Bad Reputation?

The incident, in which a mob of around 50 youths shouting racist slogans pursued a group of eight Indian men through the small town of Mügeln in the state of Saxony last week, rekindled the debate about xenophobia and right-wing extremism in Germany and, particularly, its eastern states.

"People with dark skin have a much higher risk of being attacked in eastern Germany than they do in western Germany," said Sebastian Edathy, a member of the German parliament's internal affairs committee.

Questions have been raised about whether the German government is doing enough to fight racism and xenophobia, but also about the effects that the news of racist attacks in Germany could have on foreign companies considering investing in the country's eastern states.

"Episodes like that, when they occur, are always a burden -- for the investment climate in Germany, too," Achim Dercks, deputy chief executive of the German Chambers of Industry and Commerce (DIHK), told DW-WORLD.DE.

Bad reputation?

Foreigners tend to be particularly sensitive when it comes to incidents like the one in Mügeln because of Germany's troubled history. That's one of the reasons why, according to Dercks, such incidents should not be played down.

"We in Germany are particularly dependent on foreign investment and, considering our shortage of skilled labor, also on foreign skilled workers," Dercks said.

In the past, when similar incidents have taken place, the DIHK noticed reluctance on the part of some foreign investors to enter the German market.

Xenophobic incidents are, according to Dercks, not only "objectionable and reprehensible activities, but also unnecessary burdens for companies that are looking for researchers, skilled workers and executive personnel."

Long-term image damage?

The Mügeln attack has had a particularly strong resonance in India. The Indo-German Chamber of Commerce received a series of phone calls from concerned Indian members, who were planning to attend trade fairs in Germany.

"As far as Germany's image abroad is concerned, events like this are very counterproductive," said Dirk Matter, head of the Indo-German Chamber of Commerce in Düsseldorf.

Around 250 Indian companies have their offices in Germany, India's largest foreign trade partner within the European Union.

It would be difficult, however, to figure out how many foreign firms are choosing not to invest in Germany because of problems related to xenophobia and right-wing extremism, or how foreign companies might change their investment plans.

"Our ministry and our economic development agency don't know of a single case in which an investor backed out of their plans for those reasons," said Katja Mäder, spokeswoman for the Saxony Ministry for Economy and Labor (SMWA). "The last inquiry we had related to this issue was 10 years ago, but the company came in the end anyway."

What is impossible to know, she added, was whether some firms were deciding against investing in Germany and not even contacting her ministry for information in the first place.

What do investors want?

Eva Henkel, a spokeswoman for "Invest in Germany," Germany's investment promotion agency, which advises international companies, also said that xenophobia hasn't been brought up as an issue by foreign investors in the past.

But she didn't rule out the possibility that things could change.

"It's possible that incidents like the one in Mügeln could influence the climate in the future and that investors will say: 'No, we'd rather not settle there, if we have to count on our workers being exposed to such abuse.'"

In order to prevent that from happening, Saxony introduced the "Cosmopolitan Saxony" program in 2004 to promote democratic ideas. With 1.7 million euros ($2.3 million) a year, the state supports projects and local initiatives that are dedicated to strengthening democracy and tolerance.