Commentary: The Treuhand spreads its load

It was probably always unrealistic to suppose that the Germans alone could shoulder the colossal financial burden of transforming eastern Germany into a free-enterprise economy.

Two years after unification, the costs are coming home to roost. The Treuhand, the body responsible for privatising the east's formerly state-owned businesses and industry, is seeking to raise a cool DM100bn-DM130bn (pounds 37bn-pounds 48bn) on international capital markets by way of bond issues guaranteed by the Federal Republic.

In preparation for the first such issue, likely to raise up to DM10bn and yield about 7.8 per cent, Birgit Breuel, president of the Treuhand, was in London yesterday to present its credentials.

There are two reasons why the Treuhand has had to resort to outside finance. One is the domestic financial predicament brought on by the soaring costs of unification generally. The other is that the Treuhand and its political masters got their sums hopelessly wrong amid the euphoria that greeted the demise of the Berlin Wall.

True, the transformation of the east was never going to be a repeat of the Wirtschaftswunder that rescued Germany from the ruins of the Second World War. But it would have required a miracle of equal proportions for eastern Germany to be rebuilt without penalty to the affluent citizens of the west.

The Treuhand is now a little over half-way through its appointed task of transferring 4 million employees, 12,000 companies, 12 million acres of real estate and 20,000 retail outlets into the private sector. So far this has raised DM31bn from domestic and overseas investors.

By the time the exercise is complete, however, the Treuhand's total debt will stand at DM220bn-DM250bn once it has subsumed pre-unification debt tied up in the businesses, and paid for the costs of cleaning up the environmental contamination left behind by the former regime and closing those companies that prove unsaleable.

On one level the Treuhand's performance thus far has been creditable - 8,000 companies and 8,000 retail units privatised in the space of two years. A question mark must hang, however, over the quality of the rump of enterprises yet to be transferred. Mrs Breuel repeated her pledge yesterday that no company would be kept alive if it were unsuitable for restructuring; that would create 'a fiscal barrel with no bottom'.

If the social unrest in the east, currently manifesting itself in racist attacks, worsens then that commitment will be tested to the full. Meanwhile the Treuhand should bear in mind that the world's capital markets are not bottomless either.