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German Policy Towards Europe and the Question of Convertibility

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German Policy Towards Europe and the Question of Convertibility German Policy towards Europe and the Question of Convertibility Monika Dickhaus Fakultät für Geschichtswissenschaft und Philosophie Universität Bielefeld Postfach 10 01 31 D - 33501 Bielefeld ph.: +49-521-106-3093 Introduction In May 1945 Germany surrendered unconditionally. With this act the Second World War came to a close in Europe and consequently new tasks came into sight. Once the enemy was defeated it was necessary to reconstruct the war-shattered European economies, to stabilize the respective societies and to create an enduring global peace settlement. It was obvious that the terms and conditions of this political and economic peace settlement were to be decided by the Allies. It was evident that Germany would not take part in the respective deliberations. Likewise was it clear that German ideas would not play a decisive role. Being defeated, occupied and destroyed Germany was - above all in the immediate post-war years - in the first place "an issue" only.1 This, however, changed quickly. While the creation of a world economic system proved to be complicated and thus protracted, the Western Zones of Germany or the Federal Republic of Germany (FRG; from 1949 onwards) became in the framework of the emerging Cold War an "occupied Ally".2 In addition, it became clear that Germany was an important economic potential for the European economic reconstruction. Last not least, after World War II there was a strong notion that the mistakes of Versailles, the peace treaty after World War I which had been imposed on Germany and which had poisoned international relations, should not be repeated. All this meant that Germany's goodwill had to be secured and that both Germany and German ideas had to be considered. Thus, over the years the FRG became an ever more important and active, though not yet sovereign, player as regards the questions of a future economic and political peace settlement. In the following I will deal with German ideas and attitudes as regards a future peace settlement. Putting the stress on monetary and economic issues I will analyze German reactions to the proposals put forward in the course of time and I will investigate into the role the FRG and above all its monetary authority, the German Central Bank (Bank deutscher Länder (BdL) until 1957; Deutsche Bundesbank from 1957 onwards) played in bringing about a new monetary and economic order. Since, however, in the post-war period economics and politics were inseparably linked I will also comment on political issues. The paper is structured as follows. First, I will specify the tasks ahead and discuss shortly the plans under consideration and the possible options. Second, I will comment briefly on the historiography of German foreign economic policy, thus putting the following into place. In the main part I will analyze the stance the German Central Bank took when facing the question of a monetary and economic peace settlement. However, I will not only deal with the attitudes of the German Central Bank and thus German financial circles. In addition I will include in the analysis how other circles reacted to the Bank's opinions. Thus I will be able to specify the role the Bank could play inside the German policy making process as well as elucidate the attitudes of other actors which are usually not considered extensively in this respect like for example German industrial circles as represented by the Bundesverband der Deutschen Industrie.3 The Tasks and the Options After the Second World War the major task was to remedy the legacy of the war, i.e. to reconstruct the war-shattered European economies, to stabilize the respective societies and to create an enduring peace settlement. However, it was not only the legacy of the Second World War that was on the agenda, moreover, also the legacies of the First World War, of the interwar years and of the world economic crisis had to be tackled. To recall: the First World War had led to the Treaty of Versailles and the severity of this treaty had not only poisoned the international relations but also it had - as his famous critic John Maynard Keynes had warned already in 1920 - hindered German economic recovery and thus had impaired _yet further ... the delicate complicated organisation, already shaken and broken by war, through which alone European peoples can employ themselves and live_.4 Although in the decade after World War I - as Charles Maier has pointed out - bourgeois Europe was "recast" and finally "a discernible equilibrium among economic interests, classes, and nations" had emerged, this stability was superficial and proved to be short-lived only.5 The world economic crisis of the late 1920s and early 1930s made the weaknesses of this settlement crystal-clear, and indeed by 1931 the economic difficulties resulted in a crash of the global monetary and economic system. In summer 1931 Germany introduced foreign exchange controls and in September of the same year the United Kingdom let the exchange rate of the Pound Sterling float freely. In the following years quantitative restrictions were put into operation and competitive devaluations were decided. Be it for the sake of the monetary reserves, be it for the sake of some employment at home protectionist tendencies blossomed and economic bloc-building was pursued. This, however, equaled "international economic disintegration" and was connected with a steep decline in world trade.6 After the war or, more precisely, during the war it was seen as a major task to reconstruct some economic and monetary understanding. On the one hand this system should allow international trade and it should provide some safeguards against protectionist tendencies. On the other hand, however, this system should also protect the mostly scarce monetary reserves and it should not expose industry to a too hard international competition. Furthermore, such a system should allow for reconstruction and modernization while at the same time allowing an economic policy which would take care of the aim 'full employment'. In the course of time several plans which aimed at the establishment of an international economic order fulfilling these requirements were put forward. I would like to comment on these and thus present the three most important options open to the FRG, namely firstly the Bretton Woods System, secondly the OEEC Cooperation and lastly what came to be called European Integration. The first attempts to remedy the legacy of the world economic crisis date back to the early 1940s and focused on the creation of a global monetary system. After lengthy, mainly Anglo-American discussions these endeavors led in 1944 to the Bretton Woods Conference. Here 44 countries agreed to establish a global monetary order based on fixed but adjustable exchange rates, convertibility of currencies, absence of exchange restrictions and an international supervisory authority, the later International Monetary Fund (IMF). Although the Bretton Woods Accord was signed and ratified by the necessary number of countries, the difficulties to realize it became soon obvious. Even after the envisaged five-year-transition-period only a small number of states was willing to accept the obligations laid down in this agreement. Thus, the global multilateral and liberal monetary order as envisaged in the Bretton Woods Accord was irrelevant for the foreseeable future.7 In addition, it must be noted that the concomitant world trade agreement, the International Trade Organization (ITO), on which 53 countries agreed in 1947, soon run into difficulties. While the US Congress refused to ratify this accord, only the provisional General Agreement on Tariffs and Trade (GATT) was put into operation. Although 23 countries accepted with their adherence to the GATT the application of the multilateral most-favored-nation-clause for their tariff policy, once more this episode showed clearly how difficult it was to realize a global economic understanding.8 Having realized the difficulties to erect a global economic system the US started to advocate regional economic cooperation within Europe from 1947 onwards. With George Marshall's speech in Harvard the US offered foreign economic aid on the condition that Europe would cooperate and that Germany would be firmly integrated within this framework of cooperation. This proposal - which came to be called European Recovery Program (ERP) or Marshall Plan - led to the establishment of the Organisation for European Economic Cooperation (OEEC) in 1948. This intergovernmental framework which was made up of initially 18, later 16 Western European members had the task to distribute the foreign economic aid and to foster regional cooperation. As a result in autumn 1948 a first, and in autumn 1949 a second Intra-European payments agreement were signed. Furthermore, in autumn 1949 the OEEC members agreed on a liberalization program for European trade. As a first step they decided to abolish quantitative restrictions on 50 per cent of private intra-European trade. With the establishing of the European Payments Union (EPU) with which transferability of European currencies was assured and new means of payment were provided it was envisaged to rise this quota to 75 per cent. This regional cooperation had several flaws. Apart from the fact that it was slow in providing concrete results of cooperation, the OEEC trade liberalization program dealt with quantitative restrictions on private trade without affecting the sometimes considerable portion of state trade. Furthermore, it must be pointed out that the OEEC paid no attention to tariff questions. Last not least it must be noted that escape clauses could be applied.9 While the intergovernmental approach as realized in the OEEC fell short from the aspirations of some countries, in spring 1950 the French foreign minister, Robert Schuman, proposed a European Community for Coal and Steel (ECSC). This proposal envisaged the pooling of the resources of the respective sectors and the administration of these resources by a new, supranational High Authority.
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