Wasted advantages: a note on the 20th anniversary of German unification

After 20 years of German unification, Gerlinde and Hans-Werner Sinn draw up a balance on what has been achieved. The primacy of politics over the laws of economics led to foreseeable problems in unification policies. A strong convergence between eastern and western Germany is today only apparent in real incomes, which are composed of earned income and government transfers. This is the result of the transfer union that was established. Still today the annual net transfers to the new federal states amount to about 60 billion euros, of which half flows out of the new federal states as net capital exports since the locational conditions there are not conducive to investing the money on site. The main reason for this sorry state of affairs lies in the initial mistakes of wage policy that led to a too rapid wage convergence.