Unification realities make Germans wary of bailout toll

There are two big lessons Germans have taken away from unification. The first is that initial cost estimates were far too low. The bulk of the expense has come from automatic transfers, in particular social welfare spending. This is due to the fact that, compared with the west, the former east Germany takes in little in taxes and is faced with high pension and unemployment payments.

While the current efforts to end the euro crisis focus on loans, not one-sided transfers, it has not escaped Germans that the conditionalities attached to these loans imply an ever-closer integration of the euro area. A close fiscal union might bring automaticities in social spending similar to those in Germany’s recent history. Many Germans remain to be convinced that the pattern in tax receipts and government spending has changed permanently in the crisis countries.

They worry that the rescue funds discussed today will again turn out to have been only the tip of the iceberg.

The second lesson is that similarities between west and east were overestimated – even 22 years after unification, the two are still clearly distinct.

Politically, the old GDR’s landscape differs from that of the west, with far-left and far-right parties finding sizable support. And economically and socially, the idea that its industrious citizens would turn the former GDR quickly into a mirror image of western Germany has proved wrong.

Of course, it is not opportune politically to point out these differences, which helps explain why the experience of unification does not feature in the official discussion of how to end the euro-zone crisis.

Privately, however, Germans are acutely aware of the slow adjustment in the east. This feeds their fear that the crisis countries’ ability to reform is being overestimated as well.

Obviously, the EU member states in difficulty are market economies and thus more similar to western Germany than the old east was.

Nevertheless, many Germans wonder whether it will be possible to restore competitiveness and thus decrease unemployment. And if so, how fast? And beyond economics, can one expect the support for non-centre parties to decline? Unification has taught the Germans to be wary of high hopes.

Petra Gerlach-Kristen is associate research professor at the Economic and Social Research Institute