show that Germany's east has done fairly well in catching up with the wealthier west over the past decade but that success has done little to dispel economic pessimism that has helped fuel the rise of anti-establishment parties. Ahead of elections in three eastern states starting on Sept.1, two parties- one far-right and one economically far-left — are polling together between 40% and 50%, with a recent study showing half of east Germans convinced their region was economically stagnating. The study, by economic institute IW also showed a fifth of people in the east felt they were being left behind. Economic data tell a different story. Over the past decade economic output per capita has risen more in the east than the west, unemployment there declined while it inched up in the west, and workers in the east have seen bigger wage increases. Yet that is not how voters see it.

"The economy in Thuringia is pretty weak, particularly in Eisenach,” said Louis Huettig, a 20-year-old student, in the market square of Eisenach, while he waited for a party event of the populist party Buendnis Sahra Wagenknecht (BSW), that combines social conservatism with left-wing economics. Economists say the narrative of the formerly communist-run eastern Germany as a perennial poor relative even decades after reunification is just no longer true.

"This old story that eastern Germany is economically much worse off than West Germany is to a significant extent outdated,” says Berenberg’s chief economist Holger Schmieding. Why then are mainstream parties and the central government in Berlin struggling to change people's perceptions?

Not for want of trying. Politicians from established parties have in recent years been touting the progress the region has made, highlighting upgrades to its public infrastructure and speaking of its "industrial revival" driven by hi-tech investments.

One reason such message falls flat is that the income and wealth gap between the west and the east may have narrowed but is not gone yet, and progress is a harder sell when the neighbour is still better off. Economists note how average monthly wages have risen between 2014 and 2022 735 euros in the east compared with 585 euros in the west, and how lower costs of living were bringing real incomes even closer. However, eastern workers' median gross pay of 3,013 euros per month, remains below the 3,655 euros workers in the west get.

"The wages are still far too low compared to wages in the West for the same work,” Dieter Laudenbach, candidate of the far-right Alternative for Germany (AfD) for the district of Gera, told Reuters. Unemployment in eastern Germany also remains higher at 7.8% compared with 5.1% in the west, even though it has fallen 1.7 percentage points since 2013, while the western jobless rate ticked up 0.2 points, IW data show.

The gap in accumulated wealth also remains, with 98% of all inheritance tax paid in the west, according to the DIW economic institute. Another factor is Berlin's green policies that make the unpopular coalition government even less popular in the east.

Eastern Germany is more rural than the rest of the country with over 10% of its labour force active in agriculture and forestry compared with national average of 1.2% and the push for clean energy is seen as a threat to the farming sector. Possibly the biggest source of pessimism is the post-reunification migration from east to west that has fuelled the sense of abandonment for those who stayed behind, president of the DIW economic institute Marcel Fratzscher told Reuters.

"The most important explanation for the strength of AfD and BSW in East Germany is demographics,” he said. Western urban centres such as Hamburg, Munich, Frankfurt or Cologne, despite their own problems, such as soaring rents, continue to attract the young and educated, with dire consequences for critical public services.

"Where young, well-qualified people migrate, schools and hospitals close, and the vote share for AfD and BSW is much higher," Fratzscher said. Nina Kuessau, 28, who works as a consultant in development, says that is why she left Thuringia and moved to Cologne. "There are too few teachers at schools, problems with doctors," she told Reuters. "I think a lot of people worry that they won't be looked after and they get the feeling that they've just been left behind.”

Peter Pichl, 43, who works for AfD in Gera, said the state government should offer incentives for young professionals to stay for at least five years after graduation. "A lot of young people are leaving because there are no prospects here,” he said.

While the population in western Germany grew 10% to 68 million between 1990 and 2022, it shrank by 15% in the east to 12.6 million, according to the federal statistics office. The population in the East has also aged faster: while the share of those under 20 declined from 21% to 19% between 1990 and 2022, in the east it plunged from 25% to 18%.

Immigration is another hot-button issue — named as the number one concern by voters in Saxony and Thuringia in a recent survey. While the latest 2023 census shows foreigners account for 7.9% of eastern Germany's population, less than half the rate in the West, both AfD and BSW oppose allowing more immigration. They argue that rather than help ease labour shortages immigrants would further stretch public services.

Instead, AfD calls for more vocational training and incentives for families to increase birth rates. "We would have to make sure that the desire to have children is given greater priority again," said Reinhardt Etzrod, AfD representative in the local government of Gera. Economists warn that like the parties' some other ideas, their anti-immigration stance could backfire. "An AfD victory could either actively or just symbolically scare off foreign workers from coming to these states," said Carsten Brzeski, global head of macro at ING Research.