by Katarina Kosmala-Dahlbeck

Read other contributions to our series on the 30th anniversary of the fall of the Berlin Wall and today’s challenges to liberalism:

On the 30th anniversary of the fall of the Berlin Wall, Germany remains far from united. In fact, political divisions rife across Western democracies have made a home for themselves in Germany as well, thriving off of economic and historical grievances in the east following reunification in 1990. Today, Germany’s problems reflect many of our own in Europe and the West. But how, after such high hopes at the end of the Cold War, did widespread liberal euphoria get so lost on us?

In the fall of 1990, East Germans found themselves freed from an oppressive Soviet regime, delighted to be part of the long-admired liberal West – only to soon be hit by the shocks of a capitalist reality. A 1:1 government-imposed exchange rate between the eastern Ostmark and the much more valuable Deutsche Mark forced scores of eastern companies out of business, with a 300-400% currency revaluation making profits largely impossible. Eastern assets were privatised en masse by the Treuhandanstalt (the “Handover Agency”) and sold to western and international investors, with only 5% of enterprises remaining owned by easterners. Up to 2.5 million eastern workers fell into unemployment within two years of reunification.

For easterners struggling to find employment in a suddenly capitalist society, the safety net of the welfare state became a nostalgic dream. Even as subsidies flew in from the west to finance infrastructure projects and rebuild housing, the eastern economy struggled without the centralised communist state. Economic productivity in the east lagged at 30% that of the west, and eastern companies and workers were swiftly outstripped by their western counterparts. An economy built for decades around industry had quickly become irrelevant and unprofitable.

When asked about these changes today, easterners point to the fact that their disenfranchisement is just as present as it is historical, argues Sabine Rennefanz in The Guardian. The vacuum created by the departure of the Soviet state was quickly filled by Western interests, with Western elites taking over leadership roles left by the communist party. Today, only 1.7% of high-level German jobs in politics, business and the military are held by easterners. Only 4% are held by easterners in former East Germany itself. Even Chancellor Angela Merkel, the east’s greatest export, has said that “we must all… learn to understand why for many people in East German states, German unity is not solely a positive experience.”

This lack of positivity can be surprising given the east’s remarkable economic improvement within the last three decades. By many metrics, the former GDR has achieved economic milestones far ahead of other states in the former Soviet bloc. Poland, Hungary and the Czech Republic have yet to reach per capita income 75% of the European average – realised in all former East German states – and GDP per capita in the east grew to 75% that of the west in 2018. Unemployment rates have fallen to only 6.4%, just high of the national average.

Though life in the east has dramatically improved, the smarting humiliation of inequality between east and west that has lasted well into the new millennium – driving the resentment against liberal society which has become evident in populist movements throughout the world. Easterners’ point of comparison has always been the German west, the powerhouse of Europe, not former Soviet cousins in Budapest or Warsaw. Decades of Soviet rule reminded East Germans of everything in the west they could not have, and reunification promised many their days of wanting were behind them. When framed from this perspective, the east still has a long way to go.

This frustration fuels bitter division in German politics today. 30 years later, German wealth is still not in eastern hands. Eastern salaries lag far behind their western counterparts, and only 7% of Germany’s top 500 companies base their headquarters in the east. West-to-east transfers bring in a majority of profits for western companies and landlords that own most enterprises in the east. The political establishment does not fare any better: easterners are still severely underrepresented in German politics, and the continuation of West German membership in international organisations today gives easterners little say over foreign policy. The number of easterners in regional political roles is declining. Perhaps most worryingly, only 37% of easterners say that they have ‘faith in democracy.’

The Alternative for Deutschland (AfD) are exploiting these divisions – promising resurgence of the east in their campaign slogans – and perhaps it’s no surprise that it’s in former Soviet areas they are surging. Most notably, the AfD have celebrated historic victories in the likes of Saxony and Brandenburg just this August. In doing so, the AfD are mirroring populist movements continent wide – and proving strongest in areas who see modern capitalism as failing them, and major cosmopolitan capitals as out of touch with the issues facing ordinary people.

The key question, then, is what liberal, Western governments will do to mend divides? The fall of the Berlin wall was, and is, an inspiring moment in the fight for freedom – but the ensuing political climate has entrenched serious divides despite improving living standards. Liberals can celebrate victories – but the pressing issue is how they will prevent major unrest in the years to come.

Katarina Kosmala-Dahlbeck is the National Events and Engagement Manager at the British Foreign Policy Group.

The views expressed on AustrianCenter.com are not necessarily those of the Austrian Economics Center.