Commentary: What Germany Can Teach The Rest Of Europe

Germany is celebrating the 10-year anniversary of reunification, but the party is a real downer. In Berlin, petty politics reign, as former Chancellor Helmut Kohl claims vindictively that his Social Democrat opponents didn't want to put Germany back together again. In the east, the mood is sour. Unemployment remains more than double that of the west, and bitterness among idle youth is feeding a vicious neo-Nazi movement. The only people who seem to be in a festive mood are veterans of the old communist secret police, the Stasi. They are toasting the expiration of the statute of limitations for most crimes committed under the communist regime. Shooting people at the border, for example. Prost!

Germans are famous for their pessimism, but this is ridiculous. True, eastern Germany still limps behind the rest of the nation economically. In the last decade, nearly a million easterners have moved west in search of better opportunities. But compared with 10 years ago, the region has made extraordinary gains. When the Berlin Wall fell in 1989, 17% of households had a telephone. Today, virtually every home has one. Per capita, east Germans have more color televisions and cable TV connections than citizens in the west, and almost as many cars. Unemployment is high--17% vs. 7.4% in the west--but that's partially because a greater proportion of east German women want to work than is the case in the west. That boosts the overall unemployment rate for the east. And while many rural regions remain depressed, dynamic cities like Dresden, Leipzig, and eastern Berlin are nearing western income levels.

Germany has more important things to do than whine about the past. A daunting task lies ahead: In as little as two years, the European Union will start admitting new members from post-communist Central Europe. That's a challenge for all the EU states, but particularly Germany, whose border with the east is by far the longest. It has already learned some hard lessons about integrating a planned economy. Instead of bickering, Germany should be attacking this historic challenge by guiding the effort to expand the EU. That's easier now that British and French fears of an aggressive unified Germany have been assuaged. Germany still needs to be careful about asserting itself, but it has never enjoyed more freedom to take a leading role in European affairs.

The EU can learn from Germany's mistakes. The grandest error of German reunification was the attempt to quickly force east German living standards to western levels. Fearing an invasion of destitute east Germans, Kohl's government pushed wages way beyond what worker productivity could justify. Western labor rules stunted job creation. Western regulations and bureaucracy hobbled creation of new businesses.

A similar fiasco could occur if the EU takes a too rigid approach to expanding eastward. Already, people in Poland and other Central European countries are worrying about how to cope with tangled EU regulations once their countries enter. Poland is growing at 5.2% a year by allowing market forces free rein. It would be a huge mistake to stifle that economic creativity with EU bureaucracy.

SATISFIED. Here, once more, Germany has something to teach from its unification experience. Eleven years after the fall of the Wall, Germany's eastern region is helping to drive economic reform for the whole nation. Leaders like Kurt Biedenkopf, minister-president of Saxony, are the ones pushing hardest for an end to restrictions on shopping hours. East German industry and labor, recognizing the need to calibrate wages more closely with worker output, have effectively abandoned the west German system of umbrella-wage agreements for whole industries. Such practices are seeping west as well, threatening the ossified system of collective wage bargaining that weighs heavily on small companies. "Now you see a lot of reforms coming from east Germany," says Jurgen von Hagen, director of the Center for European Integration Studies in Bonn.

As Germans and Europeans in general ponder the future, they should realize this: For all the grousing about how government mismanaged reunification, the vast majority of Germans on both sides of the old Iron Curtain believe it has basically worked out well. So maybe Germany is more unified than it appears. That's something all of Europe can celebrate--and learn from.

    Before it's here, it's on the Bloomberg Terminal.