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ECONOMY

Poorest Germans despair as middle class shrinks further

The rich are getting richer and the poor are getting poorer. Anne Padieu reports on one of Germany's poorest regions, Prenzlau.

Not far from the lakeside villas of Potsdam lies Prenzlau, capital of Germany’s poorest region where discount stores and residents on the dole tell the story of the country’s deepening social divide.

Purchasing power in Prenzlau is lower than in the Czech Republic and certain parts of Romania and the fact is tangible on the main street, Friedrichstrasse, where shirts sell for one euro ($1.55) and jackets for four euros.

The town is the capital of the northeastern Uckermark region, part of the former communist east of the country. Population: 135,000. One in four unemployed.

Since the Iron Curtain fell nearly 20 years ago, 20,000 people have left. A study by the Eurostat institute published last month has shown that the GDP per capita here is 74 percent of the average figure for the European Union, compared to 115.2 percent for Germany as a whole.

“If you are 57 years old, there is nothing here for you,” says Berndt, who lost his job in 2005 and is living on welfare payments of 347 euros per month. He shares the outrage of many at Germany’s biggest ever tax evasion scandal in which up to 600 members of the business and social elite are suspected of hiding their wealth in secret accounts in Liechtenstein. “It’s obscene, they should lock them all up. Those bastards should really get the stick.”

The ongoing tax fraud revelations have heightened bitterness among lower classes who have long felt that they are being forgotten while rich bosses line their pockets.

A study released this week confirmed that more and more people are joining Germany’s lower income bracket as the middle class has shrunk by eight percent since 2000.

The DIW research institute calls it a “bigger concentration on both ends of the scale,” meaning the rich have become richer and the poor not only poorer but also greater in numbers.

Those who officially qualify as poor because they earn less than 70 percent of the median annual income of 16,000 euros, have grown from 18.9 percent of the population to 25.4 percent in 2006.

The phenomenon has been felt hardest in the former communist east where unemployment is higher than in the west and salaries are often so low that even those in jobs cannot get by without state welfare. “More than 5,000 people here get some state help to complement their salaries,” said Ramona Neumann, a spokeswoman for the local authorities in the Uckermark.

“They work all day long and still earn less than if the stayed at home and simply lived off full unemployment benefits,” she said.

Sandra, a 26-year-old part-time waitress, said she took a job at the Dolce Vita pizzeria on Prenzlau’s high street because it is better than sitting at home.

“I make two to three euros a day, and then I get social welfare. So it is really not ‘la dolce vita’ but just having a job is already something here.”

The mayor of the hamlet of Uckerland, Monica Becker, said to help some of its 3,400 people keep body and soul together, the council tries to “find them mini-jobs that pay one euro an hour or get them into job share schemes where with three-year contracts where they earn 1,000 euros a month for 30 hours of work.”

“During communist days, people worked on the East German farming cooperatives, but now many have no choice but to get out of here,” she told AFP.

“It is really hard to motivate young people living here.” Twenty-year-old Dennis Sooth says he has been “lucky” to find a trainee post because most of his peers have no career prospects.

“They stay at home, drink beer and some of them become violent and go out onto the streets to beat people up.”

Back in Potsdam, some 175 kilometres (110 miles) from Prenzlau, the picturesque former residence of the Prussian royal family, damaged by bombs in World War II, has been neatly plastered over in the past two decades. Contrary to other parts of the east, the capital of the state of Brandenburg has seen its population grow rapidly post-reunification. In 2001, it had 120,000 residents and by last year the number had grown to 150,000.

It is conveniently close to Berlin and to a cluster of lakes where the wealthy set stays in lavish villas overlooking the water and sails at weekends. Tourism is good and unemployment stands at 8.7 percent. Der Spiegel magazine said Potsdam was “attracting the beautiful people” while mayor Jann Jakobs, a Social Democrat, said rising property prices risked making the town a millionaires’ enclave.

“One day soon only the rich will be able to afford living here,” he said.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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