The FINANCIAL -- From the fall of the Wall on 9 November 1989 until today, KfW Bankengruppe has granted EUR 161.5 billion in loans at greatly reduced interest rates for reconstruction in eastern Germany.

At the time, KfW faced a daunting task. Within a very short time, the bank had started a one-of-a-kind reconstruction programme. 20 years later, Dr Ulrich Schröder, Chairman of the Managing Board of KfW Bankengruppe, delivered a positive summary.

"KfW Bankengruppe was instrumental in the reconstruction of the new eastern German states. The development of a healthy SME sector, the rehabilitation of infrastructure and housing, all this has been achieved. We have an impressive record of success."

The countless KfW financing programmes have made it possible to rebuild the small and medium-sized enterprises sector, which was completely inexistent at the time the Wall came down, within an extremely short time. Over the past 20 years KfW has disbursed reduced-interest loans in the sum of around EUR 82 billion for business start-ups and capital expenditure by enterprises. Promotional loans totalling EUR 17.8 billion were granted for industrial pollution control investments. "Our reduced-interest promotional loans have ensured the creation and continuation of tens of thousands of enterprises. Small and medium-sized enterprises employ 90 percent of the workforce in eastern Germany. Compared with four percent at the time of the peaceful revolution, this is an incredible development", said Dr Schröder.

This is an enormous success because it is precisely the small and medium-sized enterprises that are the crucial foundation for innovation and for the labour market. The SMEs in eastern Germany are now just as productive as those in the west. "Small and medium-sized enterprises employ 90 percent of the workforce in eastern Germany. Compared with four percent at the time of the peaceful revolution, this is an incredible development", said Dr Schröder. It is something the people in eastern Germany can be proud of."

In addition, over the past 20 years KfW has financed the modernisation and energy-saving refurbishment of 4.3 million housing units in eastern Germany with funds totalling EUR 60 billion. Funds from KfW were used to refurbish 61% of all homes in eastern Germany. This has prevented the historic old town centres of numerous municipalities from decay. KfW deliberately focused on existing buildings, most of which were in a dilapidated condition in 1989. "Particularly for rescuing historic old town centres it was important that we provided sufficient funds for private individuals quickly", said Dr Schröder. "After all, the wonderful townscapes in eastern Germany thrive not only on the refurbished public buildings but particularly on the reconstructed private houses of historic town centres and whole quarters. Today cities like Wismar, Erfurt, Weimar and Görlitz are among the most beautiful in Germany."

Furthermore, since the turnaround KfW has invested EUR 18 billion in the rehabilitation and modernisation of public infrastructure. KfW financed more than half the infrastructure investments in sewerage networks, the construction of sewage treatment plants and the purification of used air. Without this financing, a clean Elbe River would be inconceivable to this day. While the Federal Government and the Länder governments focused on supra-regional infrastructure projects such as the expansion of the autobahn and railroad network, KfW provided the municipalities in particular with funds to rehabilitate sewerage networks and landfills, build sewage treatment plants and put air pollution control measures in place. Here, too, progress can be seen everywhere. At the time the Wall came down, not even 58 percent of all eastern German households were connected to a sewage treatment plant, but today this figure is more than 90 percent. "After only 20 years, the air, rivers and lakes are clean again", Dr Schröder emphasised.

These successes were also made possible because KfW was able to draw on existing and time-tested promotional programmes and on considerable amounts from the US Marshall Plan. KfW invested the repayments which it was receiving on a long-term basis in the ERP Fund. They were now also available for reconstruction in eastern Germany. "In its new role, KfW once again honoured the old spirit of its name of "Reconstruction Loan Corporation"; its very own, original function was once again sought after. Very few people know that in this way more funds from the Marshall Plan flowed into eastern Germany than into western Germany", said Dr Schröder. Whereas the reconstruction of the Federal Republic was financed out of the Marshall Plan with 3.7 billion Deutschmarks, eastern Germany received 19 billion Deutschmarks.

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