Merkel's euro push leaves east Germany out in the cold

EISENHUETTENSTADT, Germany Mon Dec 3, 2012 11:50am GMT

German Chancellor Angela Merkel casts her shadow on an European Union (EU) flag as she arrives for a news conference after talks with Yemen's President Abd-Rabbu Mansour Hadi in Berlin, October 4, 2012. REUTERS/Tobias Schwarz

German Chancellor Angela Merkel casts her shadow on an European Union (EU) flag as she arrives for a news conference after talks with Yemen's President Abd-Rabbu Mansour Hadi in Berlin, October 4, 2012.

Credit: Reuters/Tobias Schwarz

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EISENHUETTENSTADT, Germany (Reuters) - This fading industrial city, like many in Angela Merkel's former East German home, is stony ground for the chancellor's message of European integration and fertile soil for opponents trying to stop her winning a third term next September.

More than two decades after unification, income and jobs in the five eastern states, home to 15 percent of the population, still lag behind the west and trillions of euros in transfers have not stemmed an exodus that has left some areas looking like ghost towns.

"People have too many problems to worry about the euro crisis," said Michael, a 40-year-old steelworker in the town of Eisenhuettenstadt, east from Berlin near the Polish border.

Originally called "Stalinstadt", it was built in the 1950s as an industrial complex and "the first Socialist city in Germany". The pride of the GDR, it was renamed in 1961 and had 50,000 inhabitants in its heyday.

In a familiar story across east Germany, reunification meant mass unemployment as communist-run industry failed to compete on the free market. About 40 percent of the town's population went west and much of the housing for GDR workers stands empty.

In a country whose conservative chancellor dedicates a lot of time to blue-sky thinking about the future and demographic change, the most demographically-challenged areas of do not feel their plight is a political priority.

"Future? We have no future," said Suzanne, wheeling her bicycle past an Germany abandoned prefab tower block with broken windows on the banks of a canal. She would not give her surname, like many people in a country with historic sensitivities about privacy.

Merkel's plans for a third term, if she wins, are typically undramatic and give the impression of fine-tuning a well-oiled machine. The Christian Democrats (CDU) will make her the focus of a personality-based campaign which will be new for Germany.

"The election will be won by whoever is most convincing that our currency and jobs are safe," said one senior Merkel ally.

Judging by what people in Eisenhuettenstadt would like to see discussed - a legal minimum wage and greater job security - there is still a lot of work to be done convincing people in the east, where unemployment is way over the 6.9 percent national rate and incomes are a fifth lower than the average in the west.

"We just want reasonable hope for our future," said steelworker Michael, walking home on a raw winter evening from the plant that dominates the town's sky-line and its thoughts.

Still popularly known by its communist-era name EKO-Stahl, the plant that used to employ 12,000 people now gives work to 2,700 and is owned by ArcelorMittal.

DEMOLITION

A rare survivor of GDR industry, it was once strategically located far from western Europe and close to the Eastern bloc allies which provided raw materials like coke and iron ore. Those countries are now both its main market and competitor.

The steelworks are depicted in heroic mosaics and murals in the town centre, photos on cafe walls and in a 1958 oil painting in the mayor's office, where two children stand in a cornfield gazing at the blast furnace and rolling mills in the distance.

But locals fret about relying on a single industry that is subject to the vagaries of raw material prices, margin pressure from carmakers and competition from eastern Europe and Asia.

Directly and indirectly, the steelworks account for nearly half the 12,000 workplaces in Eisenhuettenstadt. A local saying goes that "if the steelworks cough, the town gets pneumonia".

"The steelworks won't go on producing forever because of all this competition from China," said local woman Suzanne. "The kids just move away. They go where the jobs are."

The town's 9 percent unemployment rate is better than many other areas of east Brandenburg, but Mayor Dagmar Pueschel says it has only fallen that far - from over 20 percent in the early 1990s - because so many thousands of people have left.

"Mayors in the area around Berlin worry about how to pay for new schools, kindergartens and housing. Here it's the opposite - we have to close down kindergartens and demolish housing. We've already demolished 6,000 homes," she said.

Such conditions favour the centre-left Social Democrats (SPD) and the hardline Left Party, which is descended from the GDR communists and relies on these eastern strongholds for its chunk of the national vote - 11.9 percent in the 2009 elections.

Eisenhuettenstadt's mayor is from the Left, which co-governs Brandenburg as the SPD's junior partners. It has strong support in Thuringia, Mecklenburg-Vorpommern, Saxony and Saxony-Anhalt states and in Berlin, but only occasional outposts in the west.

Christian Ehler, a member of the European Parliament for the CDU from Brandenburg, believes people cling to the Left for psychological reasons.

"There's no ideological centre-piece remaining, it is the smell of your past, your youth. It helps people to say that not everything about the GDR was bad," he said from Brussels.

Merkel's own GDR upbringing does not give her party an edge in the east because she played this down so much in her climb to power in the predominantly west German CDU, said Ehler.

He believes the lack of enthusiasm for Europe in the east is rooted in the isolationism that built the Berlin Wall that is expressed in support for the Left - which opposes EU integration and the euro zone bailouts - and, to a much smaller extent, for the far-right, xenophobic National Democrats (NPD).

SOLAR ECLIPSE

"Interest in Europe is not especially high, not in my party either, I won't lie to you," said Left Party MEP Lothar Bisky.

Some politicians argue that the tepid support for the EU in the east has economic roots, with people less inclined to adopt a donor mentality towards southern Europe when they have lower incomes themselves and have been the recipients of billions of euros of aid since 1991 via the "Solidarity Surcharge" tax.

Originally meant to last one year, the "Soli" was extended through to 2019 and might even have to continue for two decades more, according to a study commissioned by Thuringia's economy ministry. It concluded that the east will need another 50 billion euros a year until 2030 to catch up with the west.

Scepticism about Berlin and Brussels is exacerbated by what locals see as hostile policies for the local economy, especially on energy where Merkel's U-turn away from nuclear power combined with a decision to reduce subsidies for solar power have pushed up electricity prices and nipped a local solar boom in the bud.

Hundreds of people from Eisenhuettenstadt got jobs at a new solar power factory in nearby Frankfurt-an-der-Oder only to see them disappear this year when U.S. firm First Solar abandoned its German expansion plans, citing the reduction in subsidies.

"The solar energy industry had set up almost exclusively in the east, which begs the question: if it had happened in the west, would they have done things the same way?" asked Pueschel.

Over at the steelworks, ArcelorMittal's Schmidt said EU and national energy taxes, prices and policy were hurdles that meant the German steel industry "is in a race it cannot win".

If more industry leaves, the exodus will accelerate. Already the population of the eastern states is seen shrinking by a further 15 percent by 2030, nearly three times faster than the rate at which the overall German population is forecast to fall.

One west German who has moved east, Andreas Ludwig, believes part of the problem is cultural isolation. Eisehuettenstadt has thick forest on one side, the Polish border on the other, slow Internet and problems receiving national radio and digital TV.

He runs the Museum of Everyday Life in the GDR, housed in the old state creche. It boasts a stained-glass window of toddlers and carers and a colourful collection of household, industrial and political artefacts from the communist era.

The town's GDR heritage got celebrity backing this year from actor Tom Hanks, who told talk-show host David Letterman about "the Socialist store where you would go and buy your orange at Christmas and your pair of socks from Vietnam in the spring".

But too few visitors make the trip from Berlin and the GDR museum is threatened with closure for lack of funding.

"What can young people do here except drink beer and watch TV? They don't have a chance," said Ludwig. "People feel like they have been left at the door."

(editing by Janet McBride)

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