Woe in the Wirtschaftswunder

In his holiday greeting to his 110,000 employees, Industrialist Alfried Krupp could not resist a reference to West Germany's economic woes and a sober prophecy that 1967 "will not bring any relief." It was a message that all of his countrymen could ponder: after years of heady prosperity, West Germany seems to be caught in a swinging door between present inflation and potential recession.

The economic strain, a major factor in the downfall of Ludwig Erhard's government two months ago, is even more visible today. More than at any other time since the Wirtschaftswunder (economic miracle) transformed war-torn West Germany into Europe's biggest trading power, television and automobile manufacturers are stuck with unsold stock, building cranes stand idle, and workers are uneasy about their jobs. The nation's economic growth, which has averaged almost 6% a year since 1950, dropped to barely 3% in 1966, is likely to dip to an icy 2% this year. "The economy," warns Fritz Berg, president of the Federation of German Industries, "has reached the most dangerous situation" in more than 15 years.

Days Off. Behind the threat of recession lies the reality of inflation. For years, West Germany's unchecked economic boom resulted in a spending spree on the part of consumers and government that kept prices moving steeply upward. To make sure that it could keep pace with demand, German industry hoarded workers, thus aggravating the already acute labor shortage.

As the cost of living soared, steps were finally taken in 1964 to cool off the economy--notably through the imposition of a 25% capital-gains tax on bonds held by foreigners, and new, tightfisted money policies by the Bundesbank.

Such measures were effective--although the result raises a bitterly disputed question as to whether they were for better or worse. By last summer, the domestic money market had so dried up that German businessmen advertised futilely in the London Financial Times for investment capital. Squeezed by rising labor costs and tight money, industry has pulled in the reins. The Krupp complex has a six-month supply of unsold trucks, may have to put 1,500 workers on reduced shifts. Volkswagen, with 84% of recent sales in overseas markets because of a severe drop in domestic demand, has cut 17 days off its production schedule for the next three months. In all, West German industry's capital investment is expected to be off 12% this year.

The slowdown's most disturbing effect is rising unemployment. Even though the jobless rate is low by U.S. standards, the number of unemployed has jumped from 120,000 to 330,000 over the past year, may rise to 600,000 by spring. "A disaster has not happened yet," says Federal Unemployment Insurance Chief Anton Sabel. "It's the trend that begins to worry me."

Stop-&-Go. Chancellor Kurt Kiesinger's new coalition government, fretting more about the possibility of recession than about the pressure of inflation, last month called on Karl Blessing's constitutionally independent Bundesbank to implement a "decisive relaxation of credit restrictions." That approach failed to win Blessing's blessing. Fearful that an easing of monetary restraints alone would lead to increased inflation, Blessing insisted that West Germany's federal, state and municipal governments curb their often lavish spending. Otherwise, he said, the country will wind up with "the same stop-and-go policy that has worked so badly in England."

Hoping that Blessing will agree to easier money when the Bundesbank's council meets this week, the Kiesinger government has given repeated assurances that it will push hard for a stabilization law establishing budgetary controls. Meanwhile, the country's economic woes are bringing about other much-needed changes. With profits suddenly more elusive, German businessmen have begun to streamline their often inefficient and haphazard operations. Recession-minded workers are taking pains to increase productivity while cutting down their chronic absenteeism. At the same time, there has been a belated realization that something has to be done about the structure of the coal and steel industries, which have, thanks to unrealistic government subsidies, long overproduced. If inflation can be halted and recession averted, West Germany could emerge from the current crisis with a more mature economy than it has ever had.

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