pulation
which enjoys excellent living standards, abundant leisure time, and
comprehensive social welfare benefits. Western Germany is relatively
poor in natural resources, coal being the most important mineral.
Western Germany's world-class companies manufacture technologically
advanced goods. The region's economy is mature: manufacturing and service
industries account for the dominant share of economic activity, and raw
materials and semimanufactured products constitute a large proportion of
imports. In 1989 manufacturing accounted for 31% of GDP, with other
sectors contributing lesser amounts. In recent years, gross fixed
investment has accounted for about 21% of GDP. In 1990 GDP in the western
region was an estimated $16,300 per capita.

In contrast, eastern Germany's obsolete command economy, once
dominated by smokestack heavy industries, has been undergoing a
wrenching change to a market economy. Industrial production in early
1991 is down 50% from the same period last year, due largely to the
slump in domestic demand for eastern German-made goods and the ongoing
economic restructuring. The FRG's legal, social welfare, and economic
systems have been extended to the east, but economic
restructuring--privatizing industry, establishing clear property rights,
clarifying responsibility for environmental clean-up, and removing
Communist-era holdovers from management--is proceeding slowly
so far, deterring outside investors. The region is one of the world's
largest producers of low-grade lignite coal, but has few other resources.
The quality of statistics from eastern Germany remains poor; Bonn is
still trying to bring statistics for the region in line with West German
practices.

The most challenging economic problem of a united Germany is the
reconstruction of eastern Germany's economy--specifically, finding the
right mix of fiscal, regulatory, monetary, and tax policies that
will spur investment in the east without derailing western Germany's
healthy economy or damaging relations with Western partners. The
biggest danger is that soaring unemployment in eastern Germany, which
could climb to the 30 to 40% range, could touch off labor disputes
or renewed mass relocation to western Germany and erode investor
confidence in eastern Germany. Overall economic activity grew an
estimated 4.6% in western Germany in 1990, while dropping roughly 15% in
eastern Germany. Per capita GDP in the eastern region was approximate