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Eastern Germany’s Economic Slide More Serious Than Expected, Top Official Says : Unification: Some of the strongest firms in the five new states are collapsing. Kohl plans meetings to deal with the crisis.

TIMES STAFF WRITER

Chancellor Helmut Kohl has suddenly found himself facing a serious domestic crisis with the alarming economic decline in eastern Germany--"far more difficult than we expected,” his economic minister said Friday.

Kohl has ordered a series of emergency meetings to deal with the crisis, and Economic Minister Juergen Moellemann earlier this week unveiled a 10-point program to head off a full-scale collapse of the region--until last October the communist state of East Germany.

Prior to both last October’s unification and the national election two months later, Kohl had predicted a relatively swift adjustment to western living standards for the eastern economy and accused his political opponents of exaggerating the difficulties in restructuring what was believed to be the most efficient of East Europe’s centrally planned economies.

“The situation is far more difficult than we expected,” Moellemann told a news conference here Friday. “We underestimated the problems.”

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Moellemann’s comments came in the course of his first tour of the east German region since he took over the top economics job in Kohl’s newly constituted government.

The crisis in the five new German federal states that now make up what was East Germany is marked by the gradual collapse of some of the strongest business enterprises in the former centrally planned communist state--enterprises that were expected to survive in some form in a free-market economy.

In a region where communist authorities perennially concealed unemployment with heavy overmanning, more than one quarter of the 9-million-strong work force is now either out of work completely or is being paid for only a few hours’ work a day.

Government officials and leading private sector economists predict the jobless figure will grow further and any turn-around will be significantly delayed.

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Last week’s closure of the former East German air carrier Interflug was viewed as an especially ominous sign.

Although it flew mainly non-competitive Soviet Tupolev aircraft, Interflug’s rights to both German cities and major East European gateways made it a potentially attractive takeover or merger target.

Indeed, both British Airways and Lufthansa negotiated with the Treuhandanstalt, the German authority charged with privatizing former East German state-owned enterprises, but are believed to have lost interest because of the war-related recession in airline travel.

A series of problems, both domestic and international, are blamed for the unexpectedly steep industrial decline in the east at a time when the western German economy is booming.

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High interest rates have discouraged investment from the West, while increased oil prices and unexpectedly chaotic conditions in the Soviet Union have drastically reduced the anticipated support of the region’s traditionally strong eastern European trade ties.

Nearly half a million East German jobs alone were tied to Soviet trade.

While Moellemann recently returned from Moscow with pledges that some $6 billion in new contracts would be awarded in the next two weeks, mainly to former East German enterprises, many are skeptical of the Soviet Union’s ability to follow through on such deals.

The inability of the newly constituted regional government administrations to operate efficiently and the paralysis of the new legal system in the five new states to process land dispute claims--many of them crucial to investment decisions--has severely hampered economic activity.

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The lack of efficient communications has also discouraged investment.

More than five months after unity, it remains almost impossible to telephone between eastern and western Germany.

A woman residing in western Berlin was recently told by her bank that the direct deposit service of her paycheck into her account could take up to six weeks because her employer was in the eastern part of the city. For those working and banking in western Berlin, the direct deposit takes one to two days.

To help ease the crisis, the government 10-point plan calls for accelerated infrastructure investments, more jobs on public works projects and more lucrative tax write-offs for those investing in the east.

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Finance Minister Theodor Waigel is also expected to meet Thursday with the governors of the five new eastern states to assess a budget crisis that has left them collectively on the edge of bankruptcy, $16 billion short of their expected revenues.

Kohl has scheduled a highly unusual meeting to discuss the eastern German crisis with all 16 state governors on Feb. 28.


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