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Open Borders Mean New Economic Hazards for Both Germanys

November 14, 1989

BERLIN (AP) _ The opening of East Germany’s borders has exposed troubling economic hazards for both Germanys.

The sight of millions of East Germans visiting West Berlin gives a hint of the onslaught that could result if living standards fail to rise to meet the growing expectations of East Germans.

East Germany fears being further impoverished by West Germans using hard- currency clout to buy up property or subsidized goods in an accessible Eastern market.

But Deutsche Bank chairman Alfred Herrhausen predicts that with market- oriented reforms, ″I’m convinced that East Germany can reach our Western living standards within the next five to 10 years.″

Herrhausen’s forecast and Bonn’s promise of massive aid in the style of the postwar Marshall Plan demonstrate the strength of West German interest in rebuilding the East German economy.

But even with the best of intentions, the East German problems may be insurmountable.

East Germans can rarely be reached by phone from the West because the hopelessly insufficient network is subject to breakdowns and equipment shortages.

Consumers wait years to buy smoke-spewing Trabant and Wartburg cars that are the butt of jokes in West Germany, where the wheels of preference are the luxury Mercedes and BMW.

Fresh fruit is seldom more than a memory in winter. Refrigerators, TVs and VCRs can cost several months’ salary and break down two weeks later.

Euphoria over travel freedom could quickly give way to frustration as East Germans discover firsthand the vast difference between their meager, burdened lifestyles and the prosperity of Western neighbors.

And West Germany’s constitutionally mandated practice of granting citizenship to ethnic Germans keeps the door wide open to permanent settlement in the West.

More than 200,000 East Germans have fled to West Germany this year, emptied of hope their nation could ever provide them with the life available next door.

The deluge has ebbed considerably since the Stalinist controls on travel fell Thursday, but Bonn recognizes the risks involved if reforms should fail.

Economics Minister Helmut Haussmann on Tuesday offered an aid package for East Germany if the new leadership converts to a market system. But a leading East German economist, Karl Morgenstern, said a free-market system is not the goal of his socialist state.

Reform-oriented leaders in East Berlin have not indicated how or when they will consider the critical step toward conversion to a hard-currency system. Even the most optimistic economists doubt a convertible East German mark could be achieved before the end of the century.

Because the state needs to generate enough hard currency to buy priority equipment and commodities, it is forced to sell goods for export at only 15 percent of the cost of production, Finance Minister Ernst Hoefner disclosed Monday.

Limited hard currency also puts up an effective ban on travel to the West in the place of the physical one removed.

″In principle the people are free to travel, but in reality without the funds to do so they are still behind the barriers,″ said Manfred Milzer, an economist with the West German federal Institute for Economics Research.

He said the West German government must kick in billions of marks to a travel fund to take the pressure off East Berlin while it reforms industries.

Major West German firms have long eyed the potential for joint ventures, but most plans hinge on changes that are to far from socialist principles to be acceptable to the East German authorities.

Erwin Flick of Siemens’ Berlin division said the electronics giant would love to work with East Germany to revamp the antiquated phone system.

″But the conditions that have long hindered investment remain. Absolutely nothing in a legal or economic sense has changed,″ Flick said.

On the side of optimism, however, the automotive giant Daimler-Benz plans to send a delegation to East Germany within a few days to discuss the prospects for joint production of passenger cars, said spokesman Matthias Kleinert in Stuttgart.

Some investors fear the exodus of young workers - a body blow to the already labor-short state - further damages the prospect for improving productivity.

″East Germany already had a critical demographic problem of an over-aged population, and the refugees have sharpened this development,″ said Wolfgang Stinglwagner, an economist with the Inter-German Affairs Institute in Bonn.

Hoefner, the East Berlin finance minister, disclosed the national debt was the equivalent of more than $70 billion, worse than Western economists had imagined.

East German officials and opposition activists alike have expressed fears that a hard-currency hunger could result in a two-class system in East Germany: those with foreign money and those without.

West German marks already command the best goods on the shortage-plagued market, and East Germans are worried they could be ″bought out″ unless customs controls are invoked.

Prime real estate in central Berlin may be opened up on the East side if the Communist government dismantles the Berlin Wall’s security zone. That could ease the shortage of building land in both sectors of Berlin.

But the East has too little money to embark on major new capital investments, and Western investors still lack the confidence in the stability of East German reforms to commit funds for construction.

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