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25 years on: First loans from a hotel room

An interview over KfW, reconstruction - and the scent of East Germany

Queuing up again: at seven o'clock in the morning people from Görlitz, Plauen, Schwerin and Gera would be waiting in the narrow corridor in the Hotel Metropol in East Berlin – a hotel that was allowed to use hard currency. Behind the door, stuck to which was a handwritten note containing the letters "KfW", sat Werner Genter in his 'lounge', waiting to advise citizens of the GDR on how to start up a business and obtain credit. Today, 25 years after the reunification, when Werner Genter thinks back to his first job in the GDR and the first steps taken by KfW, what he feels is more than just nostalgia. He is also proud of what the billions of euros in support provided by KfW have helped achieve in that time. Entire historic centres of places like Görlitz and Erfurt were saved from destruction. Within the space of just eight years, half of all homes in the GDR had been renovated using KfW loans. KfW funds have also been used to create hundreds of thousands of livelihoods, and rehabilitate municipal infrastructure. The vitality of the River Elbe has been restored. Here is an interview with Werner Genter, now Director of KfW in Berlin, then KfW's first staff member in the GDR.
Werner Genter, Director of KfW Group
Werner Genter was director of the first KfW Advisory Centre in East Berlin.

Mr Genter, the records tell us that just seven days after the wall came down, on 16 November 1989, the Managing Board of KfW in Frankfurt were already discussing how to help people in East Germany. This issues discussed at the time were start-ups, business loans, the rehabilitation of homes and the dilapidated infrastructure. By January, talks were already being held with the State Bank of the GDR on implementing the first promotional programmes. The pace of these developments is almost unimaginable ...

Genter: That's right, everything took place at breakneck speed. As far as KfW was concerned there was never any question about whether we were going to help. The only question was how best to go about it. At that time we were still working on the assumption that the GDR would continue to exist, and that the two German states would embark on a process of gradual rapprochement. At the time, Federal Chancellor Helmut Kohl spoke of federal structures. In January, there was still no talk of reunification taking place that year. So, we got in touch with the relevant GDR agencies as quickly as we could. But even that was more than difficult. Working from Frankfurt am Main, where I was then based in the division for strategic issues, it was almost impossible to arrange meetings in East Berlin. We could barely get through on the phone.

So by January you had already taken a firm decision to extend West German loans to GDR citizens and companies?

Genter: Of course. The West German government wanted to improve people's lives in the GDR quickly. So our aim was to extend loans to citizens and businesses through the State Bank of the GDR, which had branches in every East German city, and through the savings banks and cooperative banks that existed.

Do you still remember your first trip to the Staatsbank in Gendarmenmarkt Square in Berlin, which was then still known as Akademie Square?

Genter: First of all I still needed a passport to get into East Germany, whereas citizens of the GDR were able to move freely back and forth. Of course I still remember very clearly the characteristic scent of East Germany. It was January, so the air in East Berlin smelled strongly of brown coal, and the Trabbis and Wartburgs were billowing out their fragrant blue clouds of exhaust fumes. And away from the main roads, along which the members of the Politbüro would travel to work, the streets of East Berlin were dreary and grey.

And what were the talks you held at the State Bank like?

Genter: My interlocutor was a certain Mr Krause, director of the bank. I first of all explained to him what the 'Kreditanstalt für Wiederaufbau' does, and what we wanted to offer in East Germany. He explained the East German economic system to me. And he conceded that bread rolls were too cheap, and so were ending up being used as pig fodder. He proudly showed me the single-pipe heating system in his office, which had won an award in the GDR because it saved iron, even though it squandered a huge amount of energy. This was because the radiators were all linked by a single pipe. So you couldn't turn a single one of them off. This meant that every single room was heated. At twelve o'clock on the dot we stood at the window to watch the National People's Army perform the changing of the guard in goosestep. It was a crazy situation.

Slightly elevated exterior view of the KfW branch in Berlin with television tower in the background

So when did KfW begin its work in East Germany? The pressure generated by the citizens of the GDR was huge, hundreds of thousands of them were relocating to West Germany, and the country was facing massive depopulation...

Genter: By February KfW was already extending loans to East German citizens in Deutschmarks. We had initially talked about offering loans in East German currency, so that individuals and businesses would not face the problem of having to repay their loans in hard currency. But that idea soon became obsolete. East Germans would only accept Deutschmarks.

There were no SMEs in the GDR, and people did not know how to go about starting up a business. So how did you manage to provide them with the expertise and the credit that they needed?

Genter: From March 1990 onward I was based in a suite at the Hotel Metropol on Friedrichstrasse. I lived in the bedroom, and I used the lounge as a place to advise people from all over East Germany. This was our first KfW advisory centre. Of course we quickly began training the staff of banks in East Germany so that they could disburse our loans. In 1990 alone I travelled 40,000 kilometres up and down East Germany to advise people. We met local mayors and treasurers in large halls to explain our infrastructure programmes, such as those for the rehabilitation of water supply and sewerage systems and the construction of treatment plants. All this would be unthinkable today. There was an incredible mood of euphoria and optimism.

Where did KfW actually get the billions of Deutschmarks that it transferred to East Germany?

Genter: Funds were still available from the Marshall Plan that we could now use for East Germany. After the Second World War the Americans launched the Marshall Plan for European reconstruction. The Soviet Union, however, banned the states of the Eastern Bloc from making use of these funds. Since in West Germany a large proportion of the funds for reconstruction had been disbursed as loans, these repayments came back to the so-called ERP Special Fund with interest. After the wall came down this money, which was managed as a Special Fund by the Federal Ministry of Economics, and some of which had been disbursed as low-interest loans by KfW, was then also available plus compound interest to East Germany. Just imagine: more funds from the Marshall Plan were channelled into East Germany than were pumped into West Germany after the war. In West Germany, reconstruction was supported using EUR 1.89 billion drawn exclusively from these allied counterpart funds. By 1997 the figure for East Germany and the new federal states was EUR 61.36 billion, EUR 9.71 billion of which came from the ERP Special Fund, and over EUR 51.13 billion of which KfW had succeeded in obtaining on the capital markets.

Since the reunification, KfW has injected enormous sums into the new federal states: small and medium-sized enterprises have received 104 billion euros. Some 68 billion euros went into housing. You promoted hundreds of thousands of start-ups, and disbursed 22 billion to support the modernisation of infrastructure. These are very stark figures...

Genter: That's right, and people have become so accustomed to this that the infrastructure is now in good condition. But we need to remember the facts and figures as they were at the time. There were virtually no SMEs in East Germany. Yet SMEs drive job creation and security. They train our youth, retain their workforces even in times of crisis, stay in the region and pay taxes to their municipalities. So when we lent 104 billion euros to businesses and financed so many start-ups, what we are talking about are the jobs that can now be seen from the Baltic Sea to the Thuringian Forest.
Or take housing: The centres of Erfurt, Görlitz and Wismar were virtually no longer inhabited. The historic centre of Erfurt was about to be demolished. In East Germany, only token rows of buildings were painted for the benefit of passing dignitaries. Everything else was grey on grey, and the side streets of the towns and cities were a very dreary sight. Today, the towns and cities of eastern Germany are among the most attractive in the country. This was precisely what our housing renovation programme set out to achieve. Using our loans, one in every two homes in eastern Germany has been renovated.

At the same time, though, people complained about rent increases ...

Genter: ... because rents in the GDR were heavily subsidised, and did not even cover costs. Any private individual who inherited an apartment block was in an unenviable position, because it was not possible to maintain a building from the rent that could be charged. That's why the housing stock was so dilapidated. Rents would have had to go up, even if the buildings hadn't been renovated.

When you sit in your office in Gendarmenmarkt Square in Berlin today, and think back to the first time you advised a client in the Hotel Metropol, what would you say you have achieved in the three decades since the reunification?

Genter: The nicest thing is that during those years I met my wife of today. But joking aside, whenever my wife goes to Leipzig, where she did her degree, she always says she no longer recognises the city. And that's a good sign. The infrastructure is in good condition, across the board. At the International Trade Centre in 1991 I still had two telephones, one line in the west, one connected to the east. And if I wanted to connect two people in the east and west with each other, I held the receivers together. Today broadband, the Internet and mobile phones are a part of everyday life. The road network is state of the art, towns and cities meet high standards, and rivers and the air are clean. Bitterfeld was the dirtiest town in Germany. Today it is a high-tech centre with 15,000 new jobs, in the solar industry for instance. The River Elbe, which used to be dying, is once again a vital artery. The holiday regions on the Baltic are so magnificent that they attract holidaymakers from all over Europe. Even though unemployment in eastern Germany is still too high, the foundations for the future have most certainly been laid.

Have the two parts of Germany now grown together?

Genter: Just after the wall came down, I had the feeling that there were cultural differences between 'wessies' and 'ossies'. But they are gradually disappearing. The population is becoming one. It is no longer so important where you come from. And people's lives are also becoming increasingly similar. I now have the feeling that where differences do exist, those differences are no longer between east and west, but have more to do with structural problems. Towns and cities in the Ruhr region or eastern Bavaria for instance are no better off than some regions in the east. At the same time towns and cities in the east such as Bitterfeld, Leipzig and Dresden are now boom regions that can hold their own against top regions in the west. That's also the reason why, three decades after the reunification, KfW no longer operates any programmes designed purely to support the reconstruction and development of eastern Germany.

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