Wobbly Mark

Bonn's belt-tightening

One symbol of West Germany's postwar Wirtschaftswunder, or economic miracle, has long been the muscular deutsche mark, which gained strength as the currencies of other industrial states went soft and saggy. But the mark has been taking a beating itself since Oct. 31, and two weeks ago it staggered so badly that the central banks of the U.S., Britain and France had to take rushed measures to prop it up. Before it began to recover last week, the mark slumped to a low of 51.2-c- against the dollar, a prolonged slide from its high of 58.8-c- last January. It was also slipping against such onetime weaklings as the British pound, the French franc and even the Italian lira.

Ironically, West Germany's economic problems now seem comparatively trifling. Inflation is on the rise, yet still only 5.3%; unemployment is just 3.8%. But these numbers will worsen next year when the growth rate, now a feeble 2%, is expected to drop to almost zero, as rising prices for imported oil and increased foreign competition weaken the heavily export-based economy. The balance of payments deficit, which was $1 billion in 1979, will probably balloon this year to $20 billion, which would be the highest of any industrialized nation. West Germany has also accumulated a national debt so large--it now totals $231.8 billion --that it became a highly emotional issue during the recent election campaign. All of this has prompted many holders of marks to switch into dollars, pounds and francs in order to cash in on the interest rates, as high as 16%, being paid in countries with far worse inflation. German investors tend to be especially jittery because of the runaway inflation they suffered before and after World War II.

With Chancellor Helmut Schmidt's Social Democrats now safely past the Oct. 5 election, Bonn has taken steps to cool off inflation. Two weeks ago, Schmidt decided on an $8 billion cut in 1981 spending, which will now be just 4.1% above the $114.4 billion 1980 budget. He also pulled out of a NATO pledge to raise military spending by 3% annually for 15 years--a move that may chill his reception this week in Washington, where he is due to arrive on a long-planned visit. Instead, Bonn will increase its defense budget, now $18 billion, by just 1.75% next year.

"We have no alternative but to tighten our belts," explains one Schmidt adviser. "If we stimulate the economy, we fuel inflation and further reduce our competitive edge on world markets." And that, of course, could only further erode the cherished mark.

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