Economic Potential Rises as E. German Barriers Fall

East Germany’s decision to throw open its borders with West Germany will have huge implications for the economies of both nations, but visions of an economic super-state in the center of Europe seem premature.

Peter Pietsch, economist with Commerzbank in Frankfurt, said today there is no doubt trade between the two nations will rise as barriers built up since World War II are dismantled.

But he added: “There will not be a huge concentration of economic power. There should be no worries about that.”

“It will take a long time before we see anything like a combined mass of economic potential,” said Horst Seidler of the DIW economic research group in West Berlin.

The effects of the exodus into West Germany of almost a quarter of a million East Germans has prompted economists to raise forecasts for Bonn’s domestic economic growth, already seen at a booming 4% this year.

The flood of disgruntled people will need everything from houses to pots and pans, although this could prove a double-edged sword if inflation takes off as a result.

On the other side of the now crumbling border, political reform would have to be backed by market-oriented economic renewal, also boosting East German growth in the long term, economists said.

In the immediate future, however, the East German administration, whose key players are changing places with startling speed, have to cope with the hemorrhage of the mostly young, skilled workers who have already left.

“Initially there will be a weakening of the East German economy,” said a senior economist with a research unit that closely monitors the economies of Eastern Europe.

“Workers are disappearing. As the planned economy is wound down, jobs will disappear. They will not be replaced immediately by a flood of corporate investment from West Germany,” he added.

Norbert Walter, senior economist with Deutsche Bank, said: “The loss of 200,000 people in a country one quarter of the size of West Germany will have four times the impact that it would have had here.”

The East Germans will also have to decide “which part of the world they want to belong to,” he added. But there is a strong chance that in the next 10 to 15 years the whole of Eastern Europe could grow in economic importance.

According to the Federal Statistics Office, West German exports to its neighbor jumped 14% in the first eight months of 1989 to $2.6 billion, most from sales of capital goods. East Germany sold $2.5 billion worth of goods to West Germany, a rise of 6.2%.