Thirty-five years after German reunification, the country’s economic landscape no longer follows the traditional East–West fault line. According to new research by the German Institute for Economic Research (DIW Berlin), eastern states have caught up with the weaker western states, but the richest regions are extending their lead. The study warns that without continued support through Germany’s fiscal equalisation system, the divide between rich and poor areas could deepen further. Bavaria, Baden-Württemberg, Hesse and Hamburg remain net contributors, while most eastern states are still recipients, joined by weaker western regions such as Saarland and parts of Lower Saxony. Demographic decline and shrinking tax bases are expected to weigh more heavily on these poorer states. DIW argues that maintaining comparable living conditions across Germany will depend on wealthier states supporting financial transfers, even as they voice concerns over the scale of their contributions. On productivity, the East has made remarkable progress since reunification. Labour productivity, which in 1991 stood at around half the national average, has risen to roughly 90 percent. Much of this convergence came in public services such as education, health and administration, where eastern productivity now surpasses western levels. Yet while the East–West divide has narrowed, a new pattern is emerging. The most significant gap today lies between urban and rural areas. Output per worker in major cities far outpaces that of rural districts, leaving many non-urban regions increasingly behind. DIW notes that the spread in productivity across Germany’s 400 districts has grown by more than 70 percent since 2014, largely because metropolitan areas have pulled ahead of rural counterparts. The institute recommends that regional policy shift its focus toward structurally weak regions in both East and West. Suggested measures include strengthening digital infrastructure, improving the supply of skilled labour outside metropolitan centres, and targeted support for small and mid-sized firms. The conclusions echo findings in the federal government’s annual unity reports, which have also highlighted that the challenges of balanced development can no longer be understood simply as an East–West issue. Instead, the future of Germany’s cohesion will depend on addressing the widening divide between its strongest and weakest regions, regardless of geography. Source: DIW Berlin