DRESDEN.— Standing outside her freshly painted, restored apartment house here, Gabi Kaminke gazed ruefully across a parking lot at her old home, a grim six-story concrete hulk that was built during the waning days of the Communist era and now awaits the wrecking ball.

"In those days, we felt like we had won the lottery by getting an apartment here," recalled Kaminke, 45, a restaurant worker. "Now, most people don't want to live in these buildings."

It is easy to see why. The housing project, known as Gorbitz, blights the horizon west of Dresden, its cookie-cutter blocks marching up a hillside in endless, spirit-crushing rows. People have been fleeing this place for years, leaving behind broken windows and silent playgrounds.

Once one of the largest housing complexes in the former East Germany, Gorbitz has become a bricks-and-mortar symbol of the malaise that grips the German East nearly 15 years after the fall of the Berlin Wall.

It is also a cautionary tale for the European Union, which recently added 10 new members, most of whom are struggling to shed the same communist legacy as eastern Germany. As Europe sets out to integrate these countries, Berlin's frustrating experience could hold lessons for Brussels.

"If Europe establishes a social union of the German kind," said Hans-Werner Sinn, a prominent German economist, "there will be 20 regions like East Germany in Europe. No one can afford that."

In its zeal to put the East on an equal footing with the West quickly, he said, the German government created a society addicted to welfare and other subsidies. The private sector withered, and by the mid-1990s, the gap between East and West began to widen alarmingly.

Europe's draft constitution, by granting citizens both the right to move freely within the Union and access to welfare benefits, could make other parts of Europe vulnerable to the same corrosive pattern.

Western Europe, in Sinn's gloomy view, could become a giant "welfare magnet."

His remarks, delivered at a conference in Munich last month, raised the hackles of some in Germany, where it is politic to speak about EU expansion as an opportunity rather than a danger.

Sinn's pessimism is far from a majority view - except perhaps in eastern Germany, where economic stagnation, chronic unemployment, and a dwindling population have turned many of the cities into ghost towns.

Dresden, the majestic, if faded, capital of the state of Saxony, plans to close 43 schools this summer because of a dearth of children.

With the jobless rate in some Eastern cities topping 20 percent and young people continuing to leave for the West, Germans have begun a national debate over how to heal this limping land.

The urgency is being driven in part by Europe's eastward expansion.

With their energetic workers, low wage levels, and ability to attract major foreign investors, Poland, the Czech Republic and Hungary could further erode eastern Germany's position.

Having poured $1.5 trillion into the East since reunification in 1990, many Germans now regard this grand project as a costly failure - one that could drag down the rest of the country.

"If we do not address eastern Germany, the financial burdens on Germany will become unbearable in the next 15 years," said Klaus von Dohnanyi, a former mayor of Hamburg. "You'll have three times the population of Denmark, living in a place without an economy to support their pensions."

Von Dohnanyi was chairman of a commission formed by the German government to draw up a blueprint for the East.

The group submitted a bluntly worded report in June, recommending that the government direct the $110 billion a year it pours into eastern Germany away from public works projects like roads and bridges.

Instead, the report said, it should support companies that might provide employment as well as promote research and education.

"There's a ceiling on how much money the government can spend," von Dohnanyi said. "If you want to have industry in East Germany, you must see to it that industrialists get rich in East Germany."

If the German government adopts these recommendations - a big if, given the vested interests that would be threatened - the consequences would be dire for rebuilding projects like the one that gave Kaminke a new home next to her old apartment in Gorbitz.

The housing cooperative that owns several of the buildings here used subsidies to convert three of the huge blocks into human-scale apartments. In what amounted to a partial demolition, it lopped off the top three floors and divided them into a series of stand-alone structures.

Local architects competed to create stylish designs for the new apartments, giving them skylights, vaulted ceilings and elegant window shutters. People who lived in the old blocks were given preference in getting the new apartments, as well as affordable rents. That is how Kaminke was able to move across the parking lot.

The trouble is, the renovation project was so costly, and so dependent on state aid, that the cooperative could not afford to convert more than half of the six buildings in its plan. The remaining three, including Kaminke's old block, are to be torn down this year.

That timetable, too, is dictated by public money. The state, eager to demolish 4,000 empty apartments in 2004, will pay the owners more to tear them down now than if they wait until next year.

"With this project, you see the glory and the misery of building in Dresden," said Jürgen Hesse, the chairman of the housing cooperative.

To critics, Gorbitz sums up Germany's misplaced priorities. These housing projects, they say, will never be popular, no matter how they are fixed up, in part because people identify them with the Communist past.

German governments, whether conservative or socialist, have sought to spread the wealth evenly in eastern Germany. Economists, however, say Berlin must accept that some eastern towns are going to remain poor, particularly those near the Polish and Czech borders.

They say Germany should channel aid to places like Leipzig and Dresden that have proved they can attract industry. The carmaker BMW is building an assembly plant outside Leipzig, while Dresden, despite Hesse's disappointment, is a high-tech center. Its jobless rate of 14 percent is the lowest in the East.

"The politicians have to tell the mayors of these little towns the truth: 'No big investor is going to come to your town,'" said Axel Viehweger, the director of Saxony's housing cooperative association. "We need the courage to say we're not going to build these projects."

Viehweger knows the folly of central planning. He was East Germany's minister of construction before unification.

The reality, he and other experts say, is that eastern Germany does not need more public swimming pools or renovated apartment complexes. It needs more jobs, which would lure back the people who migrated to western Germany in search of work.

Georg Milbradt, the prime minister of Saxony, said that Bavaria was able to reverse an exodus of people during the depressed 1950s by turning Munich into a center for the automotive and computer industries. "There's no growth potential in butcheries and bakeries," he said.

Milbradt, a noted economist, said the East could only prosper if it shook off Germany's stifling labor regulations.

The trouble, he says, is that this would require the government to overhaul not just its policy toward the East, but its entire economic program. With Chancellor Gerhard Schröder facing an uphill battle for re-election in 2006, Milbradt, who is a member of the Christian Democratic opposition, said he was skeptical the government would seize the moment.

"I sometimes compare our situation to a sick man," Milbradt said. "He knows he is ill, but he doesn't want to go to the doctor because he fears the cure more than the disease."

All articles in this series are available at www.iht.com/europe.

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