"Number one in Europe": The startling emergence of the Deutsche Mark, 1968-1969

Central European History

Volumn 39, Issue 1, 2006, Pages 56-78

  Gray, William Glenn ^a  

^a PURDUE UNIVERSITY   (United States)

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[No Author keywords available]

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EID: 33947428974     PISSN: 00089389     EISSN: None     Source Type: Journal    
DOI: 10.1017/S0008938906000033     Document Type: Review

References (119)

1. As of October 31, 1968, the Bundesbank's reserves stood at DM 33.7 billion; so this influx represented an increase of 27.9 percent in just three weeks. Monthly Report of the German Bundesbank, Nov./Dec. 1968, 103 (the figure of 9.4 billion can be found on page 3).
2. A photograph of this issue of the Bild-Zeitung appears in Der Spiegel, Dec. 2, 1968, 28.
3. "Germany's Strength," The Times (London), Nov. 22, 1968, 8.
4. Details in Francis J. Gavin, Gold, Dollars & Power: The Politics of International Monetary Relations, 1958-1971 (Chapel Hill: University of North Carolina Press, 2004), 165-85.
5. For an overview of the Bretton Woods system, see Harold James, International Monetary Cooperation since Bretton Woods (Washington, DC: International Monetary Fund and New York: Oxford University Press, 1996).
6. To be sure, the Deutsche Bundesbank in Frankfurt typically maintained a low profile but showed significant solidarity with other central banks in the Western community, including the Bank of England; "swap" arrangements between the Federal Republic and its economic partners helped to alleviate periods of stress in those other countries. See Heide-Irene Schmidt, "'The Embarrassment of Strength': Die deutsche Position im 'International Monetary System' 1958-1968," in Deutschland, Großbritannien, Amerika. Politik, Gesellschaft und Internationale Geschichte im 20. Jahrhundert, ed. Ursula Lehmkuhl, Clemens A. Wurm, and Hubert Zimmermann (Stuttgart: Franz Steiner Verlag, 2003), 155-95.
7. On Schiller, see Uwe Anderson's contribution in Kanzler und Minister 1949-1998, ed. Udo Kempf and Hans-Georg Merz (Wiesbaden: Westdeutscher Verlag, 2001), 583-88.
8. On Strauss, there are numerous biographies, but relevant here is David Hotham, "The Return of Franz Josef Strauss," New York Times, March 23, 1969, magazine section.
9. On Erhard's fall, see Alfred J. Mierzejewski, Ludwig Erhard: A Biography (Chapel Hill: University of North Carolina Press, 2003), 201-4.
10. US Bonn A-1410 (McGhee), June 5, 1967: National Archives and Record Administration - College Park [NARA], RG 59, Subject-Numeric Files 67-69, Box 616 (E 1-1 GER W). Please note: All subsequent NARA references will draw from RG 59, SNF 67-69. See also Eric Owen Smith, The German Economy (London: Routledge, 1994), 119-20.
11. Werner Abelshauser, Wirtschaftsgeschichte der Bundesrepublik Deutschland (1945-1980) (Frankfurt: Suhrkamp, 1983), 111-16.
12. On Schillers policies as a pinnacle of 1960s optimism, see Gabriele Metzler, "Am Ende aller Krisen? Politisches Denken und Handeln in der Bundesrepublik der sechziger Jahre," Historische Zeitschrift 275 (2002): 57-103;
13. also Tim Schanetzky, "Sachverständigenrat und Konzertierte Aktion. Staat, Gesellschaft und wissenschaftliche Expertise in der bundesrepublikanischen Wirtschaftspolitik," Vierteljahrschrift für Sozial- und Wirtschaftsgeschichte 91 (2004): 310-331.
14. US Bonn (Lodge) 12722, May 29, 1968: NARA, Box 2117 (Pol Ger W).
15. On "concerted action," see Herbert Giersch, Karl-Heinz Paqué, and Holger Schmieding, The Fading Miracle: Four Decades of Market Economy in West Germany (Cambridge: Cambridge University Press, 1992), 143-49.
16. Jean-François Eck, Histoire de l'économie française depuis 1945, 2nd ed. (Paris: Armand Colin, 1990) 38-9.
17. Alec Cairncross, The British Economy since 1945: Economic Policy and Performance, 1945-1995, 2nd ed. (Oxford: Blackwell, 1995), 164-68;
18. Robert M. Collins, More: The Politics of Economic Growth in Postwar America (New York: Oxford University Press, 2000), Chapter 3.
19. In the period 1967-69, consumer prices in the Federal Republic grew at an annual average of 1.7 percent; in the United States, 4.1 percent; and in France, the U.K., and Italy (weighted average), 3.8 percent. Otmar Emminger, "The D-Mark in the Conflict Between Internal and External Equilibrium, 1948-1975," Princeton University Department of Economics, Essays in International Finance, No. 122 (June 1977), 19.
20. Specifically; in the period 1962-68, prices increased by some seven percent more in other Western industrial countries than in the Federal Republic. Report of the Deutsche Bundesbank for the Year 1968, 18.
21. These points are all discussed in a letter from Karl Blessing, president of the Bundesbank, to Schiller on July 24, 1968: Historisches Archiv der Deutschen Bundesbank [HA BBk], B 330, Bd. 246. Blessing observed that in the period from January to April, German businesses had lowered prices an average of 1.4 percent due to the change in tax structure.
22. For a sound and readable introduction to workings of the Bretton Woods system, see Gavin, Gold, Dollars, and Power.
23. For figures on guest worker remittances (totaling DM 2.04 billion in 1968), see Zahlungsbilanz-Statistik, March 1969, Table 8a. Table 9, in turn, conveys details on private capital investment abroad. Nineteen-sixty-eight saw a dramatic upswing from the previous year: from DM 1.6 billion to DM 10.0 billion (mostly portfolio investments and loans). For most of the decade, the Federal Republic had been a net importer of private capital.
24. This is the principal theme of Hubert Zimmermann, Money and Security: Troops, Monetary Policy, and West Germany's Relations with the United States and Britain, 1950-1971 (Washington, DC: German Historical Institute and Cambridge University Press, 2002).
25. Giersch, Paqué, and Schmieding, Fading Miracle, 141-42;
26. Otmar Emminger, D-Mark, Dollar, Währungskrisen. Erinnerungen eines ehemaligen Bundesbankpräsidenten (Stuttgart: DVA, 1986), 141.
27. See Schiller's remarks to the Central Bank Council, Oct. 24, 1968: stenographic transcript in HA BBk, B 330, Bd. 476/1.
28. For a copy of Abs' memorandum, dated simply "Mitte September," see Politisches Archiv des Auswärtigen Amts - Berlin [PA/AA], B 52, Bd. 586. On the 1961 revaluation, see Emminger's account in D-Mark, Dollar, Währungskrisen, 98-134.
29. Central Bank Council, Oct. 24, 1968, cited above.
30. "Lohnforderungen. Mut zur Pflicht," Der Spiegel, Jan. 6, 1969, 22-3. The report refers to Schiller's activities the preceding October.
31. See comments by Schiller's deputy, State Secretary Klaus von Dohnanyi, reported in US Frankfurt A-488, Sept. 24, 1968: NARA, Box 617 (E 2 Ger W).
32. US Bonn (Lodge) 16255, Aug. 30, 1968: NARA, Box 759 (FN 17 Ger W).
33. On pessimism about the franc, see US Paris (Shriver) 19666, Aug. 20, 1968: NARA, Box 752 (FN 17 Fr).
34. Such rumors had set in almost immediately after the May events; see US Paris's 15121 of May 29 in ibid. A brief discussion of the Franco-German monetary strains appears in Wolfram Hanrieder, Germany, America, Europe: Forty Years of German Foreign Policy (New Haven: Yale University Press, 1989), 268-71.
35. Schiller to the Central Bank Council, Oct. 24, 1968, as cited above.
36. For a description of reports in the General-Anzeiger, see US Bonn (Lodge) 18527, Oct. 25, 1968: NARA, Box 759 (FN 17 Ger W).
37. US Bonn (Fessenden) 19089, Nov. 8, 1968: NARA, Box 759. This report attributed the latest rush of speculation to maladroit remarks by one of Schiller's assistants, Wilhelm Hankel. Apparently this was a common view at the time; see Schöllhorn to Menne, Nov. 6, 1968: HA BBk, B 330, Bd. 246.
38. This trend was, of course, especially pronounced among anti-Gaullist papers such as Combat, but also the economic paper Les Echos. See DG Paris (Limbourg) 2787 and 2791, Nov. 20 and 21, 1968: both PA/AA, B 52, Bd. 613. Observers outside France tended to emphasize the underlying health of the French economy; see, for example, Charles Hargrove, "De Gaulle determined to save franc," The Times (London), Nov. 16, 1968, 1.
39. Richard Kuisel, Seducing the French: The Dilemma of Americanization (Berkeley: University of California Press, 1993), 171-76.
40. For the French text of Couves message, see Günther Harkort to Rolf Lahr, Nov. 16, 1968: PA/AA, B 52, Bd. 582.
41. See the CIA report on an off-the-record briefing by Günter Diehl, the Bonn press chief. Walt Rostow, in passing it along to LBJ, remarked: "The flirtation with Paris is over - with a vengeance!" Rostow to Johnson, Oct. 9, 1968: Lyndon B. Johnson Library [LBJL], NSF, Country File, Box 189, Germany Cables Vol. XVI.
42. Among the many aspects of German behavior that angered officials in Paris, none rankled more than the perception that Kiesinger and his government had failed to devote top-level attention to France's acute crisis in a timely fashion; see the conversation Kiesinger/Seydoux, Nov. 29, 1968: Akten zur Auswärtigen Politik der Bundesrepublik Deutschland [AAPD] 1968, 1530-41.
43. Conversation Schöllhorn/Ortoli, Nov. 14, 1968: PA/AA, B 52, Bd. 582. On Schillers refusal to act "under pressure," see AAPD 1968, 1509, n. 3.
44. US Paris (Shriver) 23970, Nov. 15, 1968: NARA, Box 752 (FN 17 Fr); Jay Mortimer, "France to cut state spending," The Times (London), Nov. 18, 1968, 17.
45. On France's losses, see the remarks made by Robert Deming in "Telecon 13" (a report on a conversation between Kiesinger and Fowler), Nov. 19, 1968: LBJL, NSF, Subject File, Box 22, Monetary Crisis C & M Vol. 1. Such figures were ordinarily kept secret, but word leaked to the press; see Hobart Rowen, "France Loses $400 Million in Two Days," Washington Post, Nov. 17, 1968, A1.
46. On the Basel meeting, see the response to "Was Telcon 3" by White House aide Ed Fried, Nov. 18, 1968: LBJL, Papers of Henry H. Fowler [HHF], Box 31, International Economy: European Trip, Nov. 1968.
47. Hugh Stephenson, "Disagreement over aid for franc," The Times (London), Nov. 18, 1968, 1.
48. These figures appear in summary reports from Joseph Newman to W. W. Rostow dated Nov. 15, Nov. 18, and Nov. 19, 1968: LBJL, NSF, Files of Edward R. Fried, Box 3, CHRON Oct. 1-Nov. 30, 1968.
49. British and American leaders saw the crisis in strikingly similar terms, and this argumentation turned up on both sides of the Atlantic. See Wilson's letter to Johnson, Nov. 18, 1968, top secret: LBJL, NSF, Subject Files, Box 22; also the conversation between Rusk and Lucet as reported in DepSta to US Paris 275299, Nov. 21, 1968, secret: NARA, Box 859 (FN 17).
50. See a memo by the board of the Federal Reserve, Nov. 4, 1968: LBJL, Papers of HHF, Box 63, International Classified Material: European Trip, November 1968.
51. See Walt Rostow's message to Fowler (then in Rome), Nov. 17, 1968, eyes only: FRUS 1964-68, VIII/576-77. This "G-10" varied somewhat in composition from the more famous "G-7" grouping first convened in 1975; it included Britain, France, Italy; Belgium, the Netherlands, the Federal Republic, Sweden, the United States, Canada, and Japan. Swiss representatives attended G-10 meetings as observers.
52. Conversation Kiesinger/Fowler, Nov. 18, 1968: AAPD 1968, 1493-94.
53. Harkort, Aufz., "Überlegungen zu einer Aufwertung der D-Mark," Nov. 18, 1968: AAPD 1968, 1484-87.
54. On this point, see Schiller's speech to the parliament: Deutscher Bundestag, 197. Sitzung (Nov. 26, 1968): Sten. Ber., 5. WP, 10618.
55. DG London (Blankenhorn) 2321, Nov. 20, 1968: AAPD 1968, 1498-1500. Blankenhorn's account largely agrees with the one offered by Roy Jenkins in his memoirs; see idem, A Life at the Center: Memoirs of a Radical Reformer (New York: Random House, 1991), 251-53.
56. Reports from the American delegation in Bonn were received in the White House through an unusual channel, apparently some kind of voice-recording system along a secure telephone line. The remarks reported here appeared in "Telcon 20," Nov. 21, 1968: FRUS 1964-68, VIII/584-84.
57. Jenkins, A Life at the Center, 255.
58. Schiller ran his ministry in much the same way, with top aides resigned to late-night "Kennedy-style" strategy sessions on a routine basis. For a profile of Schiller's managerial style, see "Schiller. Jetzt komme ich," Der Spiegel, April 14, 1969, 32-57, esp. 42-44.
59. J. J. Polak, memorandum, Nov. 26, 1968
60. cited in James, International Monetary Cooperation since Bretton Woods, 194.
61. "Telcon 24," Nov. 21, 1968: FRUS 1964-68, VIII/592-93.
62. A thorough record of the discussion concerning the franc appears in Fowler's handwritten notes of the meeting: LBJL, Papers of HHF, Box 31, International Economy: European Trip, Nov. 1968.
63. The British press was full of observations along these lines; see US London (Bruce) 14610, Nov. 25, 1968: NARA, Box 859 (FN 17). Consider also this headline from the New York Times: "West Germany Gains Political Stature in Crisis/Now Considered to be as Big as its Economy." (Article by David Binder, Nov. 22, 1968.)
64. "Monetary Storm Damage," New York Times Nov. 23, 1968, 46;
65. Clyde Farnsworth, "In Germany the answer is, 'We like to work,'" New York Times, Nov. 24, 1968, E2.
66. US Bonn (Lodge) 19635, Nov. 23, 1968: NARA, Box 856 (FN 10). Kiesinger spoke in these terms to a CDU party gathering and then later, fatefully; on the television channel ZDF.
67. On the French press reaction, see DG Paris (Limbourg) 2812, Nov. 23,1968: PA/AA, B 52, Bd. 613.
68. Charles de Gaulle, Discours et messages. Tome V, Vers le terme, Janvier 1966 - Avril 1969 (Paris: Librarie Plon, 1970), 354-7. On the cabinet meeting that produced this remarkable decision, see US Paris (Shriver) 24531, Nov. 26, 1968: NARA, Box 752 (FN 17 Fr).
69. "Devisenkontrolle. Vor dem Abgrund," Der Spiegel, Dec. 2, 1968, 104-110;
70. "Capital controls/Less fun in the sun," The Economist, Nov. 30, 1968, 65.
71. Monthly Report of the Deutsche Bundesbank, Feb. 1969, 76.
72. US London (Bruce) 14650, Nov. 26, 1968: NARA, Box 2136 (POL 17 Ger W - UK).
73. For much of the year, in fact, U.S. officials had been lecturing Bonn on the duties of "surplus" countries; some influential Germans, among them Otmar Emminger, appeared to accept this proposition. See W. W. Rostow to Walther Casper, Jan. 3, 1968: LBJL, Papers of HHF, Box 69, International Classified Material - Germany, 1968.
74. Deutscher Bundestag, 235. Sitzung, May-14, 1969: Sten. Ber., 5. WP, 12960. Schiller also called attention to the ever-widening price gap between Germany and its neighbors.
75. Calculated from Zahlungsbilanzstatistik, May 1969, table 1.
76. The Kobe example is from Schiller's speech to the SPD-Parteirat, Nov. 2, 1968, 70: Archiv der sozialen Demokratie - Bonn [AdsD], SPD-Parteivorstand, Nov.-Dec. 1968. The Osaka example appears in a note from Harkort of the Foreign Office to State Secretary Duckwitz, Oct. 15, 1968, found at the bottom of the previously cited Abs memorandum of Sept. 1968.
77. "Koalitionskrise. Schrecklicher Vormittag," Der Spiegel, May 19, 1969, 25-9.
78. "Bremsprogramm. Sanfte Signale," Der Spiegel, March 10, 1969, 67-8.
79. This particular quote is from an interview in September, but it is consistent with Strauss's rhetoric throughout this period. Spiegel- Gespräch, Sept. 1, 1969, 26-31; here 29.
80. See Strauss' remarks about "theories, pseudo-causalities, and fictive constructs" in Deutscher Bundestag, 235. Sitzung, May 14, 1969: Sten. Ber., 5. WP, 12971-72 and 12976-77 (quote from the last page cited);
81. also Arnulf Baring (in Zusammenarbeit mit Manfred Görtemaker), Machtwechsel. Die Ära Brandt-Scheel (Berlin: Ullstein, 1998), 171.
82. US Bonn (Fessenden) 3859, March 21, 1969: NARA, Box 856 (FN 10). Here Strauss was on solid ground, for the structure of the EEC's Common Agricultural Policy (CAP) ensured that any revaluation in the DM would automatically result in lost income for German farmers. The reason for this is perhaps not intuitive, but it runs as follows. Agricultural prices across the six-member EEC were fixed in terms of a common unit of payments. As the value of the German mark rose with respect to that common unit, the net amount (expressed in DM) that German farmers could legally be paid for their produce would sink.
83. "Bank Rate Raised by West Germany;" New York Times, April 18, 1969, 61.
84. Jeremy Leaman, The Bundesbank Myth: Toward a Critique of Central Bank Independence (New York: Palgrave, 2001), 146-47. The protocol of the Bundesbank meeting on April 17 shows that neither Strauss nor Schöllhorn (representing Schiller) opposed the one-percent increase in the discount rate; Bundesarchiv Koblenz [BAK], B 136, Bd. 3329.
85. David Binder, "Strauss Willing to Revalue Mark," New York Times, April 30, 1969, 1.
86. Ref. III A 1 (Bismarck-Osten), Aufz., "Möglichkeit einer baldigen Abwertung des französischen Franc," April 30, 1969: PA/AA, B 52, Bd. 612.
87. Monthly Report of the Deutsche Bundesbank 21, 6 (June 1969): 5.
88. DG Paris (Braun) 1002, May 5, 1969: PA/AA, B 52, Bd. 587. French officials did castigate their West German counterparts for speaking too openly in public, complaining that this was exacerbating the situation. Conversation Brandt/Seydoux, May 7, 1969: PA/AA, B 1, Bd. 359.
89. Schiller, Kabinettsvorlage, "Antrag auf Verbesserung der Währungsparität der Deutschen Mark," May 9, 1969: PA/AA, B 52, Bd. 587.
90. US Bonn (Fessenden) 6111, May 9, 1969: NARA, Box 857 (FN 10).
91. On the "blitz poll," see "Marktforschung/Wickert-Institut. Auf dem Bodensatz," Der Spiegel, June 9, 1969, 46-7. Later that month, more reliable figures reached the chancellor from the Allensbach Institute; these showed that thirty percent of Germans thought an upward revaluation of the D-Mark would be advantageous, thirty-four percent thought it would be disadvantageous, and thirty-six percent were unsure.
92. Diehl to Kiesinger, May 29, 1969: PA/AA, B 52, Bd. 582.
93. In the four weeks from May 9 to June 9, the Bundesbank's reserves dropped by nearly DM 9 billion, but this erased only half the gains of early May. Monthly Report of the Deutsche Bundesbank, June 1969, 5; July 1969.
94. Schiller estimated that between one-half and two-thirds of May's inflows involved "leads and lags"; see his conversation with Secretary of the Treasury David M. Kennedy; June 1, 1969, 4: NARA, Box 2121 (POL 7 Ger W).
95. DG Oslo, July 7, 1969: PA/AA, B 52, Bd. 587. Despite massive speculative losses in May, the Danish government nevertheless expressed satisfaction that Germany had not revalued; their reliance on imports from Germany meant that any rise in the DM would drive inflation at home. Conversation Samuels/Ronne, May 13, 1969: NARA, Box 759 (FN 17 Ger W).
96. BKA (Gruppe III/1, Geberth) for Kiesinger, July 18, 1969: BAK, B 136, Bd. 3336.
97. See Kiesinger's comments to the CDU-Fraktion on May 13, 1969, 14-15: Archiv für christlich-demokratische Politik - St. Augustin [ACDP], VIII-001-1019/1.
98. US Bonn (Fessenden) 6175, May 10, 1969: NARA, Box 759 (FN 17 Ger W). American analysts observed that "Strauß and his colleagues in CDU/CSU have crawled rather far out on a limb - one that could easily be sawed off." INR Intelligence Note No. 376, May 15, 1969: same box and folder as above.
99. US Bonn (Fessenden) 6518, May 16, 1969: as above. See also "Koalitionskrise. Schrecklicher Vormittag," Der Spiegel, May 19, 1969, 25-9.
100. Sten. Ber., 5. WP, 12969-70.
101. US Bonn 6518, cited above. The American embassy described this as "a reversal of traditional roles which has given rise to considerable wry amusement." On Social Democracy during this period, see Klaus Schönhoven, Wendejahre. Die Sozialdemokratie in der Zeit der Großen Koalition 1966-1969 (Bonn: Dietz, 2004).
102. Baring, Machtwechsel, 173-74.
103. Interestingly, even at a time when memories of Schiller have largely faded, election experts continue to identify the minister of economics rather than Brandt as the real focal point of the 1969 campaign. See remarks by Manfred Güllner of the FORSA-Institut published in Neue Gesellschaft/Frankfurter Hefte, no. 7-8, 2002, available at http://www.frankfurter-hefte.de/.
104. Herbert Giersch, theoretically non-partisan in his role as a member of the Council of Economic Advisors, made this point implicitly in a Spiegel-Gespräch, May 19, 1969, 52-57; here 55.
105. See the conversation in the coalition's "Dienstagskreis," Aug. 13, 1969, 3-4: ACDP, NL Kiesinger, I-226-A010. Also of interest: the SPD Presidium's detailed press release of July 23, 1969: AdsD, SPD-PV, May-Aug. 1969.
106. "Auszug aus dem Protokoll der Ministertagung zur Frage der Abwertung des französischen Franken am 10. August 1969": PA/AA, B 52, Bd. 608.
107. See reports by the Deutsche Presse-Agentur (DPA) of Aug. 11 and Aug. 15, 1969: PA/AA, B 52, Bd. 608. The Aug. 11 report is particularly embarrassing; it reveals that Schiller and the German minister of agriculture, Hermann Höcherl of the CSU, engaged in an open, heated confrontation while attending a ministerial meeting of the EEC in Brussels.
108. See Grass's remarks to the SPD-Parteirat on Sept. 30, 1969, 16: AdsD, SPD-PV, Sept.-Dec. 1969.
109. "Hoesch-Streik. Teures Zögern," Der Spiegel, Sept. 8, 1969, 94-6. Thanks to Tim Schanetzky of the Lehrstuhl für Wirtschafts- und Sozialgeschichte, Frankfurt/Main, for helpful observations on these strikes.
110. Zentralbankrat, 296. Sitzung, Sept. 11, 1969, 9-11: BAK, B 136, Bd. 3329; "Strikes - and a pre-election bank rate," The Economist, Sept. 13, 1969, 79.
111. Ralph Blumenthal, "Germans' Strikes Impede Campaign," New York Times, Sept. 19, 1969.
112. See also Giersch, Paqué, and Schmieding, Fading Miracle, 156-57.
113. Otmar Emminger, among others, has argued that Kiesinger's refusal to revalue the DM played a major role in the fall of his government; see D-Mark, Dollar, Währungskrisen, 150-71.
114. US Bonn (Rush) 12579, Sept. 25, 1969: NARA, Box 756 (FN 10 Ger W).
115. "No Marks," The Economist, Sept. 27, 1969, 15;
116. see also DG Bern 149, Sept. 26, 1969: PA/AA, B 52, Bd. 587.
117. "Ergebnisse der Wahl zum 6. Deutschen Bundestag am 28. September 1969," published by the Federal Director of Elections at www.bundeswahlleiter.de.
118. Daniel Hofmann, "'Verdächtige Eile.' Der Weg zur Koalition aus SPD und F.D.P. nach der Bundestagswahl vom 28. September 1969," Vierteljahrshefte für Zeitgeschichte 48 (2000): 515-64.
119. For more on this improvised German decision, see William Glenn Gray, "Floating the System: Germany, the United States, and the Breakdown of Bretton Woods, 1969-1973," Diplomatic History, forthcoming.