Tensions of Too Much Success

Tension of Too Much Success

West Germany has become Europe's pre-eminent economic power, and the Deutsche Mark the world's strongest currency. The country's very strength, however, is now a source of tension and trouble both inside and outside Germany. Twice within seven months, a speculative rush to buy marks has weakened the finances of West Germany's al lies and roiled international monetary affairs. At home, the blessings of prosperity now threaten to turn into the pangs of inflation. What happens in Germany next will have a vital effect on all of Europe.

The fear of inflation has been heightened by the enormous increase in the country's financial reserves. During the latest money crisis last month, $4 1/4 billion in francs, pounds, dollars and other foreign funds flowed into Germany. As of last week, almost $3 billion of it was still there. The influx has not only overinflated Germany's money supply but depressed the monetary reserves of France and Britain.

Germany's surprising decision against raising the value of the mark virtually guarantees that the country's economic surge will continue, probably at a perilously fast pace. The output of German factories so far this year has leaped 17%. Last week Bonn announced that its foreign-trade surplus in April rose to $325 million, compared with $275 million in April 1968. A deluge of foreign orders 41% higher than a year ago is pushing Germany's industrial machine toward the limits of capacity. "We cannot go much further," says Werner Meyer, director of Blaupunkt, the Bosch radio and television subsidiary. "We work on Saturdays and overtime, and still deliveries are months behind schedule."

Discount House. Such problems have a common cause: the mark is greatly undervalued in comparison with the inflation-weakened moneys of Germany's trading partners. This disparity has turned Germany into a heavily patronized discount store for the rest of the world. By recent estimates of the German Bundesbank, Germany's goods now cost an average of 7 1/2% less than those of its major trading partners. Since the difference is even greater between German and U.S. products, it is hardly surprising that German exports to the U.S. climbed 38% last year. As the world's most successful exporters, the Germans in 1968 sold $25 billion worth of machinery, vehicles, chemicals, plastics and other products to foreign nations. That was far more than any other country except the U.S. With an economy larger than that of all Western Europe, the U.S. had 1968 exports of $33.4 billion.

The latest bulge in Germany's foreign trade started three years ago, when a credit squeeze followed by a recession shrank domestic demand. In response, German businessmen turned to aggressive selling abroad. The economy soon rebounded, but recession-cut German prices never caught up with those in other countries. For industrial products, Germany's principal exports, many prices not only failed to rise but actually fell. Retail prices of electric ranges, washing machines, refrigerators, watches and TV sets declined slightly in the past year. The 2 1/2% increase in the consumer price index over the twelve months through last April was due almost entirely to an 8% increase in rents and a 2% boost in food prices.

The cost of manufactured goods has held stable so far largely because of increases in productivity. An additional factor is the stern self-discipline of German trade unions. Rarely is there a crippling strike of the kind so common in Britain, France and the U.S. Jurisdictional disputes are unknown because all workers in every factory belong to the same union. Apprentice training is plentiful, opposition to labor-saving machinery negligible and wage demands customarily modest.

New Flag. Now a severe labor shortage has made the workers somewhat more independent and demanding. There are 763,000 unfilled jobs as against only 155,000 people looking for work Unemployment runs a low 0.7% of the labor force, which includes a record 1,300,000 Spaniards, Italians, Greeks, Turks and other imported workers. In wage negotiations so far this year, the unions have won increases averaging 6%. As a result, the consumer is stepping up his spending for wine and liquor (up 12% from a year ago), autos (up 17%), and appliances (up 18%).

Increasing affluence has only lately given the ordinary German something close to a middle-class U.S. standard of living. Four years ago, most Germans were content with midget refrigerators; today, 5-ft.-high U.S.-style models are commonplace, and dishwashers are rapidly losing their distinction as talismans of prosperity. The historic German habit of thriftiness is battling with a rising appetite for luxurious clothes, food and travel. If the airline ticket has become Germany's new flag, foreign food--often purchased in a fancy restaurant--is the national symbol. Germans marvel at the change in their way of life. "It's funny," says Lisl Gulewyz, a Munich hotel manager who recently spent two years in Zurich. "Once Switzerland seemed the epitome of neatly spread prosperity. Now, compared with the Federal Republic, it appears oddly shabby and unbalanced."

For all this prosperity, Germans are sorely troubled by government forecasts that the rate of inflation will rise to 3% this year. That figure would cause hardly any concern in most industrial nations, but it seems alarming to a people who remember that inflation has demolished the mark twice in the last 46 years. A step-up in price increases could well cause German unions to demand greater wage rises in negotiations this fall, adding still more momentum to the spiral.

Rejected Revaluation. Economics Minister Karl Schiller has tried vainly to persuade the government to raise the value of the mark by 6 1/4%. Such action would have cut exports by increasing the price of German goods abroad, and would have lowered prices at home by reducing the cost of goods that Germany imports. Chancellor Kurt Kiesinger rejected revaluation at the time because he feared that he might thereby lose Germany's September election.

If Germany waits too long to revalue, the consequences will be further price rises. It seems inevitable that the mark must be pegged upward some time in the not distant future. In the interim, warns Schiller, "we must bite the sour apple of domestic instability." And of international instability too. As long as the mark remains undervalued, it will be a constant source of trouble for Germany, and for many other nations as well.

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