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Article - The New Länder

Creating equivalent living conditions in eastern and western Germany


Since reunification, democracy and the rule of law have been underpinning society in the whole of Germany, including the former East.

A great deal has been achieved in eastern Germany since then. Inner cities, transport and communication networks have been modernised, a strong healthcare system established, the environment is being protected, and businesses are turning growing profits and innovating. East German companies are now able to compete internationally. At the same time, however, a gap of around up to 30% compared to western Germany remains.

The Federal Government Commissioner for the New Federal States

Federal Government Commissioner for the New Federal States is in charge of coordinating the various policies that are especially important for the areas that once belonged to the GDR. Part of his role is also to ensure that the specific interests of the people in eastern Germany are taken into account whenever the Federal Government takes any political decisions or adopts new policies. These specific interests result from the process of transformation that began with reunification and is continuing to affect almost every aspect of people's lives in eastern Germany.

Major policy objectives in this work include the task of promoting research and education to allow for better education about the dictatorship of the Socialist Union Party (SED), creating living conditions that are equally high across the whole of Germany, and finding ways of securing funding for the ‘Aufbau Ost’ (the rebuilding of eastern Germany). Demographic change and a loss of financial scope for public-sector budgets in eastern Germany are key challenges that will remain on the agenda for the coming years.

Taking stock and assessing the economic situation

A lot has been achieved – a lot remains to be done

30 years after the fall of the Wall, the situation is positive: eastern Germany’s economic potential is expanding, and the same goes for employment and life satisfaction. Despite this, the process of converging standards of living is still ongoing. Further efforts to boost the regions' economy by promoting investment, innovation, and internationalisation are of the essence.

30 years after the Peaceful Revolution, the Federal Government is continuing to aspire to establish equivalent standards of living throughout the country, to reduce disparities and to prevent their becoming entrenched. A lot of progress has been made on the convergence of economic performance and the standard of living between eastern and western Germany: The transport, energy and telecommunications infrastructure has been massively modernised and expanded. The condition of the buildings in towns and villages has visibly improved, and most of the pent-up need for renovation and modernisation from GDR times has been tackled.

The new Länder are an attractive place to establish young, innovative companies and research establishments. This is particularly obvious in the field of renewable energy. The presence of environmental and energy technologies is above average, and is playing an increasingly prominent role in economic development. The unemployment rate in eastern Germany reached a new record low in 2018, falling to 6.9%. However, this figure is still much higher than the 4.8% recorded in the west.

Much has been achieved, but the economic catch-up process in eastern Germany has slowed down a great deal in recent years. This is due to the fact that the economy in western Germany, which is closely integrated in international value chains, is also growing. The gap between the two economies is therefore very slow to close.

2019 Annual Report on the Status of German Unity

The Annual Report on the Status of German Unity focuses on the challenges that the government is facing in its efforts to establish equivalent living conditions across the whole of Germany, and, by extension, to strengthen the social fabric.

The report shows that there have been some very encouraging developments on the labour market and where incomes and subjective life satisfaction are concerned, but also that are still considerable differences between the respective economic strengths of individual regions in Germany. In 2018, gross domestic product per capita in eastern Germany amounted to 74.7% of the western German level. Even 30 years after the fall of the Wall, none of the eastern German Länder outside Berlin has reached the productivity level of the western German Land with the lowest productivity. In terms of labour productivity and the wage level, even the commercial centres of the eastern German Länder only have the economic potential of structurally weak urban regions in western Germany.

This is mainly due to piecemeal economic structures in eastern Germany where only a small number of large corporations are headquartered, resulting in comparatively low levels of innovation. For these reasons, the economy in eastern Germany needs a boost, particularly for small and medium-sized companies. The relevant economic weaknesses are further compounded by adverse demographic change in the many rural areas of eastern Germany, which leaves them held back in their economic development and causes issues with essential public services and utilities. If there is to be a good supply, and the funding is to be secure in the long term, the services need to be tailored to changing needs. It is very important for quality of life and social cohesion that this is also achieved in regions that are structurally weak and particularly hard-hit by demographic change.

Results of the annual employers’ survey conducted by the Institute for Employment Research (IAB)

The annual employers’ survey – a representative survey conducted annually by the Institute for Employment Research (IAB) – also provides many interesting facts about the ongoing process of economic harmonisation between the old and new federal states. The most important insights gained from the companies surveyed in the third quarter of 2020 are listed here:

In 2020, gross average monthly earnings across all sectors amounted to around €2,850 per full-time employee in eastern Germany (and to around €3,320 in western Germany). This means that, on average, eastern German employees earn 86% of the average wage paid in western Germany. The wage gap decreased for the third consecutive year.

On 1 January 2020, the general statutory minimum wage was raised from €9.19 to €9.35. At least one employee per company in approximately one in ten eastern German companies was affected by this change, compared with employees in only one in twenty companies (5%) in western Germany. 3% of eastern German employees saw their wages increase (western Germany: 2%). The increase in the minimum wage has thus had a greater impact on the economy of eastern Germany than on that of western Germany.

The number of companies and employees covered by collective bargaining agreements was two percentage points lower than in the preceding year. The collective bargaining coverage rate for eastern German companies now stands at only 18%. Fewer than half of eastern German employees work in the companies that are covered by a collective bargaining agreement. Even though similar developments can be observed for western Germany, the share of companies and employees that are covered by collective bargaining agreements is still higher in the western part of the country.

In eastern Germany, the proportion of larger companies authorised to provide training is higher than that of smaller ones. Overall, just under half (47%) of eastern German companies are authorised to provide training (western Germany: 54%). Since the beginning of the COVID-19 pandemic, the uptake of trainees in the companies authorised to provide training has decreased. The gap between eastern and western Germany has once again widened.

New funding scheme to replace the Solidarity Pact after 2020

Since reunification, the Federation has been supporting the New Länder (including Berlin) in their efforts to pay off extra costs that have accrued as a result of the division of Germany and to close the infrastructure gap that still exists between eastern and western Germany. The current fiscal equalisation system between the Federation and Länder, including the so-called Solidarity Pact II, will however expire in 2019. For this reason, the Federal Government agreed in the Coalition Agreement of 2018 to introduce a national funding system for structurally weak regions. In 2015, it had presented the first principles for the further development of regional policy for the whole of Germany. The implementation of certain measures, such as the pan-German programme “Innovation & Structural Change” and the extension of INNO-KOM (in German) to cover all structurally weak areas has been documented in the Progress Report on the Development of the Funding System in 2017 (in German) (PDF, 165 KB). In these principles, all the ministries involved undertook to review what they are doing to achieve equivalent living conditions in Germany; this includes an integrated system of supplementary federal measures aimed at establishing equivalent living conditions in all structurally weak regions (in east and west) in accordance with uniform criteria. This integrated approach will ensure that the Federal Government's support for structurally weak regions is highly effective.

In future, all structurally weak regions are to participate in the integrated regional funding system in line with similar principles. Funding programmes for the new federal states are being reviewed as to what extent they can contribute to a pan-German funding system and gradually also be offered in structurally weak areas of western Germany. The question of how to deal in future with structurally weak regions arises for Germany as a whole, whereby the special feature of eastern Germany is that, with a few exceptions, the structural weakness still affects the entire area. Ultimately, people should have a good living environment throughout the country so that they can develop their lives, participate in society, work and live a healthy life.

Construction of a building symbolises regional policy

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Boosting the regional economy

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Focus on: The industrial sector in eastern Germany

Reindustrialisation in the new eastern German states

The share of the industrial sector in overall gross GDP has seen a marked rise in the New Länder (excluding Berlin) since the mid-1990s to reach 18.51% in 2016. This has meant that the gap between the old and the new German states (23.84%) is narrowing.

Increasingly, industrial companies are forging stronger links and building value chains that are more localised. This kind of cluster formation can be observed in Jena for the optical and electronic industries, in greater Magdeburg for mechanical engineering, in the region of Dresden, Freiberg and Chemnitz for microelectronics, in Berlin and Brandenburg for energy technology, in the south of Saxony-Anhalt for the chemical industry, in Magdeburg and Rostock for wind power technology, and in Mecklenburg Western-Pomerania for specialist machinery and plants. This has led to the rise of industry networks formed by small and medium-sized companies that are able to compete internationally. What is largely missing, however, are the headquarters of large industrial companies that tend to generate a great deal of GDP.

Industrial Dialogue for Eastern Germany: shaping the future of the industrial sector

The Industrial Dialogue for Eastern Germany is a series of conferences which focuses on prospects and challenges faced by industrial companies in eastern Germany. The challenges notably include the lack of larger companies, digitisation, and the difficulty of attracting skilled labour and offering additional training. The conferences are organised in cooperation with Heringsdorfer Kreis, which is the association of the chambers of industry and commerce in eastern Germany, and bring together major stakeholders from science and academia, the business community, and the political sphere.

Enterprise: growth – new ideas for growth

Since 2016, ‘Enterprise: growth’ has aimed to encourage companies and other stakeholders to think about what can be done to help companies in eastern Germany achieve better growth. The focus here is specifically not on funding, but on corporate action. Further information on this can be found here (in German).

Atlas of Industrialisation within the new German states

The Hanseatic Institute for Entrepreneurship and Regional Development (HIE-RO) at Rostock University has developed an Atlas of Industrialisation within the new German States, which visualises the complex industrial developments eastern Germany has seen, its focal areas and various other aspects. The Atlas of Industrialisation is divided up into brief chapters that cover traditional industries, current high-growth industries, regional clusters and networks.


Redressing injustice committed by the GDR

Rigid accountability where GDR dictatorship is concerned

The German government is strongly committed to conducting a full, differentiated and rigid analysis of the dictatorship that was the reign of the Socialist Unity Party (SED) in the German Democratic Republic (GDR).

People who suffered political persecution in the GDR tended to be discriminated against in many ways and are often still having to live with grave consequences of this repression. This is why an important part of the work is to honour and rehabilitate the victims of the SED dictatorship and to provide for damages.

Under the Penal Rehabilitation Act and the Administrative and Professional Rehabilitation Acts (in German), victims of political persecution in the GDR can claim rehabilitation and compensation.

The children and young people who suffered injustice and severe suffering in the institutions run by the GDR's children's services and whose lives are still blighted by this experience are eligible to claim support from the 'Child-rearing in GDR children's homes between 1949 and 1990' (in German) fund.

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Important steps in the process of German reunification



First Monday demonstration held in Leipzig



Hungary opens its borders



Fall of the Berlin Wall



Treaty establishing an Economic, Monetary and Social Union



Negotiations begin for a Unification Treaty



Volkskammer Decision on Accession of the GDR to the Federal Republic of Germany



Two-Plus-Four Treaty




That day, some 1,200 people took to the streets after attending weekly prayers for peace at St Nicholas Church (Nikolaikirche) Leipzig. They called for freedom of movement and freedom of assembly. From that day on, the so-called Monday demonstrations would take place every week. They became emblematic for the protest movement in the GDR.

During the night of 10 to 11 September, Hungary opened its borders. Over the following days, tens of thousands of GDR citizens would cross it to the west – taking the 'Iron Curtain' one step closer to collapse.

On 9 November, Günter Schabowski, a member of the SED Politbüro, announced at a press conference that new travel regulations were to take effect in the GDR. Asked for clarification, he declared that, to his knowledge, the new rule was to apply "immediately, without delay". Around midnight that day, the Berlin Wall came down, stormed by thousands of courageous GDR citizens.

The Treaty of 18 May 1990 establishing an Economic, Monetary and Social Union between the Federal Republic of Germany and the GDR marked the first important step taken under international law towards German reunification.

As soon as economic, monetary and social union had been established, negotiations for a unification treaty began on 4 July 1990.

On 23 August 1990, the members of the last GDR Volkskammer, who were also the first to be elected in a free process, formally decided that the GDR would accede to the territory governed by the German Basic Law.

All of the international aspects relating to reunification were taken care of in the "Treaty on the Final Settlement With Respect to Germany" (Two-Plus-Four Treaty) of 12 September 1990, which was signed by the Federal Republic of Germany, the GDR, the USA, the Soviet Union, France, and the UK.

On 3 October, the GDR's accession to the Federal Republic of Germany took effect pursuant to Art. 23 of the German Basic Law, meaning that the states of Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia became part of the Federal Republic of Germany.

Review: German reunification

How did reunification come about?

In autumn and winter 1989/90, East Germans mounted a peaceful revolution against the SED dictatorship; an uprising that resulted in German reunification.

The German Democratic Republic became part of the territory governed by the Basic Law of the Federal Republic of Germany on 3 October 1990. Reunification with the Federal Republic of Germany was based on a sovereign decision taken on 23 August 1990 by the GDR People's Chamber, which, for the first time in the history of the GDR, had been freely elected. The United States of America, the United Kingdom, France, and the Soviet Union – the victorious Allies that had held responsibility for the entire territory of Germany, including Berlin – gave their consent to German reunification, which meant that the division of Germany under international law was also ended. Under the Two-Plus-Four Treaty signed on 12 September 1990, forty-five years after Germany's defeat in the Second World War and its liberation from National Socialist tyranny, the country regained full sovereignty over its domestic and external affairs. An overwhelming majority of East and West Germans was strongly in favour of reunification and celebrated its achievement on 3 October 1990.

Reunification is considered to be the most important event in recent German history. This is why 3 October, Unity Day, is the country's national holiday. Remembrance of this day, which came about after decades of division, is to strengthen the feeling of togetherness and unity in Germany.

The Federal Government promotes and encourages a culture of remembering the times of German division and unity. Most importantly, there are the Unity Day celebrations, which take place in a different German state each year, as well as events marking important historic dates such as the beginning of the construction of the Berlin Wall, the Fall of the Berlin Wall, and the Uprising of 1953.

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