Eastern Germany to Stay Aboard EU Subsidy Train

Eastern Germany will continue to receive billions in subsidies from the European Union earmarked for poor regions despite the membership of several other former communist countries, which will pull down the Union's per capita gross domestic product.

After meeting with the premiers of Germany's five eastern states in Leipzig on Monday, the EU commissioner responsible for regional policy, Michel Barnier, promised that payments after 2006 "will be as close as possible" to the current level. The actual decision will be taken by EU national governments, though.

Eastern German state premiers embraced Barnier's announcement. Matthias Platzeck, Brandenburg's Social Democratic premier, said: "It wouldn't be acceptable for regions to be cut out of the subsidy program because of statistical effects, although the situation itself has not improved."

Under the current redistribution program, which gives subsidies to regions whose per capita GDP falls below 75 percent of the EU average, most of eastern Germany would no longer be eligible for aid after the Union's eastward enlargement.

The accession of as many as 10 new member states in 2004 will squeeze the EU's per capita GDP and thus the threshold for receiving structural funds. Model calculations project that per capita GDP will exceed 75 percent of the average in all but two of eastern Germany's 10 regions as defined by the EU.

All of eastern Germany except for West Berlin currently qualifies for EU support. In fact, the region belongs to a select group of highly subsidized areas. It will pocket EUR20 billion ($23 billion) for the 2000 through 2006 period. In addition to such cash infusions from EU coffers, this select group of regions is also allowed to subsidize investment to a greater extent than is legal in the EU.

At Monday's meeting, the state premiers argued that even if payments were only halved instead of stopped altogether, some 75,000 jobs would be at stake and GDP would shrink by 2 percent in the area. They also expressed fear that investors would pull out of the region and move to the bordering new member states, many of which will be eligible for the highest aid payments.

Thuringia's Christian Democratic premier, Bernhard Vogel, argued: "If we get support for another while we will have the power to support others in the future."

But many economists say the money spent on redistribution within the EU is wasted. Dr. Konrad Lammers of the Hamburg Institute of International Economics told F.A.Z. Weekly that without any growth from within the region itself, funds will be lost upon eastern Germany.

"We can subsidize them as much as we want, if we don't create favorable growth conditions, if nothing happens from within the regions, funds won't help," he said. Germany's growth is trailing the other EU member states' and growth in eastern Germany has fallen behind western levels since 1997.

German Economics and Labor Minister Wolfgang Clement of the Social Democrats, who spoke at a congress on European regional policy in Leipzig on Monday, said that an expansion of regional subsidies should be financed by cuts in other budget areas to keep the additional burden on EU countries at a minimum. Germany, often called the paymaster of the EU, pays the biggest net amount into the EU's overall budget. It is also the second-largest recipient of structural funds after Spain.

According to Clement, the expansion would cost Germany an additional EUR18 billion between 2007 and 2013. Germany will pay a total of EUR67 billion to support the EU's poor regions between 2000 and 2006, while it gets back just under EUR30 billion, Clement said. Two-thirds of these funds are funneled to the East. The rest goes to regions undergoing structural change and to qualifying jobless persons in the West.