German East Accused of Misappropriation

One day after Germany commemorates the reunification of East and West on Monday, Eichel is due to get mail from the six "new" German states receiving government subsidies since 1990.

In the envelopes, the status report on the 10.6 billion euros ($12.7 billion) the federal government transferred in 2004. The money is specifically intended to shore up the Eastern German infrastructure and bring the budgets of cities close to those of their counterparts in the West.

Overall, the government has transferred 1.3 trillion euros that, broadly speaking, aim to bring the East up to the level of the west since reunification.

But after some spectacular failed investments, and a lack of strong evidence that the money has sparked economic success, the government required Brandenburg, Mecklenburg Western Pomerania, Berlin, Saxony, Thuringia and Saxony-Anhalt to show that the so-called Solidarity Pact money was being used for the right purpose.

Munich's Süddeutsche Zeitung got a hold of the reports ahead of time. But what the governments sent Eichel and what eastern Germany's most prominent economic institute found are miles apart.

Accusations of misappropriation

Brandenburg's Social Democratic-conservative party coalition government, for example, said that it spent 89 percent of the 1.5 billion euros received last year on the reconstruction projects the money was intended for. The Halle Institute for Economic Research (IHW), on the other hand, said that only 59 percent was used to those ends.

In Saxony-Anhalt, the government said 59 percent of the 1.7 billion was used for the intended purpose of reconstruction projects. The IHW said the figure was closer to 12 percent.

Only Saxony, which has done an impressive job of turning around its economic fortunes in recent years, was found to have given out its 2.8 billion euros for the right projects.

Reports say some states used the subsidies to fill budget holes, rather than investing directly in infrastructure projects.

Different interpretations of "investment"

"The Solidarity Pact's intention is failing," Joachim Rangnitz, the head of the IHW, told Süddeutsche. "The funds should actually spark dynamic growth."

Brandenburg's finance minister responded icily to such accusations, telling the paper that the very word "investment" wasn't being used in the proper context.

"If I pay a teacher, is that not an investment?" Rainer Speer said.

The report is not likely to please Eichel, who on Monday faced renewed pressure from the European Union to bring Germany's debt to below 3 percent of total gross domestic product, a stipulation of the Stability and Growth Pace intended to control spending in the 12 euro-zone countries. In March, Eichel was able to successfully argue that Germany be given special treatment the immense cost of reunification, and its strain on the public coffers.

Experts say it might be time to renegotiate the second so-called Solidarity Pact between eastern and western Germany. Under current terms, the pact calls for the transfer of up to 156 billion euros to the East until 2019.