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Global Strategists Concerned : Inflation's Specter Haunts Germany's Fiscal Planning

November 17, 1987|WILLIAM TUOHY | Times Staff Writer

FRANKFURT, West Germany — In the early 1920s, when inflation ran wild, the German mark was of such little worth that the Weimar government churned out bank notes round-the-clock. Workers were paid twice a day and spent the money as fast as they could. Ten thousand mark notes were even stuffed into nickel candy bars in the United States as giveaway prizes.

Historians regard inflation as a prime factor in the decline of Germany's post-World War I democratic experiment and the rise of Adolf Hitler.

So it is no wonder that the fear of runaway inflation is deeply embedded in the German psyche. In today's West Germany, the prosperous, economic powerhouse of Europe, inflation growth has been held below 1% a year, and this is a source of considerable pride, if not smugness, among ministers of the conservative Christian Democratic government.

But elsewhere in the world, West Germany's continuing obsession with low inflation and high savings has become a matter of grave concern for financial strategists trying to deal with a worsening international economic situation.

U.S. Treasury Secretary James A. Baker III has complained that West Germany's notching up of interest rates had the effect of triggering, or at least accelerating, last month's collapse on stock markets around the world.

Baker charged that the Bundesbank, the West German central bank, has ignored its commitment and responsibility to world economies.

Baker was quoted in Newsweek magazine as having called some members of the Bundesbank "rigid monetarists bent on zero inflation no matter what."

"They see inflation under every rock, every pebble," the magazine quoted him as saying. "They see nothing else."

Baker's remarks forced Bundesbank President Karl Otto Poehl to deny heatedly that the specter of inflation dominates West German fiscal thinking, particularly that of official policy-makers.

But a U.S. official said: "Let's face it. Their inflation rate is next to nothing, yet they raised the interest rate to keep it down--just before the crash. There was no need for that. On that, Baker is right."

According to Juergen Pfister, a senior economist for the big Commerzbank here, "The prime goal of the Bundesbank has always been price stability rather than economic growth, which is the case in the United States."

The officials chiefly responsible for West Germany fiscal and monetary policy are Finance Minister Gerhard Stoltenberg, for whom a balanced budget is an article of faith, and Bundesbank President Poehl, who appears to have accepted only recently that West Germany is an integral part of a larger world economy.

"The officials in Bonn and here at the Bundesbank are not used to thinking in international terms," economist Pfister conceded.

And an American financial expert observed: "You get the idea that German officials like to see themselves as running just another European economy, when in fact they really constitute an economic superpower."

Controlling inflation is not the only motivating force behind the West German government's policy of resisting economic expansion, to be sure.

"The Germans are savers," said a foreign financial expert who asked not to be quoted by name. "They save a third of their earnings. There is a felt need for tidiness in economic life. And the Germans are not risk takers. They want to invest in safe instruments. There are no funds for venture capital.

"There is a sense in the country that their economy is in good enough shape, so why tamper with it to please the United States or other countries? It doesn't need a boost, they say; no 'growth for growth's sake.' Bonn simply responds to this grass-roots feeling."

Huge Trade Surplus

West Germany has a huge trade surplus, about $52 billion, and economic growth next year is forecast at only 2%.

But when pressed about expanding their economy to help ward off an international recession, West German officials tend to hunker down defensively.

Economics Minister Martin Bangemann, for instance, complained recently about being offered advice from U.S. officials. "With all that shifting about," he said, "they have not exactly qualified themselves as (economic) advisers."

Bangemann, Stoltenberg and others insist that the government in Bonn is pursuing a policy that will not drive up inflation or increase the budget deficit.

And a West German diplomat recently assigned to a major Western country pointed out that the government is planning a tax reform package, scheduled to go into effect in 1990, that should increase consumer demand.

But other observers suggest that 1990 will be too late, that the tax measures will have no effect on the present financial and monetary crisis, which some experts fear could lead to a worldwide recession. "The tax package could come after a recession has started," the Commerzbank's Pfister said.

Germany Will Suffer

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