German Reunification Gets Bogged Down Over Money : Economics: How much East Germans should get for their currency is the subject of angry debate. Already, there have been street protests against a proposal by the West German central bank.

Few Germans who were around at the time will forget the day in 1948 when they lost 90% of their money.

Karl Schiller recalls that he heard the news at home, on the radio: The Allied occupation authorities were going to introduce a new currency, the deutschemark. The old, overvalued reichsmark would be exchanged at the rate of 1 for 10.

The announcement came on a Saturday, and trading in the new currency began Monday morning. There was no time to protest and, anyway, no one was much inclined to protest.

“Most people accepted it with silent resignation,” recalled Schiller, who at the time was a professor of economics at Hamburg University; in the 1970s he was West Germany’s minister of economics and finance. “It was bad-tasting, but necessary, medicine.”

Today, 42 years after currency reform laid the groundwork for what became the West German “economic miracle,” policy-makers are struggling with an equally sensitive and important step, making the deutschemark the currency of East Germany. But to the consternation of everyone involved, present conditions hardly lend themselves to the cool, hard-nosed decision that brought on the economic miracle.

The Germans of 1948, who bore the humiliation of defeat in World War II and had little choice but to accept what was presented to them, were a far cry from the impatient, expectant East Germans of today, who demand a fair deal. If they don’t get it, they can simply move to the West.

In this atmosphere, publication of a confidential report by the Bundesbank, the central bank of West Germany, has turned the task of creating a currency union into a volatile political dispute between the two Germanys as they set off on the road to unity.

The bank report, leaked to a West German newspaper, proposes an exchange rate that is only half of what most East Germans had hoped to get.

Fallout from the incident has led to concern that this first big step toward unification may be taken in a political caldron of street demonstrations and pre-election rhetoric.

“It’s become part of electioneering, and that worries me the most,” said Hans-Peter Froelich, an international economic and currency specialist at the Institute for the German Economy in Cologne. “We face tough decisions that are going to have a tremendous impact on Germany for decades to come. It’s sad that they have to be made in this context.”

West Germany’s leading news weekly, Spiegel, commented: “Every discussion that in 1948 took place behind barbed wire is now taking place in front of the cameras.”

This time, because the deutschemark is Europe’s bellwether currency and the anchor of the European Monetary System, the decision will have a ripple effect reaching far beyond Germany.

At base, the issue is simple: Will East Germans be permitted to trade their overvalued ostmarks for deutschemarks at the rate of 1 to 1, as they were led to believe in last month’s election campaign, or at the rate of 2 to 1, as proposed in the Bundesbank report to West German Chancellor Helmut Kohl?

Some observers believe that the tenor of Kohl’s campaign speeches before East Germany’s elections, coupled with a pledge that holders of small savings accounts would get a 1-to-1 rate, awakened unrealistic and dangerously high expectations among East Germans.

In many East German cities, rallies were organized to protest the Bundesbank plan, and speakers talked of betrayal and deception. A poster displayed at one rally in East Berlin warned, “Without 1-to-1, we won’t be one.”

When the new East German government was installed last Thursday, it promised to press for the 1-to-1 rate.

At present, East Germans may change a limited amount of ostmarks for deutschemarks at the rate of 1 to 1. They can trade more ostmarks on the black market, but must put up 5 or 6 ostmarks for every deutschemark.

West Germans may buy ostmarks at the official rate of 3 to 1.

The depth of East German reaction to the Bundesbank’s proposed rate of 2 to 1 has brought quick political reaction in West Germany. The Social Democrats’ Oskar Lafontaine, the man who will oppose Kohl in national elections in December, has accused the chancellor of breaking a campaign commitment.

Kohl’s foreign minister, Hans-Dietrich Genscher, has sought to distance himself from the Bundesbank report.

“You can’t play with people’s wages as if they were on a stock exchange,” Genscher said in an interview with the West German weekly Quick. “For millions of Germans in the East, these are questions of existence.”

In a public relations offensive, Bundesbank President Karl-Otto Poehl argued that converting East Germany’s huge internal debt of 400 billion ostmarks at the rate of 1 to 1--the equivalent of $250 billion--would effectively destroy the East economically.

Others fear that there will be mass bankruptcy and unemployment if obsolete, overmanned East German industries are put in the position of trying to compete with their Western counterparts.

Kohl’s finance minister, Theodor Waigel, and his economics minister, Helmut Hausman, have both endorsed the Bundesbank report, and this has put Kohl in a squeeze between growing political pressure on one side and the advice of the country’s leading economic voices on the other.

And for Kohl, there is yet another consideration: An exchange rate too unfavorable to East Germans could renew the exodus of refugees to the West, and that would involve untold additional political and economic costs.

His senior foreign policy adviser, Horst Teltschik, said in an interview that no decision would be made without consulting the new East German government. He said there were several possible compromise options--on wages, for example.

“Along with an exchange rate of 2 to 1 could come equalization payments (on wages) that would make the result very close to 1 to 1,” Teltschik said.

East Germans are preoccupied with the impending decision. For them, 2 to 1 means a 50% wage cut and a loss of half their meager personal wealth.

“If my salary is changed at 2 to 1, I can’t pay my rent,” said Monika Sommerwald, an East Berlin medical technician with two children.

East Germans are still trying to take in the staggering level of West German affluence, and they regard anything less than 1 to 1 as second-class treatment at the hands of rich cousins more concerned with protecting their wealth than with lending a hand.

Aside from mounting political pressure, Kohl faces an extremely tight timetable if he is to keep his commitment to push currency union through by early July. With roughly two months needed to make law of any agreement on currency union, Kohl has little more than two weeks to conclude an accord with Prime Minister Lothar De Maiziere’s new government in East Berlin.