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The Economy That Won't
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14615 |
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Section : |
CURRENT ISSUES
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| Issue
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5 / 1988 |
2,505 Words |
| Author
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John H. Fund
John H. Fund is an editorial writer for the Wall Street
Journal. |
West German Finance Minister Gerhard Stoltenberg recently served notice that Germany will remain part of the world's economic problem rather than join in the search for solutions.
In a February interview in the Munich daily, the Suddeutsche Zeitung, Stoltenberg rejected President Reagan's suggestion to West German Chancellor Helmut Kohl, a fellow conservative, to try harder to revive Europe's largest economy, which is dragging down the rest of the continent. Stoltenberg clung to his long-standing claim "that on the financial policy side there is no room for short-term additional measures to stimulate the economy." He stated that the government had already adopted an expansionary policy by allowing the federal deficit to rise sharply this year, to about $27 billion, $6 billion more than originally forecast.
The notion that an increased budget deficit somehow reflects a responsible expansionary policy is hard to swallow, however. A responsible policy would entail tax cuts, deregulation, and privatization of state industries. In fact, the German deficit reflects the crashing of the country's austerity policy. Some outside factors are to blame, namely higher payments to the Common Market. Mostly, though, it is a consequence of a limping economy and the slide of the American dollar.
The German central bank, the Bundesbank, which had budgeted a $3.6 billion surplus for 1988, recently realized that the fall of the dollar meant that its dollar-denominated reserves were substantially less valuable. In January, therefore, it scheduled a $4 billion write-off of its assets. That was in sharp contrast to the early 1980s, when the Bundesbank raked in profits from the dollar's climb. For example, between late 1981 and late 1984 it realized a $5 billion increase in assets, according to calculations by John Mueller, economic counsel to Rep. Jack Kemp. "Now the process is reversed," says Mueller. "Germany is losing about $4 billion a year on its foreign exchange reserves; it's not surprising that the budget is piling up a deficit."
Due to the falling dollar, it is understandable that Stoltenberg hopes the dollar will stabilize around its current level of around 1.70 marks. Combined with higher payments to the Common Market and a slowing economy, any further weakening of the dollar would cut tax revenues while driving up spending on social programs and unemployment compensation. Normally, the danger of a further decline in the dollar would prompt the Germans to agree to reform of the international monetary system around a regime of stable
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