Job Losses Part of Reunification Cost

GERMANY

GERMAN reunification is starting to look more and more expensive. Last week, the Bonn government and the 11 West German states agreed to establish a $70 billion special German Unity Fund to help pay for the reconstruction of East Germany's economy through 1994.

But there is some question whether that will be enough.

Jurgen Klose, an economist with the Brune Leuscher Academy for Economics in East Berlin, says more money will be needed to repair East Germany's infrastructure. Telecommunications, for example, will cost roughly $20 billion. An additional $250 billion is needed for roads, highways, bridges, and tunnels, he says. More than $30 billion is needed to revitalize the farm sector.

This names just a few areas that need urgent funding, Mr. Klose says. But he acknowledges that ``a step by step process is the best way.''

Economic integration of the two nations will start in a major way July 2 when the West German mark becomes the sole legal tender in East Germany as well as West Germany. At that point, West Germany will administer East German banking, set East German credit limits, and assume its mounting debt.

The $70 billion unity fund will augment other East German revenue sources, such as taxes and the sale of state lands and other properties. It will thus help provide for social services, wages, and pensions, indirectly reducing a large budget deficit. But it doesn't take into account all of East German debts.

West German Chancellor Helmut Kohl earlier planned to finance unification entirely through the West German budget and tax system. But this plan was scrapped due to its political risks. Mr. Kohl intends to call an all-German election by the end of the year. Instead the German finance ministry says it will finance the unity fund by issuing securities on the West German capital market.

West Germany's task includes unwinding the system of central state planning that has prevailed in East Germany for 40 years.

Comments Paul Kruger, a young member of the East German parliament: ``In the past, small and medium-size companies were liquidated. Today we have only big state-run companies. The management is from the Communist Party experience, not economic experience.'' He sees that planning mistake as the dominant reason for East Germany's economic weakness. ``We must set up new structures and break up the big companies.''

After this restructuring occurs, only one-third of the companies will make it in a market economy, Mr. Kruger estimates. Fifty percent will have a marginal chance of making it, and the rest will simply fail, he says.

East Germany's agriculture minister, Peter Pollack, has warned that half of all the collective farmers in East Germany will lose their jobs as the farm sector adjusts to a market economy.

INDEED, a sharp increase in unemployment is expected countrywide. Some estimates have put job losses at between 1 million and 3 million after poorly performing enterprises are eliminated and others are reorganized. Mr. Klose says there are already 100,000 out of work in Germany, ``mostly bureaucrats.''

Klose stresses that East Germany needs ``a certain kind of protection'' as it opens up to the West. It must avoid growing unemployment and its reform should not mean a break with its traditional trading partners from Eastern Europe and the Soviet Union, he says.

He points to East Germany's 750 bilateral trade obligations. These obligations are largely barter arrangements with Comecon countries who have provided East Germany with guaranteed markets for goods that would be considered sub-standard on the international market. Klose cautions against dismantling these agreements. East German steel plants, for example, rely on Soviet-produced oil and are not geared for another kind of fuel. ``We are scheduled to receive Soviet oil and coal through 1995. It is necessary for our steel production,'' he says.

West German Chancellor Kohl declared in February that West Germany will honor all of East Germany's trade agreements with the Soviet Union. ``It was a goodwill gesture,'' says Jochen Bethkenhagen, head of the European Cooperation Department in the West Berlin Senate.

East German parliamentarian Kruger says that despite the March 18 election of a new East German government, ``there are still old personnel who wish to stop the reform, and the parties of the Left are using scare tactics to convince the population that the unemployment will be too severe.'' Others point to the sale of East German lands, which are being scooped up for deflated prices by former government officials.

Mr. Bethkenhagen discounts these attempts to preserve the past. ``Economic and monetary union forces the GDR [German Democratic Republic] to change its system dramatically,'' he says. He recalls an old German saying: ``Better to end with a shock than to have an endless shock.''