Vicious Circle of Decline in the East?

While Helmut Kohl, chancellor at the time of German unification, promised eastern Germans "flourishing landscapes," what is their reality 15 years later in most of the region is empty apartment buildings and shuttered businesses.

The report, published by the state-owned KfW development bank on Thursday, predicted that while western Germany's population would likely shrink by six percent between 2002 and 2050, in the east, that drop could be as high as 25 percent.

The pool of available workers is expected to fall by 55 percent over the same period, the report said, as more and more young people head to the west to find jobs.

"Fewer inhabitants means less tax revenue, less tax revenue means less investment and declining attractiveness. And declining attractiveness leads to a declining population," KfW chief economic Norbert Irsch told reporters at a news conference on Thursday.

Economic sick man

While the federal state of Saxony in the east is doing well, and even topped the list of most dynamic state economies in a recent comparative study, most of the eastern states are afflicted with slow growth, high unemployment and a deep feeling of malaise -- not exactly magnets for investors.

East Germany's economy was already on its knees when the Berlin Wall fell in 1989. It's inefficient companies were propped up by the state. When they had to compete with dynamic eastern competitors -- and pay wages more in line with the west -- they had no chance. Unemployment in the east is twice as high as in the west.

"It's an enormous burden for the people in the east, not only financially but psychologically, since it leads to apathy, destroys any hope for the future, and spurs migration," Irsch said.

This is despite the more then one trillion euros ($1.2 trillion) which has been spent by the federal government since unification to bring the east up to western standards.

Downward spiral

If current trends continue, Irsch said, they would only feed off themselves, forming a downward-spiralling vicious circle that would be hard to bring to a halt.

Part of the problem, he went on to say, is that there are too few large firms in the area or smaller companies that were leaders in the field. He suggested that easier access to cash for investment be granted to smaller enterprises and that government and industry should work together to improve education and training, and try to keep skilled workers at home.

"With quality education and training, together with the necessary individual mobility, we can offer people a future and tackle the challenges of demographic change," he said.