The cotton textile industries of the New German Federal States and Poland are inadequately prepared for free-market economic systems, due primarily to insufficient capital investment and inflexible industry structure which results in lower productivity. The problems confronting the cotton textile industry in the New States are exacerbated by a one-to-one exchange rate between the currencies of the former East Germany and West Germany, and the recent declines in mill consumption throughout Europe. The exchange rate overvalues products and raises wages, while the European textile recession impedes privatization. Poland's cotton textile industry, while also suffering from insufficient capital investment and inflexibility, is competitive in the production of homogeneous cotton products such as cotton yarns and unfinished cotton fabrics. Cotton consumption in Poland and the New Federal States is currently well below pre-1989/90 marketing year (MY) levels, and will not approach these levels in MY 1992/93.