The Bundesbank Must Broaden Its Horizons
The end of the cold war has had many unintended consequences. One of the most important has been the shift of Western Europe's geopolitical center away from Brussels, home to the European Community, to Frankfurt. There, 16 men meet every second Thursday at the Bundesbank to dictate Europe's economic agenda.
So far this year, that agenda has been antigrowth. The Buba has pursued a policy of fighting inflation through high interest rates and a strong mark, and economic expansion and job growth have suffered. Even as the Japanese central bank cuts its discount rate a surprisingly large 0.75%, to 1.75%, the Bundesbank stubbornly holds to 6.25%. This has burdened the rest of Europe with high real interest rates--nearly 6% in France.
The irony is that the Bundesbank wants none of this power over the fate of Germany's neighbors. It would prefer to be left alone to deal with Germany's own problem: an inflation rate of 4%, in large part stemming from unification.
But today the bank has economic and political responsibilities far beyond Germany's borders. Its tight monetary policies are exacerbating the growth crisis in Europe. A survey by Drake Beam Morin Inc., international management consultants, found that 52% of 400 of the biggest European companies plan to lay off workers by yearend 1995.
The same high-interest-rate policy is reducing Germany's own competitiveness. The mark has skyrocketed, pushing investment--and jobs--abroad. Daimler Benz recently announced layoffs of 43,000 employees by the end of 1994.
The global economic engine currently is firing only on its U.S. cylinders. Japan is making halting efforts to get in gear. Only the Bundesbank is jammed in reverse. Germany's central bankers must be more willing to look--and act--to improve economic growth beyond their nation's own borders.