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Germany faces some hard economic realities now that the euphoria is over


POTSDAM, Germany -- At the Christmas carnival here, Hans-Georg Fesser and his wife Susanne watched their daughters sail high through the air on an amusement park ride, the girls' blond hair whipping around their excited smiles.

Then the ride stopped, as surely as the ceremonies and firework-studded celebrations that marked the drive toward German unity over the last year ended with Sunday's re-election of Chancellor Helmut Kohl.

Now, both Mr. Kohl and eastern Germans like the Fessers will have to hunker down to manage -- on their vastly different scales -- life in the post-euphoric reunited Germany.

For Mr. Kohl, it means finding Germany's way as a mighty, sovereign nation in the center of Europe, balancing the demands of old allies like France and the United States with the vista opening to the east, where economic and political turmoil could land millions of refugees on Germany's doorstep.

It will also mean finding the cash to finance the enormous task of bringing eastern Germany up to the western standards of living.

For the Fessers, it means making ends meet as government subsidies that propped up the economy during the transition from communism to capitalism fall away.

The Fessers, along with other Germans living in the territory of the former East Germany, will see their electricity costs triple with the new year. Rents will increase by as much as 50 percent after Jan. 1 in eastern Germany, with steeper increases expected in eastern Berlin.

The cost of public transportation locally will go from about 13 cents to $1.80.

"There can be no doubt that it'll take several years before we see an improvement," Mr. Fesser said.

"It'll be damn hard for those over 40." He gathered one of his daughters close to him. "But for the kids, it'll be better," he said.

Mrs. Fesser, 39, lost her job as an accountant with the Germanys' currency union July 1. Mr. Fesser, 40, worked as a civilian in the East German army and now works for the all-German Bundeswehr. He has no idea how secure his job is.

"The prospects are very bad. When you read the ads, they ask for people under 35," Mrs. Fesser said.

Unemployment is expected to climb higher. Until now, the full extent of joblessness has been softened by keeping workers on payrolls at reduced hours. They report to work and collect roughly 66 percent of their former salaries, whether or not there is work for them to do.

There are 2.3 million so-called short-time workers and unemployed people. Over the next few months, more short-time workers will join the officially unemployed. About a third of the 8.3 million work force is expected to be unemployed by July 1, a year after the leap to capitalism.

And many of eastern Germany's 2 million industrial and metal workers, whose jobs were protected by union-negotiated agreements, will likely lose their jobs when the agreements run out July 1.

The unemployment will, of course, be propelled by the wholesale closure of moribund industries.

The Treuhandanstalt, the government agency that has been overseeing the transition of eastern Germany's 8,000 state enterprises to the market economy since July 1, has so far closed down only 45 businesses, though economists initially estimated that roughly one-third of the businesses were not economically viable, and another one-third could only manage with major changes.

Observers believe that the Treuhand has been avoiding major shutdowns until the elections, and will likely begin examining businesses in eastern Germany with a keener eye to shutting down those that could not function on the free market in the coming months.

Many of those shutdowns will likely come after March 31, when roughly 30 billion marks ($20 billion) in government-guaranteed credits will fall due.

Industrial production in eastern Germany dropped by half since the currency union July 1, with further declines likely.

And as the assured trading system that the East bloc once supplied falls apart, eastern Germany stands to lose 70 percent of its one-time export market.

The disintegration of the East bloc and the collapse of the Soviet Union as its polestar has been a mixed blessing for Mr. Kohl. Last year, it opened the Iron Curtain and the Berlin Wall, clearing the way for German unity. This year, it represents the most serious threat to stability in Central Europe.

As he navigates eastern Germany toward western levels of prosperity, Mr. Kohl will keep a close watch on the problems of Eastern Europe to keep instability from spreading westward. Last week, his government launched a massive campaign to send emergency food supplies to help the Soviet Union through what promises to be a difficult winter.

Closer to home, Mr. Kohl will also have to find revenues to finance the reconstruction of eastern Germany, estimated to cost some $55 billion a year. Economists have warned that next year Germany's healthy current account surplus that allowed it to leap headlong into unity will run out. Mr. Kohl will either have to raise taxes, violating his pre-election promises, introduce spending cuts in other areas, or borrow on financial markets.

Unless the situation improves steadily in eastern Germany, of which there is small likelihood, officials in Bonn are expecting massive unemployment to be accompanied by strikes and rising social tensions.

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