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, $4¼ 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 7½% 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 2½% 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.