Kohl’s Plan for One German Currency Arouses Criticism

Rather than calming fears of economic collapse in East Germany, Chancellor Helmut Kohl’s advocacy of one currency for East and West Germany has created worries about continued prosperity at home.

Economists and investors have reacted negatively to Kohl’s proposal for swift introduction of the West German mark in East Germany, whose own mark is not convertible. Some accuse him of trying to boost his chances in the December elections.

Fear that taking over East Germany’s nearly bankrupt system would endanger the West German economy drove bond prices down Thursday for the third straight day. The mark has dropped two pfennigs against the weak U.S. dollar in two days.

Kohl said Wednesday that a cabinet committee was drafting plans for union with East Germany, including a common currency.

By making the strong mark the official currency of East Germany in return for free-market reforms, the worries go, Bonn would in effect be taking on the economic woes of its eastern brothers and distributing them among prosperous West Germans through higher taxes.

More marks would have to be printed, adding to the money supply and forcing interest rates up. Higher rates would slow the West German investment boom that is supposed to bankroll the eastern bailout.

Experts see monetary union as a necessary step toward East Germany’s economic recovery and eventual integration with West Germany in a single state.

Central bank president Karl Otto Poehl and others, however, feel that transition to a convertible currency for East Germany must be gradual, a companion of economic reform rather than its catalyst.

Providing East Germans with a currency of value before they have anything at home to buy might even make the economic imbalance between the two countries worse, economists contend.

East Germany’s economic disaster has become a West German problem even without monetary union because huge numbers of East German emigres strain social services.