Frankfurt, West Germany
The Bundesbank is the inflation-fighting manager of the West German economy, the most powerful in Europe. But tame inflation goes hand in glove with lackluster German growth - and this has drawn the fire of the Paris-based Organization for Economic Cooperation and Development.
West Germany, the OECD said in a report this month, is allowing ``sub-potential economic growth, persistently high unemployment, and a still sizable current account surplus.'' Germany will grow at only 1.5 percent this year, says the report, down from a 3 percent rate forecast earlier. Only by speeding up tax cuts planned for 1990, the group says, can Germany get moving faster, even if this means a higher public deficit.
The widely read Frankfurter Allgemeine Zeitung interpreted the survey as grounds for optimism about the chances for more rapid growth and made no mention of the OECD call for a fiscal stimulus. The same newspaper has taken a less sanguine view than the OECD on inflation. Along with other conservative voices, it has grumbled about the inflationary threat posed by recent Bundesbank policy. The bank has been keeping interest rates low and money plentiful to discourage further strengthening of the mark.
But Bundesbank vice-president Helmut Schlesinger says the strong growth of the money supply ``poses only a potential danger over the long term'' and contends the danger could be removed if the Bundesbank succeeded in ``normalizing'' monetary conditions.
Dr. Schlesinger told the Monitor the aim of the central bank is to keep growth ``as steady as possible, not a start today and stop tomorrow.''
He underscored the strong concern for stability and continuity that is evident at all levels of West German society. Within government circles, that concern manifests itself in skepticism about expansionary measures of any sort.
Schlesinger says West Germany shares American concern about the sluggish German economic growth, ``but we do not want to get into an inflationary dynamic. That is not in our interest, and it's where we draw the line.'' For the Americans who advise expansion, he points out, the possibility of German inflation ``is not quite so important.''
The German public, says a diplomatic source in Bonn, has ``much less tolerance for inflation - they're simply not willing to accept it.''
That attitude is sometimes dismissed as an unjustified ``inflation Angst,'' but such characterizations make light of deep historical roots.
Every West German has heard the tales of runaway inflation after World War I and World War II: skyrocketing prices, daily or hourly paychecks, savings accounts rendered virtually worthless overnight.
Only by stabilizing the mark, notes the Bundesbank's Schlesinger, was postwar prosperity possible. He adds that the public is well aware of the security afforded by a stable currency.
Wilhelm Niederreiter, manager of economic research at the Dresdner Bank, points out that German workers are less mobile than their American counterparts and hence more worried about holding on to their jobs. Inflation, he says, is clearly associated in the public mind with recession and unemployment.
``The man on the street,'' Dr. Niederreiter says, ``knows that if we have inflation, the government will eventually put on the brakes.''
The low tolerance for inflation by the man on the street may also be related to his high propensity to save. At 13 percent of disposable income, the West German savings rate is almost twice that of the American one.
Older people are especially high savers, says Horst Hennemann of the German Association of Savings Banks.
``They know what inflation means,'' he adds, ``and elect a party that makes price stability a very high priority.''
For the moment, there is little immediate concern about inflation among the West German public. But the government must deal with German concern about inflation in deciding whether and how much economic expansion is desirable.
``It's easy to say that people should not be so anxious, but what can you actually do about it?'' asks Arthur Krumper, one of the directors of the IFO Institute for Economic Research in Munich. ``People act on the basis of their Angst,'' he adds, ``and politicians have to take that into account.''
When a bundle of marks bought a loaf of bread - recollections
of German inflation
Marianne Langen is a pensioner who has spent her life in Frankfurt. Just a child at the time of the inflation of 1923, she remembers it well. ``We had bundles of bills and we couldn't get anything for them - hundreds of thousands of reichsmarks, and we couldn't even afford a loaf of bread.'' Her father was paid every day, and Mrs. Langen sometimes accompanied her mother to the factory gates to pick up the money. ``We always went in the morning so that we could shop before midday, before the prices went up.''
Price stability is very important to her and to other elderly people, she says. She explains that the pensions of some women she knows are less than DM500 a month ($265). ``Soon the prices of subways and buses will go up,'' she laments, and it will be even harder for these pensioners to get out. ``The pleasure of sitting in a caf'e and eating an ice - such little pleasures - they can't even afford that.''
Luther and Maria Herzberger run a corner grocery store - what West Germans refer to as an Aunt Emma shop - in a quiet residential neighborhood in Frankfurt. They are too young to remember the inflation of 1923, but they have vivid recollections of that which occurred after World War II. Frau Herzberger explains that her family were better off than most, because they lived in the countryside and had their own garden. ``We ate a lot of turnips - if you're hungry, anything tastes good!'' Today, she says, inflation would have even worse effects than it did then, because fewer people grow their own food.
For the present, the Herzbergers are satisfied: ``Our money is actually worth something.'' But they do worry about what would happen if inflation were to come back. ``People would only buy what they need to survive - bread and potatoes,'' says Mr. Herzberger. ``If there were real inflation, we would all be poor.''