Economic weakness became East Germany’s strong point during COVID-19

The “new” East German states are economically weaker than their western counterparts, lacking large industrial hubs of international corporations. However, this proved to be an advantage during the pandemic.

The first East German Growth Day should actually have taken place as a massive event, where top politicians and business leaders shake hands and discuss what East German companies need to succeed.

Instead, experts met on Tuesday (8 September) in an intimate gathering in front of a live stream camera.

But the pandemic changed not only the format but also the content. The central question was now: Did the crisis have a stronger impact in the eastern regions than in the west? And if so, how can companies there still grow?

By 2038, Germany’s last coal-fired power plants are expected to be shut down. To reorient the regions economically, however, they are to be replaced by research institutions and companies. A coordination committee will now begin allocating the funding,

New states: Less affected thanks to smaller companies

The coronavirus crisis revealed the economic differences between East and West. However, the East did not emerge worse off, as the cliché would have us believe, said Marco Wanderwitz (CDU), the Federal Government Commissioner for the new states.

While at the start of the crisis it was still unclear whether the East would be more or less affected, it is now becoming clear that “the thesis of less affected is correct,” Wanderwitz said.

A traditional weakness of the East German states – the lack of large industrial centres focusing on exports – became a strength.

It was precisely these centres that became a problem in the pandemic, because supply chains were interrupted and foreign sales markets broke away. “This is where the crisis hit the hardest,” Wanderwitz explained.

However, this relative economic weakness also led to special challenges, as East German companies have a thinner equity base, said Wanderwitz, and this often made it difficult to secure liquidity during the crisis as the main local banks were often unwilling to provide the money.

According to Wanderwitz, this had been a “permanent problem” for East German companies, which was further aggravated by the pandemic.

Company-university partnerships

The solution lies in targeted state funding, said Jürgen Ude, state secretary for the Ministry of Economics, Science and Digitalisation of Saxony-Anhalt. Small and medium-sized companies need even more support in the crisis, as they account for almost 90% of East German companies.

In particular, their innovative strength must be stimulated. In Saxony-Anhalt, for example, small companies are brought together with universities to promote research and development.

In the end, Ude hopes, large companies will settle in the Eastern states in the future after all. Saxony-Anhalt is pursuing an active relocation policy and one of the advantages of the location is the low rents.

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