Two Germanys Explore A Common Currency
Access to hard currency seen as stemming East German exodus
WEST Germany's offer to replace the East German mark with its own currency is viewed here as the politically ``right'' thing to do. But from an economic point of view, that's not necessarily the case.Skip to next paragraph
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The highest priority for both leaders in East and West Germany is to stop the wave of East Germans moving west.
Because of this ``dramatic situation,'' West German Chancellor Helmut Kohl wants to begin immediate negotiations with East Berlin on a single West German mark for both Germanys. He says he will discuss the issue with East German Prime Minister Hans Modrow when he visits Bonn on Tuesday.
The reasoning is that if hard currency can be put in the hands of the East Germans, they will have more buying power to purchase the Western consumer goods they long for - and won't have to emigrate West for a higher standard of living.
By beginning negotiations before the East German elections on March 18, Bonn will be sending a signal that significant help is on the way - and quickly. The government in Bonn formed a special Cabinet committee this week to prepare for monetary and political union with East Germany.
Mr. Kohl and Foreign Minister Hans-Dietrich Genscher go to Moscow this weekend to discuss reunification with the Soviets.
Leaders of major banks plus the head of the German central bank (the Bundesbank) say the plan to introduce the West German mark is being rushed through.
``It is creating a lot of illusions,'' says Heiner Flassbeck, of the German Institute for Economic Research in West Berlin. ``East Germans will think they will be able to buy whatever they want, but their earnings are much lower'' than in West Germany.
Mr. Flassbeck is particularly concerned about unemployment. Naturally, East Germans will want to buy Western goods. Unable to compete, East German factories will close down, leading to mass layoffs and possibly inflation, he explains.
A crucial factor will be the exchange rate at which the switch-over would occur. A straight 1-to-1 rate would not reflect the catastrophic economy in East Germany. But if a more reasonable 1-to-3 rate were used, East German pensioners, for instance, would only receive a third of their already low income.
``The idea hasn't been economically thought through,'' says a specialist in East European economies. ``It is above all a political decision and meant to be a psychological signal'' to all East Germans contemplating leaving.
In January alone, another 56,000 East Germans moved to West Germany. If this keeps up, West Germany will have 672,000 new citizens to house and East Germany will have accordingly fewer workers. This is roughly double last year's flow, which was nearly 345,000.
A recent visit to East Berlin showed little change in the daily lives and minds of the people there. A cab driver told his story of visiting seven stores before he could find a simple can of white interior wall paint. ``The only difference now,'' said an East Berlin friend, ``is that we all complain openly at work!''
The reality is that East Germany doesn't have the resources to stop the flow on its own, which is why West Germany is springing to action.
``Originally, we supported step-by-step economic reforms [in East Germany] with a single currency at the end,'' says a spokesman for the Finance Ministry in Bonn. ``But we don't have time for that anymore. It has to take place in one fell swoop.''
Claudia W"ormann of the German Committee on East-West Trade sees two immediate benefits: East Germans will be able to buy some of the Western goods they want. Also, the hurdle of the nonconvertible East German mark will be gone. This is a great relief to West German business people who trade with East Germany and want to invest there.
But Ms. W"ormann points out a very basic problem: Introducing the deutsche mark alone won't solve the economic problems in East Germany. ``The economy is still broken,'' she says. There are subsidies, inefficient factories, and state ownership and planning.
This is why Bonn says economic reforms must be made alongside talks on monetary union. It insists that the Bundesbank have sole control over the money supply - which would mean de facto economic unification if not political unification.