Measures to secure skilled workers

13 Regarding left-wing extremism, see Part B, III.3.1. Extremism and xenophobia in eastern Germany.

ings by the German Bundesrat to ban the National Demo-cratic Party of Germany (NPD).

Xenophobia, right-wing extremism and intolerance are a serious threat to both social and economic development in the new federal states. The only way for eastern Germany to have good development prospects is as a liberal-minded region in which everyone living there can feel at home and participate in society.

But strengthening social cohesion is not just a task for the Federal Government¹⁴, it also requires commitment on the part of all stakeholders in society. Citizens, companies and retailers, associations and communities have a shared inter-est in leaving little or no space for xenophobia, extremism or violence. The vast majority of people in eastern Germany support democracy and tolerance. These people must be aided and encouraged to openly and visibly stand up against right-wing extremist threats so that a vociferous minority can no longer dominate and distort the overall picture.

Rejecting opinions that are hostile to both people and de -mocracy calls for civil courage, be it in clubs and associations, at the workplace or in everyday situations. But people in eastern Germany already demonstrated their civil courage, bravery and determination in the dramatic days and weeks of 1989. It is important that this tradition be continued in the future.

Pension alignment and social unity

Following reunification, when the east German social secu-rity scheme was transferred to the west German statutory pension insurance system, the economic differences and the different types of pensioners’ career histories meant that transitional regulations had to be introduced which, at that time, were thought to be of a short to medium-term nature.

According to these provisions, from 1 July 1990, pensions were not only converted 1:1 from East German to West German marks, but were also raised to a net pension level that was comparable to that of the old federal states.¹⁵ After two further pension adjustments, the Act Extending the Pension Legislation to the Acceding Territories came into effect on 1 January 1992, granting 96 % of pensioners another increase in their pensions. With this Act, the legis-lator had decided that the development of pensions in the eastern federal states should also be in line with wage developments and that separate legal areas for calculating and adjusting pensions were to be introduced for a transi-tion period. Back then, in the early 1990s, hardly anyone expected that this transition period would last more than 25 years. This must be taken into account when criticism is

expressed regarding the fact that different laws still apply to one central social sector. The revaluation of pensions in eastern Germany did much to ensure social peace and was a remarkable feat of solidarity which deserves recognition.

Now, more than 25 years after German reunification, the aim of the Federal Government is to calculate pensions in east and west on the same basis. This is essential for the completion of social unity.

The Coalition Agreement hence foresees complete alignment of pensions by the end of the Solidarity Pact and 30 years after German unity. The roadmap to complete alignment is to be laid down in a final pension law conversion act.

The highest pension adjustment in 23 years was carried out on 1 July 2016, raising the current pension level in the east from 92.6 % to 94.1 % of the current pension level in the west. In July 2016, a draft final pension law conversion act was tabled together with a report on the status of the align-ment process. This draft act foresees complete alignalign-ment by 2020 and is currently in the first phase of consultation within the Federal Government.

II. Structural changes and their relevance for eastern Germany

The annual reports of recent years have addressed demo-graphic change and how it impacts the development of the eastern federal states in detail. Besides demographic change, there are also other structural changes which are of para-mount importance for development in the east. The follow-ing section explores the opportunities and challenges in conjunction with migration, digitisation and the energy transition.

Integration of refugees, immigration and migration In 2015, many people came to Germany seeking protection against war, persecution and bitter hardship. In 2016, this continued but on a much smaller scale. The integration into society and the labour market of people seeking protection who have a chance of permanent residence is a huge chal-lenge for all levels of government and for society as a whole, and one that calls for joint supportive efforts.

Migration is an old yet global phenomenon that comes in many different forms. Over the past 70 years, there have been different waves of migration that have affected Germany in general and the eastern federal states in particular: flight and displacement after the end of World War II, the flight of millions of people from the GDR to the Federal Republic 14 See Part B, III.2.2. and III.3.2.

15 This took place on the basis of the Alignment of Pension Rights Act.

of Germany, the acceptance of ethnic German resettlers and east to west migration in the years after reunification.

The eastern federal states hence have their own unique experience, both of the reasons for migration and of how to deal with its consequences.

At present, there are various migration flows that are rele-vant for the eastern federal states and for Germany as a whole. These include the migration of people from other EU countries and, at the present time especially, taking in, caring for and integrating refugees. According to statistics, a net figure of around 150,000 foreigners migrated to east-ern Germany in 2015 and one third of them were asylum seekers. All of the federal states were involved in housing and taking care of refugees on the basis of their tax strength and the size of population. This poses basic challenges to different degrees for the federal states and municipalities.

In the years to come, the primary task will be to integrate refugees seeking shelter into society and the labour market.

It is therefore essential that these refugees learn German and obtain an education and professional qualifications.

The migration of qualified workers and people from other EU countries, in particular, could help to counteract the decline in population, the ageing society and the increasing lack of skilled labour in the structurally weak regions of eastern Germany. Since many refugees are under the age of 30, this is generally a good precondition for qualification and further education.

That being said, simply learning the language and a profes-sion is not enough for migrants to find a permanent place in society and to contribute to society with their knowledge, skills and willingness to work. Instead, in the interest of real integration, we must find a way for migrants to choose a long-term future in eastern Germany. But this means that eastern Germany will need a better culture of welcome and recognition, good infrastructure and a sufficient number of training places and jobs for migrants and its native popula-tion.

If the eastern federal states want to make use of the oppor-tunities of migration, they will have to develop the condi-tions needed. This also includes the chance of finding a new home where migrants can contribute their skills. Integration should not be focused solely on the labour market. Integra-tion into society as a whole is much more important, both in rural and in urban areas. Migrants moving to the eastern federal states tend to choose the bigger cities, a fact that is largely due to the structural weakness of many rural regions where housing, care and integration of migrants into the labour market and society are particularly difficult. How-ever, it is rural areas and smaller municipalities that have structural advantages that should be put to greater use.

Smaller areas are less anonymous, people know each other and they organise themselves in clubs. The housing

situa-tion is also less tense here. These are generally good pre-conditions for making newcomers quickly feel at home.

An open and actively tolerant population can provide the basis for mutual trust and cohesion.

The Integration Act, which for the most part came into effect on 6 August 2016, provides the legal foundation for the allocation of places of residence to recognised refugees.

The federal states can now allocate a specific place of resi-dence for a limited period of three years to recognised refu-gees who have not yet found jobs requiring social insurance contributions or who are still training. This move will help to prevent segregation and promote integration. Generally speaking, however, successful integration is not something that can be achieved through rules and regulations, instead it must be shaped and practised.

The rise in xenophobic and right-wing extremist attacks in recent years poses a threat to this important process and to social peace in eastern Germany. At the same time, the opportunities that migration brings with it might very well be lost in areas that are particularly in need of new people due to demographic developments.

Digitisation

The spread of digitisation throughout all areas of life is extensively changing how we work and do business. Pro-duction workflows are being matched more efficiently, dig-ital information exchange and cloud computing are mak-ing work more flexible in terms of time and place, online shopping and platform services are changing consumer behaviour and opening up new sales markets. This devel-opment is leading to progress in productivity, economic growth and new jobs; new businesses, sectors and business models are emerging. However, structural change of this kind that is driven by technology brings with it many changes that companies, sectors and regions have to adapt to.

The eastern federal states with their many rural regions, which are structurally weak in comparison to other regions, now have to face the challenges and opportunities of digiti-sation. Up to now in Germany, big cities and urban settle-ments have been the ones to benefit from digitisation. But it is precisely these sparsely populated regions outside the conurbations where digitisation would open numerous possibilities that have only been used to a limited extent up to now, if at all.

Due to their poor accessibility and ongoing economic weakness, rural areas in eastern Germany are particularly hard hit by the migration of young and highly qualified people and the consequences of demographic change for basic vital services.

The different aspects of digitisation could help to improve the accessibility of rural areas, making them more appeal-ing as a place to live and work. Telework, for instance, ena-bles people to work irrespective of location so that moving house for work reasons or commuting can be avoided, at least in part. The Internet also provides new, improved and more convenient consumption, entertainment and educa-tion opeduca-tions, especially for rural populaeduca-tions. Even health-care can be made easier and improved through e-health services. Rural areas will have to be made more appealing in order to put a halt to the exodus of qualified people and to strengthen the companies already operating there.

From an economic perspective, the possibilities offered by developments now widely referred to as ‘Industry 4.0’ and

‘Work 4.0’ will create opportunities for rural areas. Thanks to digitisation, companies can connect their production workflows across products, factories and sectors, develop new business models and exchange information irrespective of time and place. Simplified networking with other companies, and even with universities and research institutions, can foster innovative processes.

Finally, municipalities that are financially burdened by lower trade tax revenues and higher expenditure due to an ageing society can also benefit from digitisation. This is true, for instance, with a view to the cost-efficient provision of digi-tal public services.

That being said, it is still early days for digitisation or the implementation of Industry 4.0 in eastern Germany’s econ-omy. One reason for this is the patchwork structure of the economy in eastern Germany. Up to now, smaller compa-nies have been less inclined to implement Industry 4.0 pro-jects and have less general knowledge regarding digitisa-tion of the economy. One of the Federal Government’s declared goals is to make small and medium-sized enter-prises, in particular, more aware of the technological and economic potential and challenges offered by digitisation¹⁶ and to achieve more widespread use of innovative broad-band applications by companies and the general popula-tion. The lower level of Internet use in the territorial states in eastern Germany compared to western Germany also shows how much catching up is needed in the east.¹⁷ The municipalities could take on a pioneering role here, as explained above, by providing digital public services.

In order to stay competitive in terms of digitisation and to exploit the potential referred to above, installing a powerful broadband infrastructure nationwide is a top priority. This

is the only way to achieve the best-possible use of digital applications, something that is also necessary from the per-spective of social policy. Nationwide broadband makes home- office jobs an option, even in rural areas in eastern Germany, so that family and working life can be reconciled. Broadband networks are also essential for the digital supply and edu-cation of older people. Their options for participation are rapidly becoming important due to demographic develop-ments, especially in rural areas in the new federal states.

These are the areas where considerable effort is still needed in order to warrant widespread coverage with 50Mbps.¹⁸

Energy transition

The energy transition is one of Germany’s biggest projects for the future. It involves the comprehensive redesign of energy supply in Germany by the year 2050.

This transformation brings with it many opportunities and challenges for the German economy as a whole, but also specifically for the new federal states. New jobs will be cre-ated in the fields of energy efficiency and renewable energy.

There are also many export opportunities for internation-ally competitive products in these fields.

Eastern Germany is in a good position to use renewable energy, especially the northern areas of eastern Germany, which are close to the coast. Their rural nature and rela-tively sparse population density offer considerable poten-tial for expansion, particularly for wind power, which is already being used to a certain degree. When it comes to the renewable energy share in gross energy consumption, some of the new federal states, such as Mecklenburg-Vor-pommern, Saxony-Anhalt and Brandenburg, are already leading the field on an all-German scale. The new federal states have gone to great lengths in the past and have cre-ated extraordinarily good conditions for expanding renew-able energy. The production and operation of renewrenew-able energy plants have become important industries. On an all-German level, the proportion of companies working in renewable energy is particularly high in the new federal states. Around a quarter of all jobs in renewable energy throughout Germany are to be found in the new federal states.¹⁹ However, a large part of the value added from the field of plant production is generated in the old federal states because the companies working in this field are based there.

In addition to opportunities, the energy transition also poses problems. The increase in renewable generation capacities

16 See also Part B, I.2.4. and I.2.7.

17 D21-Digital-Index 2015, http://www.initiatived21.de/wp-content/uploads/2015/11/D21_Digital-Index2015_WEB2.pdf, S.56.

18 For the degree of coverage, see the Broadband Atlas, http://www.zukunft-breitband.de/SharedDocs/DE/Anlage/Digitales/bericht-zum- breitbandatlas-mitte-2015-ergebnisse.pdf?__blob=publicationFile.

19 Cf. ‘Beschäftigung durch erneuerbare Energien in Deutschland: Ausbau und Betrieb, heute und morgen’, a study commissioned by BMWi, 2015.

means that electricity grids throughout Germany now have to be expanded significantly. Especially in the rural regions of the new federal states, with their sparse population den-sity and lack of industrial production, average network charges are higher than the all-German average. One reason for this is the extensive installation of renewable energy underway there and that the costs of the necessary expansion of the grid and grid use are distributed amongst relatively few users.

The energy transition also has consequences for conventional power plants. Although the eastern federal states are not affected directly by the shutdown of nuclear power plants, the low price level on electricity exchanges, which is also being fuelled by renewable energy expansion, is putting pressure on fossil-fuel power plants. The related structural change in the coal-mining regions is a social challenge which both the Federal Government and the federal states take seriously. For the many thousands of people working in the coal-mining industry in eastern Germany, it is important that the energy transition be implemented in a socially compatible manner by restructuring and developing new fields of employment and by making use of the new possi-bilities for economic development. Regional economic sup-port can help to make the restructuring process easier.

Opportunities are emerging, for instance, in the construction and operation of renewable energy plants, energy efficiency and the control of energy system elements using informa-tion and communicainforma-tion technologies.

III. Prospects for a policy for eastern Germany

Much has been achieved in the past 27 years for eastern Germany, for German unity and hence for the entire coun-try. This progress must be recognised without trying to gloss over the shortcomings that still exist. The completion of German unity remains our joint task.

Eastern Germany still has certain structural characteristics which, among other things, are preventing the economic levelling process from moving any faster. These character-istics include structural economic deficits, especially the fragmented structure of the economy which significantly impacts, for instance, the innovative strength of the econ-omy. Another factor is demographic development and the related, impending lack of skilled labour. With a view to these factors, any reinforcement of the regional differences within Germany must be prevented. For this reason, the Federal Government still aims to accelerate the economic levelling process in order to create equal living conditions through-out Germany.

The Federal Government’s policy for eastern Germany aims to promote German unity by taking these factors into account. With its Solidarity Pact II, the Federal Government will continue to support economic development in the eastern federal states and, even beyond 2019, will strengthen structurally weak regions in east and west as part of an all-German support programme.

As part of the re-regulation of financial relationships between the Federal Government and the federal states, the way is currently being paved for the time after 2019 when

As part of the re-regulation of financial relationships between the Federal Government and the federal states, the way is currently being paved for the time after 2019 when