Strictly preliminary! Please do not quote without permission! The new German transfer problem

During the past ten years, Germany has gone a painful downward slope from an economy ahead of most of its European partners in terms of growth to the lowlands of EU’s weak economies league. Not coincidentally, unification has been at the beginning of the decline. Instead of generating an economic powerhouse, Germany does not seem to cope with the unification challenges. This paper argues that fundamental constructional flaws in the design of German economic unification which we label the new German transfer problem explain most of the current problems. Based on the analysis we propose a policy shift towards a more active economic policy and argue that the recent EU enlargement process may benefit from the German experiences in that the worst mistakes may be avoided