Germany's bid to modernise its former communist eastern states with €1.25 trillion of transfers since 1990 has failed, and the region will remain a serious drag on the wider economy, according to a leaked report.
The study, commissioned by Economy Minister Wolfgang Clement and Transport Minister Manfred Stolpe, concludes that the €90 billion Berlin spends annually on rebuilding the so-called new federal states is largely wasted, news magazine Der Spiegel said in this week's edition.
The 13 experts on eastern Germany charged with compiling the report, including former Hamburg Mayor Klaus von Dohnanyi, industry and union officials and economists, said the east has ground to a halt and the west is falling into ruin as a result.
"The ongoing internal west-east transfer of cash and other consequences of German unification are directly or indirectly responsible for about two thirds of the country's economic weakness," Der Spiegel quoted the report as saying.
Felix Stenschke, a spokesman for the Transport Ministry which also has responsibility for eastern German reconstruction, on Monday acknowledged the existence of the study but said that there had been plenty of successes in the east and the situation was not as serious as the Spiegel article suggested.
"Newspapers always have to build things up a bit to sell their products," he added.
Chancellor Gerhard Schroeder promised in 1998 when he took office that rebuilding the eastern states would be a top priority for his coalition of Social Democrats and environmentalist Greens.
Successfully wooing the votes of east Germans has played a key role in general elections since 1990, and has led policy makers to eschew more painful economic reforms.
Recently, opposition politicians including Christian Democrat leader Angela Merkel, an east German, have accused Chancellor Schroeder of ignoring the east's woes as reforms to the wider economy, terrorism and other issues have taken centre stage.
Heinz Schmalholz, an economist specialising in structural change at the Ifo Institute's branch in Dresden, eastern Germany, said that while it is easier with hindsight to identify mistakes made after reunification, no politically viable alternatives have been put forward.
"One of the main criticisms has been that wages rose much too quickly after reunification," boosting unemployment, he told Reuters.
"But what would people then have done without that? They would of course have migrated to the west where there were higher wages," he added. "I don't know whether the politicians would have wanted to take responsibility for that."
Although east Germany makes up just a quarter of the total German labour force, it accounts for half the nation's unemployed, said Lehman Brothers' economist Sandra Petcov.
That meant that nearly half of the gross transfers to the east during the second half of the 1990s was spent on social security payments. Investment accounted for just 15 per cent.
The problems of brain drain and a greying population have worsened considerably since 1900 as young, highly-qualified east Germans migrate westwards in search of higher salaries and better living standards.