One Mark for One Germany?
WEST German Chancellor Helmut Kohl's proposal for immediate talks on creating a single German currency could prove costly. ``Monetary union is not going to be an answer to anything, and it is too expensive,'' says Rudiger Dornbusch, a Massachusetts Institute of Technology economist.
But Mr. Kohl hopes monetary union would stanch the flight of East Germans to West Germany. That human flow, more than 2,000 per day, threatens to destroy whatever economic viability remains in the German Democratic Republic (GDR).
Another possible reason for proposing monetary union would be to mop up an overhang of East German marks held by the 16 million people of the GDR as savings. In a communist country, where productivity has been low, there is not enough worthwhile to buy in the shops. People are in effect forced to save a goodly chunk of their earnings. In East Germany, savings and currency total around 176 billion East marks. This money can't be easily spent on Western goods because of its inconvertibility, except on the black market.
In a monetary union, which Kohl wants before 1993, West Germany would convert East German marks into West German marks. East German banks now give three East marks for every West mark. Outside West Berlin banks, black marketeers will exchange 10 to 12 East marks for one West German mark. Kohl apparently hopes that buying out the savings of East marks with West marks would give East Germans enough financial clout to keep them home.
However, this may not be the case. Possibly the acquisition of so many West German marks would hasten the move of East Germans to the West. Those with large savings might even be able to buy apartments in West Germany.
Dr. Dornbusch guesses that the conversion could cost West Germany 3 to 5 percent of total national output - a huge amount. Certainly phase one and two of the Kohl plan must come first. These include provisions for free enterprise and free competition in the east, free ownership of industry, unrestricted foreign investment, tax reform, a phasing out of controls on prices and foreign trade, and the introduction of a Western-style banking system. Phase two includes further progress toward a free enterprise economy, including linkage of the two marks.
Otherwise, immediate monetary union would stimulate East German consumption, not the investment so badly needed. Political leaders in the East, both within the government and in popular movements like New Forum, have clearly registered their concerns that a monetary union is premature.
Perhaps East Germans could use their savings to buy a stake in their nation's privatized state-owned enterprises.
The last step, if the political situation allows it, would be monetary union with its implications for a massive loss of sovereignty and rapid economic union.