East German jobs pledge

Trade unions, government and business leaders came together in Berlin yesterday to relaunch east Germany's faltering economy, pledging to create 100,000 new jobs every year.

Returning to the region he once promised to transform into a "blossoming landscape", Chancellor Helmut Kohl spoke this time modestly of a fresh start. "This is an important day for the New Lander and Berlin," he told reporters as he outlined the new strategy.

Unlike the billions sunk into the former Communist east in the seven years since unification, new investment would aim to regenerate industry, rather than fuel the boom in empty offices and trendy shops. The government will provide grants for the manufacturing sector, subsidising up to 10 per cent of the cost of new equipment, and up to 20 per cent in the case of small and medium-sized firms.

In return for continued public commitment, the east's business sector promises to spend more on training workers, and to support local industry by ordering local goods. The unions complete the new deal by pledging moderate wage claims.

Although average productivity in the east is only half of western levels, eastern wages now match those in the west in many sectors, whilst unemployment, at 17.5 per cent, is nearly twice the western rate.

To economists, those statistics need no explaining, but the unions had never before accepted the argument that high wage levels might cause unemployment. Their U-turn will have repercussions for the rest of the country, in industries crippled by the world's highest labour costs.

"This is a good signal for the development of east Germany, for the future of the whole of Germany as a place to do business, and also a clear signal of readiness to co-operate," Mr Kohl said, fixing his eyes on the union bosses who had flown in from the west to sign the pact.

Dieter Schulte, head of the German Federation of Trade Unions, said: "Many people in the east feel like second class citizens. The goal of all these measures is to improve and equalise living standards."