West Germans fear inflation more than U.S. displeasure
Once again the U.S. has tried to persuade West Germany to help spur a worldwide economic recovery by dumping its slow-growth policies in favor of accelerated expansion—and once again the Germans have refused. At a tense three-hour meeting in Bonn, Treasury Secretary Michael Blumenthal was lectured last week by Chancellor Helmut Schmidt about the U.S.'s economic "sins." Among the most grievous cited by Schmidt: the absence of a coherent energy program; the U.S.'s huge foreign trade deficit, which stimulates international inflation; and Washington's unconscionable failure to support the sagging dollar.
Schmidt and his colleagues argue that the Carter Administration is dangerously overestimating West Germany's capacity to act as the locomotive that could pull its trading partners out of the economic doldrums. After Blumenthal's departure, a German Finance Ministry official complained that the U.S.'s arm-twisting tactics showed "a shocking lack of understanding of our economic realities."
To a degree, the Germans are exaggerating their weaknesses. West Germany last month became the first industrial nation to sell as much in goods to the OPEC members as it spends for oil imports. West Germany's trade surplus with the rest of the world reached $17.5 billion last year, and Bonn has a $36 billion reserve of gold and foreign currencies. Most important for the nervous West Germans, who are still traumatized by the ravaging inflation of the '20s, the cost of living rose only 4% last year (compared with 10% in France).
West Germans are quick to point out that on other important fronts their economy has not performed well. Unemployment has been climbing alarmingly. Though half a million Gastarbeiter (guest workers) have been shipped back home to provide more jobs for Germans, the number of unemployed has risen from next to nothing in the mid-'60s to a postwar high of 1.2 million, or 5.4% of the labor force. West German economic growth, which in the '60s rivaled that of the Japanese, has slowed to a stumble. At last May's London summit, Schmidt assured fellow leaders that his country would achieve a 5% expansion in 1977. The true figure, however, was only 2.4%, and there is no guarantee that Bonn will achieve its 3.5% target for 1978.
What has gone wrong? A major hand-.cap is the strength of the German mark, which gained 25% in value against the dollar during the past two years. That makes German goods dearer on the world market and cuts into corporate profits. The steel industry has been hurt by Japanese competitors, and the textile industry finds itself priced out of many traditional overseas markets. One consequence: capital investment is drying up.