Still troubled

A GIANT power station, open-cast coal mines, industrial glass production and army artillery ranges used to provide a livelihood for the 70,000 inhabitants of Hoyerswerda, in the former East Germany. Since German reunification in 1990 the army and the glassmakers have gone, and the power station has shed thousands of jobs. The population has fallen by half. Among those who remain, the unemployment rate is 22.3%.

And this is Saxony, supposedly the powerhouse of economic revival in the east: at 2.1%, its GDP growth was the only one among eastern states to beat the national average last year. Hoyerswerda and other, purpose-built communist-era towns illustrate how the east's troubles continue, even as the national economy is at last showing signs of life. They are one reason why the European Commission is still minded to designate eastern Germany, except Berlin, as an “Objective 1” development area, qualifying for investment subsidies of up to 30% until 2013.

Since reunification, €90 billion ($110 billion) a year has been poured into the east. Infrastructure and renovated buildings now match the west's high standard. But unemployment still averages nearly 20%. Many of the jobless, from school leavers to the chronically unemployed, are put on endless training schemes—training, many ask, for what? Hence the strength in recent polls of the Left Party, with its roots in communism, ahead of next month's general election. In the east it has been scoring around 30%. Among those once ruled by communists, eastern Germans are not alone in their discontent (see article). Being part of a rich, capitalist country, though, may make troubles harder to bear.

The government of Saxony is trying to develop tourism in the Lausitz area, where a chain of lakes, the relict of open-cast mining, is the main attraction. But investors, apart from one setting up a riding school, have been slow to put money into a region little known for tourism. Around Dresden and Leipzig, Saxony's main cities, it is a different story, with “clusters” of industry and supply chains built around the manufacture of cars and computer chips.

A change of national government next month looks likely, and might mean a rethink of plans to rebuild the east. Dieter Althaus, the Christian Democrat premier of Thuringia, who has been named “co-ordinator” of the east by the conservative opposition, wants to replace indiscriminate tax rebates for investment with more targeted support. This week the premiers of most other eastern states protested that as much money as possible is needed. Mr Althaus says that there will be no less money, but that it will be distributed case by case, not by “watering can”. He denies that developing clusters is the only goal. But regional economists conclude that it is better to concentrate on winners than to spread the cash too thinly.

The obstacles to job creation in eastern Germany are huge. Most obviously, labour costs, although 62% of the level in western Germany, are still roughly four times higher than in neighbouring Poland and the Czech Republic. “We haven't seen a large-scale relocation to the east,” says Mr Althaus. Improving productivity and lowering labour costs will help, he adds, but eastern Germany is still in danger of being “sandwiched” between prosperous old Europe and the EU's new members.