Germany: a Powerhouse in Crisis

Germany continues to pay a high economic price for reunification and it will take "an entire generation" to solve the problems of the former communist eastern states, the country's finance minister, Hans Eichel, says today.

In an interview with the Guardian, Mr Eichel says that Germany is a "very competitive economy" which is at no risk of following Japan into long-term decline. But he claims that 13 years after joining the ramshackle economy of the German Democratic Republic with West Germany the legacy of de-industrialisation and high unemployment remains.

Figures out today are likely to show unemployment in Germany rising towards 5 million. Mr Eichel says reunification "was in effect a programme for the de-industrialisation of eastern Germany and it led to very high unemployment, which it will take an entire generation to remedy".

Unemployment has added 1.5% of GDP to Germany's social security bill and led to increased borrowing, he says.

With the European Central Bank likely to cut interest rates for the eurozone today, Mr Eichel rejects the idea that Germany's problems would be eased if it was able to set its own rates.

He also defends the EU's stability and growth pact, despite the pressure on the German government to keep its budget deficit below the 3% of GDP set by Brussels. He adds that if growth is lower than 1% this year, as many forecasters expect, he will allow borrowing to rise above the ceiling.