The paper is intended to explore the prospective direction of structural adjustment in eastern Germany in the light of recent developments. The authors do argue that the Mezzogiorno-picture, a completely de-industrialized region between the Elbe- and the Oder-river, is not convincing. In the long-run, say in two decades, eastern Germany has good opportunities to become the most modern and competitive industrial basis in central Europe. In the medium-run, however, a dualization is likely - an industry with a rather new, highly capital-intensive segment and a subsidized old one. Consequently, there will emerge fast growing regions within Eastern Germany, so-called productivity islands, and regions with high chronical unemployment. This will be the unavoidable price for a very rapid equalization of real wages between east and west.