Plagued by Plenty

Prosperous West Germany seems to be on its way to overtaking the U.S. as the world's leading exporter, but the prospect does not make Chancellor Ludwig Erhard very happy. In fact, he was downright grim when his economics ministry reported to him that Bonn's trade surplus for 1964's first two months was running at a staggering annual rate of $2.4 billion. Erhard sees the pile-up of export-earned foreign exchange as another spur to inflation, which is already getting a push from a huge in flux of foreign capital ($725 million in 1963) attracted by the high yields of German securities. Last week, determined to try and keep Germany an island of relative stability in the rising sea of European inflation, Erhard ordered drastic measures to curb foreign investment.

He sent to Parliament a bill that would slap a 25% tax on the yield of German bonds held by foreigners. The tax, which will, in effect, lower the cur rent 6% yield on German securities to an unglamorous 4.5% , was greeted with dismay by foreign bondholders and Ger man bond brokers. Erhard also an nounced a second bill that will please businessmen more; by abolishing the much disliked 2.5% tax on the issue of stocks and bonds floated in Germany, it aims to encourage foreign companies to raise funds in Germany, thus stepping up the export of German capital and lessening inflationary pressure at home.

In his days as economics minister, Erhard often managed to ward off price increases in Germany by lowering tariffs to admit lower-priced goods from Italy and France. This strategy is no longer effective. Inflation in both countries has made their goods less attractive in Germany and has helped increase German exports by making them more competitive around the world.

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