East German town thrives 25 years after fall of Berlin Wall

Filter system manufacturer Mann+Hummel's plant is pictured in the eastern German town of Sonneberg on Oct 9, 2014. Once hemmed in by the Iron Curtain, the eastern German town of Sonneberg has undergone something of an economic miracle, proving t
Filter system manufacturer Mann+Hummel's plant is pictured in the eastern German town of Sonneberg on Oct 9, 2014. Once hemmed in by the Iron Curtain, the eastern German town of Sonneberg has undergone something of an economic miracle, proving that the long, painful transition from communism can bear fruit at last. -- PHOTO: REUTERS

SONNEBERG, Germany (Reuters) - Once hemmed in by the Iron Curtain, the eastern German town of Sonneberg has undergone something of an economic miracle, proving that the long, painful transition from communism can bear fruit at last.

Within months of the Berlin Wall being pulled down in 1989, what had been the centre of East Germany's toy industry was in crisis. Unable to compete on a global market, factories were being shut down while buildings were falling to pieces and unemployment queues were growing rapidly.

But just as western Germany achieved an economic miracle in the decades after World War II, Sonneberg offers hope that the east can complete its recovery from the collapse of communism and narrow the gap with west even further.

As the 25th anniversary of the fall of the Wall approaches on Nov 9, Germans still express frustration at how far behind the eastern economy remains. But Sonneberg, which nestles in the forested hills of Thuringia about 320km southwest of Berlin, contradicts many assumptions.

During the 1960s and early 1970s, even East Germans had difficulty visiting Sonneberg as the authorities feared they might try to escape across the nearby border with West Germany, lined with fences, watch towers and minefields.

But since 1990 and the end of the centrally-planned economy about 100 firms have flocked to the town of 24,000 people. Economic output has grown more than fourfold and unemployment, which hit almost 13 per cent by 1997, has dropped to 3.5 per cent, the lowest in the east and rivalling even the most prosperous areas of western Germany.

This, says Sonneberg's mayor Sibylle Abel, is evidence that the "flourishing landscapes" - promised in 1990 to the eastern states by the first chancellor of the reunited Germany, Helmut Kohl - are within arm's reach.

"Back in 1990 the streets of Sonneberg were in a state of disrepair, the houses in the town centre were crumbling and some firms weren't economically viable. That has all been remedied now and there are hardly any differences when compared with a town in the former West Germany," she said.

Chancellor Angela Merkel, who was brought up in East Germany, believes Kohl's promise has been fulfilled, albeit a long time after he had envisaged.

"Today we have the flourishing landscapes that Helmut Kohl once talked about," she said in a podcast, adding that mass emigration from the east had ceased and people were starting to move back.

Sonneberg is not yet typical, as it has grown far faster than the rest of eastern Germany. Per capita tax revenues of the federal states that once formed East Germany were only around half the west German level last year. None of the 30 top German companies in the DAX stock index is based there.

Unemployment in some eastern towns is above 12 per cent, pay is lower and opinion polls suggest easterners are unhappier than Westerners. This may have contributed to a surge in support for the Alternative for Germany, a eurosceptic protest party, in recent elections in three eastern states.

But overall, the east is gradually catching up. Gross domestic product (GDP) per capita has reached two thirds of the western level, up from one third in 1991, according to KfW state development bank. This is no small feat for a region that was on the brink of bankruptcy at reunification.

Its economy has grown faster than countries in eastern Europe such as Poland and lies in the European mid-field in terms of GDP per capita, well above Greece and only just below major euro zone members such as Italy and Spain, KfW says.

"After reunification, eastern Germany experienced a huge industrial crash and people worried it would de-industrialise," Karl Brenke, an economist at the DIW think-tank, said. "That happened for a while but then they really ramped up industrial production, whereas in France there has been a sort of creeping decline for around 20 years."

Sonneberg, which before World War One produced a fifth of the world's toys, quickly saw reunification as an opportunity. It secured subsidies to improve its infrastructure and built five industrial parks, four of which are full.

Alongside a small number of surviving toy firms, the town is full of factories processing plastic, metal and ceramics and making machines and car parts.

On the outskirts lies a complex of factory and warehouse buildings run by Mann+Hummel, the area's biggest industrial employer.

Originally opened in 1903, this factory later churned out clothes pegs, plates and car parts under the communists. After reunification Mann+Hummel bought it in one of the many takeovers of eastern enterprises by western firms. Today it supplies components to big names in the auto industry such as BMW, Daimler and Toyota. Staff have grown from 100 in 1991 to 450.

"Since reunification we've made a huge leap forward technologically and in terms of our buildings and the qualifications of our employees, so you can certainly say we've got a good basis for 'flourishing landscapes' here now," said Thomas Lange-Stalinski, head of Mann+Hummel's Sonneberg factory.

Westerners have long grumbled about having to subsidise their fellow citizens in the east, particularly through a"solidarity" surcharge on their income tax bills.

But the Sunday edition of the Frankfurter Allgemeine newspaper recently went against the grain by saying "Danke, Ossis!" ("Thanks Easties!") in a headline. In the accompanying article, it argued that the burden of rebuilding the east had forced Germany to reform its economy long before other euro zone countries. This in turn had helped Germany to avoid the worst of the bloc's crisis in the past five years.

The eastern states are now 76 per cent as productive as their western counterparts, up from 35 per cent in 1991. While unemployment is higher, the gap has narrowed to 4.2 percentage points from 10.1 in 2003. In real terms, easterners' disposable income has reached 89 per cent of the west German level.

"In many ways it's astonishing that East Germany has managed to reinvent itself and re-industrialise in a relatively short time after 40 years of being a planned economy," said DIW.