East, West Economies Join, New German Reich Begins : Europe: With a monetary union, Germany’s bankers achieve what its generals never could--domination of Europe.

Last year it was the Wall; last month it was Checkpoint Charlie; this week it is the East German mark. One by one, the signs of German division are falling. This time last year, German reunification was a dream; now, it is becoming a reality.

Berlin changes from day to day. East German border guards are polite. East and West, much of the city has become a vast flea market as Easterners invest hard-earned Western currency in boom boxes and cassette tapes. Thousands of Poles descend every day from tour buses to crowd into Berlin’s booming electronic and department stores. The sidewalks of some neighborhoods are lined with Poles waiting to be admitted into the German equivalent of K-mart. The West is moving East also: U.S. tobacco companies have plastered East Berlin with ads, and porno vans hawk their wares among the gray blocks of Stalinist flats.

This week’s step, monetary union, marks the most important milestone on the road to unity between the November Revolution of 1989 and the pan-German election sometime later this year. From this week on, Bonn assumes responsibility for the East German economy--but there is more to monetary union than that.

Money is important in every country’s history, but monetary policy has a special role in Germany. Inflation helped erode confidence in the Weimar Republic and paved the way for Adolf Hitler. By contrast, the monetary reform of 1949 set the stage for the German economic miracle and the strong democratic institutions that developed in the West. The success or failure of the monetary union will set the tone for the political life of the new German Reich. A successful transition will cement the ties between the country’s two halves and ensure national unity behind democratic principles.

But success is not certain. The generous terms of union--two East German marks for one deutsch mark in amounts of more than 4,000 East marks per person--raises fears of inflation among some in the West. Should monetary instability break out, West Germany’s commitment to its cousins in the East could grow rapidly weaker, with unpredictable consequences for German politics. Already, many in the West resent the aid to millions of refugees from East Germany and beyond.

The East has worries, too. There, the fear is not inflation, but collapse. East Germany’s old trading partners in Comecon cannot pay hard currency for its goods; Western consumers have hard currency, but little appetite for East German products. Massive layoffs and bankruptcies are expected in the East, and older workers in particular are deeply worried about their future. A failed economic transition could breed lasting bitterness in the East. The East German communists have already won up to 30% in some local elections.

A Germany consumed by internal wrangling and hosting a large communist minority would be a misery to itself and a trouble to its neighbors. But this is only the first of the stakes riding on the successful outcome of monetary union.

The deutsch mark is more than Germany’s money--it is the instrument of German power and centerpiece of the West European economy. West Germany’s bankers have accomplished what its generals never could: They have persuaded the rest of Europe to accept German leadership. Under the banner of the European Monetary System, the European nations minus Britain have tied their monies to the deutsch mark--in effect, giving the West German Bundesbank a vital role in their own economic policy. In former times the Fed played this role, but America has lost the confidence of Europe’s financiers. That Western Europe should trust Germany more than the United States shows how much things have changed since the war; this week’s monetary union gives the first indication of how the new Germany will use its new power.

Reunification has not even happened, yet already Germany faces its first great test. The cozy Little Europe of the Cold War has passed away. The Soviet Union can no longer police its vast, ramshackle empire; 300 million people, most desperately poor, press on the boundaries of Western Europe.

West Germany was part of and grew to lead Western Europe; the new Germany has a bigger, more difficult task. The Polish border is 50 miles from the Reichstag, Balkan Gypsies fill plazas of Berlin. Germany’s attention will be fixed on the East. It will use all its economic muscle to produce order out of the vast threatening chaos on its Eastern frontiers.

West Germany was not eager for the monetary union--the Bundesbank least of all. The economic dangers were all too clear and German politicians have grown allergic to risk. But events left Germany no choice. As the East German government collapsed and the Wall came down, millions were poised to flee westward. Only the promise of monetary union on generous terms stemmed the flow; the German Establishment was shaken by open quarrels between its political and economic leadership as the Bundesbank continued to warn against a too hasty, too generous approach.

But West Germany was committed: to its Eastern frontiers first, but also to its Eastern neighbors. In subsequent months West Germany has rushed ahead of the United States and other countries to start up joint ventures in Eastern countries and, most recently, to provide multibillion-dollar credits to the shaky Soviet leadership. West Germany cannot afford a general collapse in the East and will continue its activist policy regardless of the views of other countries.

There are risks of all kinds in these policies. Potentially, problems could undermine the deutsch mark itself. Germany’s commitments in the East also complicate its life in the West. Already, fears over the cost of monetary union have driven German interest rates to uncomfortable levels. Thanks to European integration, this means Germany’s Western allies are also paying higher interest. Weaker countries, such as Spain and Portugal, fear the West German investment that has fueled their growth may dry up. For everyone in Europe, the last year has been a sobering reminder that German power, in the last resort, will be used to safeguard German national interests--and that these interests will not always be those of its European partners.

Germany has never been a lucky country, or a politically wise one. Its position in the center of Europe, the size of its population, and the talents of its hard-working citizens keep pushing it to the forefront of European affairs, but disaster dogs its efforts to lead the Continent. Before each of the world wars, Germany threw away opportunities to assert a peaceful hegemony in Europe. As late as the Munich Accord, Britain and France were prepared to give Germany almost everything it desired--if it would only exercise its power in a peaceful way.

Now Germany has been handed a third opportunity to lead Europe--if it can rise to the task. To stabilize the East without losing the West, that is the road Germany must travel if, at last, it is to find its home at the center of a prosperous European order. Economic reunification of the Reich is the first step; though fiendishly complex and full of difficulties, it is by far the easiest of the many tasks that face Germany’s bankers and politicians today.

Once more the fate of Europe, and perhaps the world, is in German hands. The United States should wish Germany well and help out where we can; it will do us no good if they fail.