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262 Money and structuralchange in Europe .Vol. IX (1931"), Essays in Persuasion.Vol. xxv,Activities: 1940-44: Shapingthe Post-warWorld: The Clearing Union.Moggridge, D.E. (1986) 'Keynes and the international monetary system, 1909-46', inJ.S. Cohen andG.e. Harcourt (eds), International Monetary Problems and Supplyside Economics: Essays in Honour o fLorie Tarshis (London: Macmillan).Panic,M. (1992), EuropeanMonetaryUnion: Lessonsfromthe ClassicalGold Standard(London: Macmillan).Toroolo, G. (1988), Central Banks' Independence in HistoricalPerspective (Berlin andNew York: WalterDe Gruyter).Volcker,P.A. (1990),The Triumpho/Central Banking, The 1990Per Jacobsson Lecture(Washington, D.C.: International Monetary Fund).

12. The EMS and the B u n d e ~ b a n kin EuropeJoseph Halevi*

I INTRODUCTIONThis essay deals with the financial position of Gennany in Europe and the roleof Europein Germany's economic strategy. The central argument of the paperi s that the Gennan orientation is structurally, institutionally, as well as philosophically, anti-Keynesian orientated, so that the Federal Republic I has becomethe source of strong deflationary impulses for Europe as a whole. Gennanyconqueredthe roleof being Europe's deflationaryfactorin thecourse of a longhistorical process froni which Bonn emerged not just as the largest economyof the continent but alsoas thepolitical hegemon. Exceptin the 1990s,Gennanhegemony has been explici tly used to strengthen the economic posit ion ofGerman capital in Europe. .

The presentessay intends tohighlightthe mechanisms and thefactors which,in historical time, transfonnedGennany from a forceof economic growth intoa force of economic deflation. .Section Ii sets out the conceptual framework fonning the basis of the study,

along with the description of the main phas.es and of the central institutionalfeatures of postwarGennan capitalism. The postwarperiod will be "divided intothree main phases. The fIrst, from'the reconstrUction yearstill the verybeginningof the 1960s, ischaracterized by a process of cumulativecausation for ~ u r o p eas a who le . The second phase, lasting until the second half of the 1960s, isdescribed as an interlude period, in which thepoliticaleconomy of the BEe isdominated by the interaction between the balance of payments constraintandexport-led growth. Finally, the third phase, startin"g with the revaluation of theDeutschmark iIi 1969, covers the 1970-90 period during which Germanyemerged as a deflationary factorfor Europe as a whole.Section IIIanalyses thefinancial andreal aspects of the first phase of accu

-mutation. It is argued t ha t in thi s phase Germany's economic growth acted Iwish to thankthe ESRC PostKeynesian Economics Study Group, ProfessorMakoto Itohof

the University ofTokyo and Professors RolandeBonelly andAIdadel Forno of theUniversite PierreM e n d ~ s France at Grenoble for helpful comments during the preparation of parts of the paper.

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264 Money and structural change in Europefa v o u ~ a b l y on theeconomic expansion of the restof Europe in spite of the highlyoligopolistic nature of industry in the Federal Republic.The subsequent phases are analysed in the remaining sections. The fourthone attempts to show how the exportbias of theFederal Republic is tied to the

role played by the large industrialgroupsand to the functioningof theBundesbank.The fifth section argues that Bonn's hegemonic tendencies s u r f a c ~ d particularly during the stagnation of the 1970s. Finally, in the sixth section it ismaintained that during the 1980s the EMS has become the .institution ofGermany's hegemony. Conclusions are drawn in the seventh and last section,where it is argued that German capitalism is now facing the prospects ofstretching beyondEurope while having to confront the impact of the economiccrisis.

II THE CONCEPTUAL FRAMEWORK IN HISTORICALPERSPECTIVE

Fornearly the entireperiodfrom the1950s to 1990Germany'sposition in Europeis characterized by its' balance of payments surpluses, the most importantcornponentofwhich is netmanufacturing exports.2 Such asituationjustifies takingaKeynesian perspective, whichconsists in viewing theaccumulation ofcurrentaccount surpluses as deflationary and inimical to full employment. AtBrettonWoods, Keynes argued against the imposition of the burden of adjustment onthe deficit countries, since this would cumulatively move the internationaleconomy away from full employment. Analytically, Keynes's position hasbeenlucidly demonstrated in a little-quoted paper by Kalecki (1946), where it isshown that automatic flexibility in exchange rates cannot be relied upon torestorebalance-of-paymentsequilibriumsimultaneouslywithfull employment.Kalecki's approachmakesthewholeadjustmentprocessdependent upon thewillingness of the strong countries to dispose of the surplus by ,means of lowerin terest ratesandofahigherpropensity to import.Methodologically, thenoveltyin the Keynes-Kalecki approach lies in having tied the question of possiblebalance of payments disequilibria to the issue of how not to sacrifice fulletnploytnentobjectives.

In theeconomic and political literature, theproblemofGennany's persistentsurpluses has been treated mostly as a policy issue rather than as a specificdimension of theprocessof capital accumulation (in theMarxianand C l a s ~ i c a lsense). It is here that a second perspective - represented by the works ofKalecki, Sylos-Labini and Sweezy - may be brought in. It is well known thatfor this group of authors the consolidation ~ oligopolistic formations implies,at the tnacroeconomic level, the weakening of the endogenous impulses to

EMS and the Bundesbank in.Europe 265investment. Throughout the essay the Germaneconomy will be portrayed asthe mC?st coherent oligopolisticunitamong the 'Continental e c o n o m i e s ~ Sporadicreferences to theoligopolistic natureof the ~ G s economy can be found also.in mainstream literature. For instance, Steinherr andMorel (1979) attempted aformal explanation of the ability of German industry to expand exports in thewake of substantial appreciations of the Deutschmark. The authors assumedexportingfinns to bepricemakers operating witha givenmark-up. In thisway,exporters'would notbe compelled to bear thefull bruntof a revaluation becauseof the lower prices of imported inputs. By contrast, competitive producers, bybeing pricetakers, would become more exposed to international competition,thereby witnessing a decline in the profitability of their own operations. Consequently, resourceswould be shifted tothe otigopolistic,export-orientatedsectors.This approach, with its emphasis on large" finns, can be combined with an

institutional characterization of thehierarchical relations underlying theworkingof the Gennan economy. Institutionally, the focus 'of attention becomes theownership structure of Gennan industry centred around the links between thelarge companies and the banking system. Until now, the ownership,structureof thebig companies has not been muchaffected by the instability offinanci'al"markets, since:

Its essential poi'nt of reference lies in a delicate balance between foundations, institutions linked to companyemployees, and public agencies. all ofwhich arecoordinatedby the all-powerful and ubiquitous presenceof the large banks. (prodi. 1990, p. 147)In this way, the distribution of resources needed to feed the proces's of accumulation is notdetermined exclusively by thepricing policiesof individualunits,but by a whole network of institutional relations. Historically, the integrationbetween banks and industrywas not due to purely institutional factors; rather,it was connected to the fact that GermanY'8 industrialization followed thepatternof investment priority in the ~ a p i ~ l goods sectors and in heavy industry,all being projects where large start-up capital is needed.In' the postwar period, the heavy industry and the capital goo(is sectorscontinued to play the most irnpoJ1ant role both i thegrowth process and in theaccumulation of external surpluses. TheFROreceives thebulkof its s u t p l u s e ~throughmanufacturing exports. In this context, duringeach of the f ~ u r decadesfrom 1950to 1988, theinvestmentgoodssector always grewmore t h ~ t l theotherindustrial branches of the economy (Schneilin and Schumacher, 1992).3 Thisstructural evolution - which enabled Gennany systematically to ~ c c u m u l a t esurpluses - has been sustained by a banking system characterized by theuniversal bank, whose role is to providefinns with a wholerange 0f financialservices. In practice, theGerman economy is governed by thelevelof integra-

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w~

266 Money and structuralchange in Europetfon between the large industrial groups, whichare alsothe-main e x p o r t e r s ~ andthe three largest banks.. The i n s t i t u t i o n ~ l l i n k s between the banking systemand industrial enterprisesImply that the latter tend to use bank credi ts ra ther than going direc tly to the'pu?lic'. Finns are thereforesensitiveto therecommendations madeby the banks,whIch have also a virtualmonopoly of the operations of the stockexchange. Inturn, banks take a keen interes t in the objectives pursued by frrms. The preoccupation with price stabili ty is rooted i n t he above institutional nature of theGern:tan financial-industrial complex.

The universal bank borrows funds on a short - and medium-tenn basis andsup?lies long-term financing to fmns, including participationin shareownership,which, beyondthe threshold of a 'blockingminority', islegallytreated as a formof credit. In this context, inflationary conditions would tend to shorten the terrilstructure of borrowed funds, thereby compelling the universal bank to shift tomore conservative policies. Hence, a f irm stance against inflat ion by theBundesbank constitutes a guarantee of t he s tabi li ty of Germany'sfinancial-industrial complex. Thus, monetary policies orientated towardspricestability become an inherentfeature of the system(Nardozzi, 1983).The natureof the ownership structure of German capitalism implies that there has to be aconsistent relation between the policies of the universal banks a ~ the largecompanies grouped around them. This consistericy depends upon the positionof the Bundesbank. The l at te rac ts as the body defacto entrusted to safeguardtherelations between banks and big industrial concerns,which are alsothe majorexporters.

A clearexample of how the Bundesbank safeguarded the stability and credibility of the financial-industrial complex is given by the events of the 1970s.After 1972, the Bundesbank sustained - following the revaluation of the DM- the structural transformation of the pattern of accumulationfrom an extensiveto an intensive one. The economy moved from a pattern based on exports ofindustrial goods and imports of labour and money capital into one based onexporting advancedindustrial goods and money capital whileimportingindustrialgoods.

The importance of the n u n d e s b a n k ~ s role in those years Can be summarizedas follows. D u r i i l ~ -the phases of restrictive monetary policies, firms wereinduced toacquireexternal finattcing, thereby reducing thepressureon domesticfinancial tnarkets.4 The ittduceinent to usethe external channel came from theuniversal banks, whose bodies participate directly in the decision-makingprocess of finns. The action of the universal bank implied that the large rumswere in the best posit ion to use the external channel, since the minimum sizeof each single operation isquitelarge relativeto theoperationsof thesmall firms.Furthermore, restrictive monetary policies, wheninterpretedas a crediblestanceagainst inflation, were meant to modify the liability structure of the banking

....

EMS and the Bundesbank in Europesector.from s h o r t ~ to longer-tenn den

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However, the institutional structure of West Getrnany did enable its economytostrengthen itsposition amidstgrowingstagnationin Europe. Exports surpluses,heavily orientated towards capital goods,were the factors which enhanced theposition of the FRG over thelast twenty years. Yet, before reaching a situationin which the relative power of West German capitalism could benefit fromstagnatipn, the economicrelationsbetween theFRG andthe restofEurope wentthrough a phaseof positivecumulativecausation, followed by a shortinterludebefore thebeginningof a long and drastic process of structural change.After theSecond World War, Gennany's economy acted dynamicallyfor thewhole of Europe till the early 1960s. As will be argued in the nextsection, thispositive cumulative causa tion was made poss ible by the existence , a t theEuropean level, of US-sponsored institutions which mitigated the cleavagebetween industry and finance by keeping interest rates low and by softeningthe balance of payments constraint. In this framework, Germany's economicexpansion andEurope's growth werenot mutually inconsistent, although Bonnestablished, right from theearly I950s, a systemictrade surplus with itsEuropeanpartners.I t was during the 1960s tha t the regime of high accumulation of the 1950s

started to break down, ratherthan being transfonned into a regimeof pennanentfull employment. At the roots of thechange lay the emergenceof the balanceof-payments constraint as an instrument with which to enforce wage policies

_ .. 1 in order to obtain export-led growth. Fqr a while, this policy orientation implied\J 'V a defacto tug-of-war with theFRG, whosesurpluses declined substantially from

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o c c u p i e ~ areas (GARIOA) and the European PaymentUnion (EP!J)). The roleplayed by these institutions in removing thetraditional economic sources of intercapitalistconflictin Europe hastened acl1l:cial transfonnation in the technologicalbasis of the Continental e c o n o m i e s ~ Now thatthe controland acquisition of areasproducing steel and raw material was no longer critical to the process of accumulation, growth couldbe obtainedthrough the extension of the scale of output, by adoptingmass-production techniqueson awide variety of consumption andintennediate goods. Such a process requireda considerable period of retooling,in order to proceed to the ~ o n s t r u c t i o n of altQgether new productive facilities.

The nation state in each of the European countries was given the responsibility ~ providing the structural frameworkfor the reconstruction programmes,which,meanwhile, were unwittinglytransfonned intoprogrammes oflong-tennstructural change.The domestic role of the'state did not clashwith its Europeanrole, because the financial institutions which they had to manage in common(with the assistance of the United States)were orientated towards theexpansionand restructuring of production rather than towards the acquisition of profitsfrom purely financial transactions.6 As Milward (1984, 1992) has shown, thehallmark ,of the 1950s was the organizationof European institutionsaround theproductive role of the nation state.This required devising a system of international r ~ l a t i o n s l imit ing the autonomy of f inance and allowing the easytransformation of export surpluses into commercial credits. Thus, the growthobjectives pursuedby thegovernments and the industrialists in each nation statewere,notin conflictwith theexpansion of intra-European trade on a completelydifferent basis from the imperialist one of the pre-1939 period. The i ~ t e r p l a ybetween the institutional and the structural role of the state was made possibleby the pre..:eminently functional tasks assigned to financial agencies.? This intum pennitted t h implementation of policiesin which domesticwage deflationdid not contradictdomestic e x p a n s i o ~ b a s e d on retoolingand restructuring, nordid the latter contradict export and import expansion.

German economists d recognizethe roleplayed by the American-sponsoredinstitutions in thecreation of favourable financial conditions for development.Yetthe institutions of the reconstructionperiod are oftenseen as extraordinary

, steps,justifiedonlyby the need to create a newnon-conflicting fann of economicrelations in Europe, the implicitassumptioabeing thatafter a certain period thingswould proceed smoothly i a w o r l ~ of freemultilateral trade and of equally freefinancial flows.8 In reality, shortly after,the return to convertibility in 19?8 andthe freezing out of 1I10st of the safeguards of the 19508, the policy preoccupations of BEC countries were. increasingly centred on how to control domesticdemand in relation to perceived current account constraints. By contrast, themain feature of the 1946-58 periodlies in the intensity of the structural transformations and theirrelative consistency at theContinental level. This processwould have been impossible without 'accommodating financial institutions, in

270 Money' and structural change in,EuropeAfter 1990, the annexation of East Gennany and the prospectsof expanding

into Eastern Europe have altered the dimension of the strategic choices facingthe Gennan autl:torities. This will be discussed in greater detai l in the lastsection of the paper. Here, suffice it to say that neither East Gennany norEastern Europe are strong sources of profitable effective demand. There are,however, important areas for the development of productive activities which,on the one hand, are not profitable in West Germany., and, on the other hand,can cotnpete against the exports coming from thenewly industrializedcountries~ the Far East. Yet, as the EastGennan casehasshown, thecosts of operatingIn the East have caused the loss of the surplus position enjoyed by the FRG.As trade with Europe is no longer sufficient to generate the desired financialflows, Germany must resort to the f inancial markets in order to pursue itso b j e ~ t i v e s . The implementation of such a strategy from a position of strengthrequIres the defence of the confidence in the value of the currency bestowedby the international financial institutions. This is achieved by means of a new'spate of restrictivemonetary policies based on relatively high rates of interest.In .practice, Gennany is not interested in putting forward a Keynesian-type

solutIon to Europe's rising rate of unemployment. It follows that Europe hasto bearthe burden of financial adjustment in a negative way, therebysharpeningthe deflationary bias which has beensealing the wholeContinent in a situationof rising unemployment for well over a decade.

III THE FINANCIAL AND REAL CHARACTER OFTHEFIRST PHASE OFACCUMULATION'

The first phase of accumulation in postwarEurope can be lookedat as a periodin which the real dynamics of output had priority over financial interests, in thesense that thelatter weresubjected to thefonner. This period, although stretchinginto the early 1960s, goes from 1946 to 1958, which are also'the years duringwhich currencies were not convertible. With the return to convertibility after1958, balance-of-payments relations began to govern the growthpattern ofEECcountries.

For Germany's position in Europe,the importanceof those 12years consistsin th e fact that the economic dominance acquired by its industry -did not comeabout through the l ink between industry and imperialism which marked theprevious phases of Gennan capitalism.' The possibility of moving away fromthe imperialist connection between markets and raw materials, ~ h i c h definedso strongly the political economy of Europe rightup to theSecond World War,was adirect result of the financial andmonetary decisions taken forstrictlypoliticalreasons by the US authorities (Marshall Plan, government aid and relief in

EMS and the Bundesbank in Europe 271

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ciation of the US dollartended toreduce thecostof oil imports, butit alsoexposedthose countries to the American drive aimed at regaining international com-petitiveness. Given the weaknessin theirbalanceof paymentsposition, countrieslike France and Italy could not eschew the issue of whether or not to devaluealso their own currencies. Now, Europe's external t rade has a marked int raEuropean dimension in which Gennany i s by far the largest impor ter of theproducts of each single country. In these circumstances, the option to devaluedepended on the probabilityof succeedingin outcompetingGermany. The typeof policies involved is well represented by the Italian case. The Bank Qf Italyfavoured a revaluation of the l ira against the dollar, thereby reducing the costof oil, and a devaluation against theother European currencies, therebyenhancingItaly's exports vis a-vis Gennany's. This strategy was indeed successful as itallowedRome to achieve a balance of trade surplUS with Bonn (parboni, 1981).

The tendency towards a fonn of competitive devaluation did not escapetheattention of theSPD-Ied government and, especially,ofHelmut Schmidt. Facedwith the multifaceted effects of the devaluation of the US dollar under theCarterAdministration, the SPD government began to wony about how to linkEuropeancurrenciestogetherin ordertopreventthe creation of a monetary frontin Europe. Schmidt's advocacy of a European monetary system, although castin the grand visionof a unifiedEurope centred on Franco-German co-operation,is a testimony to the faith that successiveGennan leaders hadin theroleof industryin maintaining hegemony. They didthink that with controlled exchange rates,the productive, non-priceefficiency ofGennan industrywouldeventually carrythe day,leaving'theothers to undertake therequired adjustments.With theEMS,Gennany acquired the freedom to fight the fluctuations of the dollar throughinternailyco-ordinatedrestructuring.At the same time, BonnpreventedtheotherEuropean countries f rom using the exchange rate instrument to undercut itspolicies. ,

Conceived in a per iod in which the dollar was depreciating, the EuropeanMonetary System served Germany well during the phase of the appreciationof the US currency (1980-5). Thanks to the restrUcturing attd foreign investInentpolicies adopted in the precedingdecade, the FRO very quickly overcame thecurrent account deficit caused by the second oil shock in 1979. By 1982Bonnre-established its trade surplus with the oil-producing countries, while the riseof thedollar and theAmerican recovery generatedan expansion of the surpluswith North America, safeguarding, at the same t ime, the surplus with the'restof E ~ r o p e . The tnajority of theother European countries, by contrast, b e n e ~ ~ e dchiefly from the surplus 6btained from the United States.The external P O S I ~ O t lof the rest of Europe, 'measured in terms of the surplus of cutTentt ransactIonsover GDP, did become positive, but only briefly. After 1985, conjointly withthe resumption of the downward trend of the dollar, the rest of Europe beganto lose the surplus with the United Stat,es, while ~ deficit with Germany

280 Money and structural change inEurope EMS and the Bundesbank in Europe 281stayed, along with a growing deficit vis-a-vis Japan and the Far East. Duringthe second half of the 1980s, Europe,became even more importantas a terrainfor the implementation of the FRO's e x p o r t - ~ r i e n t a t e d strategies, because ofthedecline inBonn's surplus with the USA andthe expandingdeficit withJapanand the Far East.

On thewhole, the two phases of the 1980s a u g m e n t e ~ Europe '-s dependencyon Gennany. In the first phase, the improvementin Europe's external positionwas duemostly to the purely contingent factor represented by the policies ofthe R e ~ g a n Admiitistration. No significant amelioration took place on theGennan front. Furthennore, the negative effects on investment caused by theAmerican policy of highinterestrates, leading to the revaluation of the dollar,necessari ly had a more detrimental effect on the weaker countries than onGennany. The weaker countries would have needed a comparatively greaterdose of investment in order to undertake the restructuring necessary to face upto Gennan competition. In the s e e o n ~ phase, those countries found themselveswith at leastone hand tied behind their backby theEMS, thereby failing to identifya favourable terrain on which to compete against Bonn.

Gennan economistshave praised theEMS on the groundthatit showed greaterflexibility than the Bretton Woods system (Giersh et al., 1992). A closer lookat theirarguments reveals thattheirpreference for theEMS is based on the factthatit preservedthe Bundesbank's freedom of movement in a context in whichthe othercountries 'did more or less adopt the anti-inflationary stance of WestGermany's central bank' (Giersh et al., 1992, p. 254). TheEMS in factmagnifiedthe limitations of the European Snake by tilting the system of payments in averyanti-Keynesiandirection (parboni, 1981; Samuelson, 1991). This is becausethe technical innovation broughtabout by the EMS, the BCU, does notconstitutethe creation of an international curren'cy. Interventions a re based on EEecurrencies and on thedollar; externaldeficitsare largelyfinanced by borrowingdollars. Countries can avail themselves of substantial intra-EMS credit facilities,but the amounts borrowed have to be repaid withina very short period of time,thereby putting on the deficit country the pressure of adjustment. Within theEMS thereis noinstitutionalmechanism by which the weak: countries can compelthe strong ones to weaken their position, which is precisely what Keynesattempted to avoid at BrettOtl-Woods. A weak currency country must deflateand/or strengthenits currencyrelative tothose of the othermembers of thesystem.

The convergence towards the Bundesbank's monetary policies is, therefore,a built..in characteristic of thesystem in' the light of the inflexibility ofBonn'sattitude,which,as arguedearlier,stemsfrom a structural conceptionof the inter

, national position of the German economy. On the other side of the fenceseparating Germany f rom the rest of Europe, economists have tried to rationalizethe asymmetric balanceof powerbymeans of the hypothetical advantages

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which would be earned by pegging one's currency to the DM (Giavazzi andPagano, 1988). The argumentruns entirelyin tenns of the credibilityto be gainedin te rms of future inflat ion rates, relat ive to a long-run posit ion characterizedby the so-called natural levelof unemployment. Even leaving asidethe dubiousnotion of a natura l l evel of unemployment, the credibility approach does notallow any room for a discussion of the implications of such an exchange rateregime for countries having an economic structure and financial organizationvastly different from theGennan one.

The institutionalization of theFRG's degree of freedom through the EMShad, for some major countries, eithera straightdeflationary effector a perverseone. France fal ls within the fonner category whi le I ta ly belongs to the lattercase. Theimpactof the EMS regimeon thesetwo countriesis importantinorderto grasp the ramifications of Gennany hegemony within the EEe. Together,France and Italy represented by theend of the 1980s 22 percent of the FRG'sworld trade and 41 per cent of its EEC t rade. Moreover, in the light of the deindustrializationof GreatBritain andof the s t i l I ~ w i d e gapseparatingSpain fromthe other large economies of Europe, France and Ita ly are the only two largecountries withthe potential tochallengeGennany in a relevantrangeof industrialproducts. The argument which follows will maintain that theEMS regime hasactually weakened such a potential.

As is wel l known, in t he e ar ly 19805 the French socialist government wasfaced with the conflict,between the social objectiveof reducing mass unemployment and the altogether different orientations of financial institutions,which were more concerned with inflation andthe preservation C?f the valueofthe currency. The govemtnentopted for thesecondapproachby means of a policybased on fiscal restriction and on thedefence of the exchang.e rate of theFrenchfranc vis-a.-vis the OM. The level of the exchange rateturned out to be the mostimportantcause of the growing t radedefici t, in aphase when theoverallgrowthrate of the economy' began to s low down towards that of Germany (Parguez,1992). Slow growth in Germany and slow growth in France meant, however,two different things.The privileged position enjoyedin Gertnany by the capitalgoodsindustry (Harrigel, 1989)allowedtheFROto attain largeexpo rt surpluses.By contrast, the picturethat emerged inFrance isthatof a stalledeconomy withunemployment hovering around 10 per cent from 1985 t il l the eruption of thepresentcrisis (Cotta, 1991). Indeed, whileGennany duringthe 1980sincreasedits dominant role in Europe as a producerand exporter of capital goods,Francelost ground to countr ies l ike I ta ly inmany consumpt ion goods , as wel l as ininvestment goods servicing directly the consumption-goods industries. Thegrowth of services and of electronicindustriescould not offsetthe negativeimpactof the relative declineof the coreindustrial sectors.On the opposite side of the spect rum, I ta ly represents a case of perverseadjustment t o t he exchange rate mecharlisin inauguratedby the EMS. Italy's

282 Money andstructuralckange in Europe EMSand the Bundesbank in Europe 283growth rateremained during the1979-90period significantly above that of the.other large European economies, although'itdeclined more sharplythan in th erest of Europe, if measured againstthe 1973-9 period. The country's participation in the EMS involved aprocessin whichthe devaluationof thelira,relativeto the EeU, was less than the inflation differentialvis-a-vis theother countries,thereby causing a realappreciationof the currency. Recallingnow that theEMSregime compels the weak countries to strengthen their own currency, Italy's

- way of.adjusting to the EMS seemed reasonable to avoid a harsh disinflationbecause the economywas coming from muchhigherinflation rates than the r e s ~of the EEe. -The real;appreciationof the currency compelled Ital ianfirms toundertake a

radical restructuring in technological terms. Yet, given thatItaly's industrialstructure isvery different fromGennany's, thereal appreciationof the lira, takingplaceunder conditions of relativelyhigh growth rates, led to persistentexternaldeficits. Italy's growth benefited t he FRG mor e than any other E u r o p ~ a ncountry, as Bonn's t rade surpluses with Rome showed a s trong expansionthroughout the 1980s.

As noted by Graziani (1991), theBank of Italy confronted this si tuation bymeans of capital inflows attractedby a policy of high interest rates. As a consequence, th e ratio between the external debt andGDP rose from 8.7 pe r centin- 1982 t o 15.19 per cent i n 1990. Furthennore, since Italy d id not enjoyGerman-type export surpluses (which represent an e s s ~ n t i a l source of profitsfor Gennan companies), restructuring alonewas not a- sufficient condition forrestoring the profitability of firms, which had been dented by the c'risis of the1970s and the recession of the early 1980s. The crucial factor which broughtprofitability backwas the flow of transferpaymentsby thepublicsectorto firms(Graziani, 1991; Bank.of Italy, 1988).It aly's monetary authorities fostered restruct u ~ n g by combining fixed exchange rates wi th inf la tion, whi le using publ icexpenditure to helpthe profitabilityoffinns. fu this context,the country'smacroeconomy was locked into a situation of high interest rates and rising foreignand public debt. '

For both France and Italy, theend resuit of tying their monetary policies tothe stabilityof the exchange rate system had negativeeffects. In France, theseeffects manifested themselves chiefly through the weakening of its industrialstructure and'the persistence of a high rate of unemployment hovering around10 per cent. In I t aly, as a rgued by Graziani , the effects have been felt mostlyby the public sector through its transters to firms, in 'order to finance restructuring, ~ n to individuals,in order to mitigate theimpact of unemployment. Thecombination of high inte rest rates with a r i sing foreign debt, whileimposingon the public sectorthe Ulsk of restoring the profitability of fIrtns, has led t oanintractable situation in Italy's public finances. By the end of the 19805, both

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284 Money and !tructuralchange in Europe EMS and the Bundesbankin Europe 285Italy and France found themselveswith amuchreduced degreeofmanoeuvrabilityrelative to Germany.

VII THE NEW POSITION OF GERMANYThe acceptance of the EMS by countries like Italy and France represented aninstitutionalized acceptance of the hierarchical relations which characterizeEurope's political economy. During the last d e c a d e E ~ r o p e has had tocomplywith Bonn's use of the EMS according to Bonn's priorities (Kennedy, 1991).Europe, by being the FRG's main area of effective demand, became also theperipheryofGennan capitalism. The shareof the FRG's ~ u r p l u s e s obtained withinthe EEC increased from about 44 percent in 1985 to more than 62 percent in.1989, a period in which governments strengthened their resolve to adhere tothe EMS. The peripheral character of Europemanifests itself in that, if any ofthe large countries reflates, its impact on the rest of the EEC will be limited,whileGerman industry, present in the whole spectrum of Europe's interindustry Tnatrix and capable of quickly generating commercial credits, is poised tobenefit significantly.The acceptanceo f this stateof affairs led to the fonnationof twomyths withinbusiness and dominant political circles in the rest ofEurope. The first concernsthe expansionary effect of a speedy institutional unification of the EEC. Thesecond relates to the supposedly beneficial, but longer-tenn, impact of thecollapse of thepolitical regimes in Eastern Europeand in theformer SovietUnion.As to the expansionary impact ofEuropean unification, it is important to

remember that virtually identical argumentswerevoicedduring thephases leadingto the fonnation of the Common Market in 1957. those expectations turnedout to becorrect because industries were then operatingmostly from andwithina domestic framework. Furthennore, the high growth rates and the correspondingly highlevels of capacity utilization prevailing at theend of the 1950smeant that national industries had to plan for further expansion in order to beable to operate at thelevel of thenewly bomCommonMarket. In fact, industrieshad ten years to adjusttheir productive capacities, since barriers tomovementsof industrial goods were formally abolished in 1968.A totally different situation prevailed in the mid-1980s. Export and directinvestment networks had already been in place for nearly 20 years. Productivecapacities were, by and large, already adjusted to the size of the, much larger,EEC market. In this context, the decline of the growth rates of the economiesfonning the EECimpliedthat theEuropean productive apparatus tendedto displaynot insufficient, but excess, capacity. As such, theprospectof European unitywas unlikely to stimulate a significant expansion in overall investment. Only.a COT1111l0n reflationary policy couldhave initiateda newinvestment wave. Yet,

with the FRG sitting right on its surpluses and with currencies pegged to theDM, theprocess towardsEuropean unity was taking placewithin an unambiguousscenario marked by real deflation.The truly novel element of the post-1985 situation has been theliberaIiza

tion of capital movements. Given the autonomy conquered by the FRG'smonetary authorities, financial liberalizationimplied adopting a policyof highinterest rates in order to maintain the exchange rate with theBCU.At thesame time, it should bepointed outthatthe pressure towards financialliberalization was an objectiveone, rooted in the financial aspectsof theprocessof capital accumulation at theEuropean level. The 1980s have been marked bya very rapid increase in the number and size of acquisitions across Europe.Gemiany was at the very centre of the process. Unlike e l s ~ w h e r e in Europe,the strategy followed byGennan companies has been orientated more towardsacquisitions which enhanced theirmarket share than to short-tenn financial gains(Prodi, 1990). Gennan companies b e ~ e f i t e d from three factors: the accumulation of external surpluses by the banking system; industrial strength; andownership structure. The latter factor introduces a crucial asymmetry in themechanismof acquisitions andmergers. Thecloseinterconnectionbetweenbanksand industries m a k ~ it verydifficult forforeign companies to acquire a G.ennanone, whereas no parallel obstacles existforGerman companies investing abroad.Thus, the expectations generated by the g ~ a I of European unity were, as faras the rest ofEuropean ~ a p i t a l i s m is concerned, largely mythical in nature. Theexistence of unused capacity ruled out an investment boom, the monetaryarrangements ruled outa c()mmonreflationarypolicy, capitalmobility expandedthe sphere of action ofGennan finns in a contextof a slow growth in aggregateEuropean demand.A similar fate. awaited theexpectationsraised by theend of the previousregimesin Eastern Europe and in the former USSR. In the wake of the dissolution ofEast Gennany, many European companies thought that the fortner GennanDemocratic Republic (GDR) could be used as a means to penetrate moredecisively into ~ Gennanmarket.This possibility vanishedwithin a veryshortperiod of timeas the spaceof theODRwas quickly taken by Gennan companies.As for the rest of the Eastern European and Russian front, suffice it to say thatGennany now provides nearly50 per centof total exportsto thefonner Comeco:ncountries as against 41 per centin 1980.The increase in the FRO's export toEastern Europe and Russia is, h o w e v e r ~ taking place under conditions ofnegative growth in t h ~ t part of the"world. Therefore, very little room is left forthe.rest of Europewhich, by and large, d o ~ s notpossess thefinancial means to. meet the Gennan hegemony in the East.By the end of the 1980s, the two myths ended upmutually reinforcing eachother, only tO,unravel together at the onset of the new decade. The systematicdecline in the consensus sustaining the identity between European integration

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and European m o n e ~ union originates in largepart from.within businesscircles.This is particularly t ~ u e of France. One source of the political crisis lies in thefact that, faced with the profound transfonnation undertaken by the Germaneconomy from the early 1970s onward, large segments of Europe's industrialand financial groups accepted German hegemony, hoping to join forces withthe FRG and its institutions. In reality, they had to confront German competition in an environmentof lowgrowth rates inWestern Europeand of economicimplosion in the East.

The situation which matured at the very end of the 1980s also generated forGermany a different set of objectives relatively to the other components ofEuropean capitalism.These objectives relateto competitionwith Japan and theFar East and to the issue of the annexation of the GDR.By 1990, the Federal Republic was the only European economy with a

productivecapacity able to function at the world level. On thebasis of the IMPclassification,Bonn had 17 percent of the total value ~ exportsof the industrialcountries, far above Japan's (8.5 percent). Themodel of accumulation followedby Bonn, led by exports and direct investment, looked to theBEe as its mainarea of effective demand. In 1970 theFRG's tradewith therestof theEECwasnearly balanced.Twenty years later, in spite of steadily declining growth rates,the EEC provided the vast majority of the FRG surpluses, the main source ofwhich are netexports of investment and capital goods. During thesameperiodthe United States, due to the heavy fluctuations of the dollar, proved to be arather volatile areain which toobtain surpluses. In particular, theexportsurpluswith theUSA shrankfrom 1985onward, while theoverall share of the surpluson current transactions overGDP jumped from 2.4 per cent ~ 1985 toa peakof 4.9 per cent in 1989. The institutionalized nature of the relations linkingGetmany to theEEC through theEMS, shelteredBonnfrom the effects of thedevaluation of the US currency.Japan, by contrast, bore the brunt of Washington's exchange rate policies,

which are usually accompanied by direct political pressures. The share ofJapan's surplus relatively to GOP peaked in 1986 a t 4.3 per cent, only todescend to 1~ percent in 1990 (the German share was then 3.2 per cent). Thisfactor, coupled with fresh pressures by the United States on otherEast Asiancountries as well, compelledJapan andthe EastAsianecononues to acceleratethe expansion of exports anddirect investttlenttowardsWesternEurope. In thiscontextGermany, while deriving itsstrengthfromWesternEuropeand theEEe,showed, like the rest of th e Continent's economies, a growing deficit withJapan, the Far East and China. Thus, by the end of the 1980s the necessity toconfront the Far Eastern competition, coupledwith the need to counterfurtherfluctuations in the US dollar, became more urgent. Other European countriesalso faced this problem, but their weakersituation has brought them to see the

286 Money and structural change in Europe EMSand the Bundesbank in Europe 287EEC as aplaceof safety. Thisexplains theopposition byItaly, France and Spainto the imports of Japanese cars, even when produced in the UK.Germany, on the other hand, had, as in part still has, a wider set of instru

ments at its disposal. The accumulation of surpluses, the ensuing strength ofits currency, the world-wide nature of its productive capacity, allow the FROto confront thematterdifferently. In a situation of stagnant demand, expansioninto the Far East is becoming absolutely,essential for Gennl1ny,especi'ally inthe light ofChina's high growthrate, theonlysignificantbrightspptin t h pres,ent situation. The penetration into the FarEast,China,included, imposes a fonn ofmanaged trade and investment relations with'Japan, for whom this_area isbecoming the major source of net exports . Germany, therefore, is not asadamantly opposed to Far Eastern exports as are France, Italy and Spain. TheFRG's strategy appears to be more orientated towards a fonn of economicdiplomacy based on reciprocity and on mutual links between German andJapanese firms. In the final analysis, however, the capacity to expand into theFar East\vill dependon theflows of direct investment and commercial creditsthat Bonn cangenerate. Yetthe financial means to undertakethisstrategymustcome from a continuingGennan hegemony inWestern Europe, because thelatterprovides the overwhelming majority of the surpluses from which Bonn'sfinancial institutions derive their leverage over international capital markets.Western Europe and the EEC,now theEU, must PlaY an even greater rolein financing the FRO's efforts in the Eastern part of Europe. The opening up

of an Eastern European sphere of influence has been the decisive factor whichhas pushed Bonn to flI11l up andeven i n c r ~ a s e its degreeof freedom within theEEe, in consequencescuttlingthe process towards European m ( ) n e t ~ union.Thisproblem, withits multifaceted aspects,is worthconsidering iri some detail.

The type of German hegemony prevailing in Europe till 1989-90 waspredicated upon,Adenauer's conception of ensconcing the FRO finnly withinWesternEuropean polity.Havingobtained through theEMS adegree of freedotnnotavailableto theother Europeancountries, Bonncould dealmoreeffectivelywith the fluctuations of the US dollar. Consequently,it also found itself betterendowed to meet the competition coming from Japan and the Far East. This'deeply asymmetrical situation brought other auropean countries to express, concern as well'as political dissent. The rest of Europe is,lhowever, too weakto negotiate a change in the rolesof the game, so that themanifestationsof dissentbecame major factor in the internal political crisis of the countries concerned(France,Britain). The change in the rules of the g ~ came from GennaiJy itself;that is, from the body that shaped them in thefirst place.

The opening up of theEast gave rise to an ambiguous attitude on thepatt ofBonn's authorities. German industrialistsl bankersand policymakers knew verywell that. th'e East is not a wasteland. I.n tenns of technical capabilities, of thelevel of scientific and technical education of its population, Eastern Europe is

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far from being underdeveloped. It is its internal division of labour, the composition and specification of its output, which doesnot, yet, suitthe requirementsof capitalistcompetition. The newsituation in Eastern Europemade itpossibleto envisage, in the l o ~ g e r run, thecreationof aGennan economic zonedependenton the FRG in relation to the transfer of technology andcapital goods, butalsocapable of acting as a recipient of the restructuring processes t ~ k i n g place inGennany itself.The creation of such an area would a lso be consisten t with the need to

compete against the Far East. Once restructured under German technical,Inanagerial and financial supervision, large partsof Eastern European industrycould, in fact, become exporters of products which are not the dominant onesin the FRG and which compete directly with those of Far Eastern countries.According to this scenario, Eastern Europewould have a persistent current accountdeficit with Gennany that wou ld have to be financed by means of exportearnings with therestof the world. Thestronginterestshown by Gennany towardsEastern Europeis proved by the favourable attitude adopted byBonnin relationto Eastern European exports to the EEC. By contrast, Italy, France and Spainhave shown much greatercaution on this issue.The Eastern European pull has changed in a very complex way the roleplayed byWestern Europe in Gennany's political economy. The fonnulationof a long-tenn strategy towards the East imposes an inward-looking approachon Bonn's authorities. The destructuring of theold economic and social system,a necessary political condition in order to open up that part of the world, hasbroughtabout a process of economic implosion in those countries. This meansthat whichever of the present forces happens to hold political power there, itwill not be able to devise a meaningful strategy of integration into the worldcapitalist economy. Such a strategy will have to come from external interests,with thelocal power groupsoperatingin a satellitefashion. Gennany isthe onlyEuropean countrywhich has a global interest in redesigning the p o ~ i t i o l l of theEast. This interest has been vastly augmented by the annexation of the fortnerGDR. The annexation could have allowed for the full exploitation of thechannels linking the former GDR to the rest of Eastern Europe. However, theprocess of destructuring has tended to undothe aforementioned links. It followsthat, in order to take advantageof itsprivileged position in Eastem Europe, theFRO Inust concentrate on a comprehensivestrategy of restI"U:cturing, beginningwith EastGennany andmovingoutwardto thefonner Czechoslovakia, Hungary,Poland, the Baltic states, Slovenia, Croatia and also Ukraine. Over thesecountries - but not over Russia - Bonn can expect to exercise strong politicalinfluence.Thecosts of the Eastempull- highlightedby theEastGerman case - involveaprolonged loss of the currentaccount surpluses which Bonn hasso painstak

ingly accumulated, to the point of dragging the whole of Europe on ~ a

288 Money and structural change in Europe EMS and the Bundesb{lnk in Europe 289deflationary path. It is at this point that thereiations betweenGennany and ~ rest of the EEC take on an altogether new dimension. The EEe must remainthe FRG.'s dominant area of profitable effective demand. Yet the surplusesobtained from the BEe and the res t of Western Europe are not enough tof i ~ a n c e the multiple objectives of Germany's .institutions and corporations.The financing of theseobjectives ~ u s t c o ~ e , therefore, also from the financialmarkets.In the absenceof theprevious surpluses, Bonn.'s leverageover financialmarkets depends on the stability of the real-value of its currency. Restrictivemonetary policies u n d e ~ recessionary conditions (1992) mean that WesternEurope is being called upon to finance Germany's way out of the balance ofpayments difficulties caused by the Eastern factor, presently embodied in theproblems caused by the annexation of EastGennany.The formation of 'Great Germany' and the necessity to intervene in EasternEurope.has ledBonn's authoritiestodefend at allcosts their degreeof freedom

in matters of monetary policies. Thisis the source of the ambiguity in relationto the now defunct process towards a European monetary union. Even theminimal requirement of a voluntary transfer of international reserves to acommon E u r o p ~ a n body became a matter of disagreement between theBundesbank and the European Community, in spite of the fact that the EMUprojecthas been largely structured aroundBonn's needs.Bonn's determination to shift the burden of adjus tmen t on to the o therEuropean countries is based on the implicit assumption - s t r e n g t h e ~ e d by theexperience of 20 years ofmonetary p o l i c i e ~ accompanied by econonucrestructuring- thatGerman industry hasthe technical capacity to ~ n d e r t a k e a new waveof transfonnations under the s e v e r i ~ y of high interestrates.However, thepresentsituation is verydifferentfrom that of the 1980s,.when,alongwith mass unemployment, thereexisted significant,albeit c o n t r a d l ~ t o r y ,elements of dynamic change. The early 1990s, when all t h c o n t r a d l ~ t o ~aspects of the previous decadecame to a head, were characterIzed by a r l s ~ ~ nthedegreeof unused capacity andby falling profitability. As shownby the cnSlSof Japan, thegrowth ratesof theEastAsianand theChinese ~ o n o m i e s , a l t h o ~ g h.impressive, are not sufficientto act as a strong counterweIght!o.therecessIonin therest of the industrializedworld. In tliese circumstances, It IS much moredifficultto rationalizeproduction,since the persistentdownward t e n d e n c i ~ ~ e a d sto the appearance of new and undesired excess capacities. Therefore, It-IS byno means certain that Germany can use restructuring as in. the past. Thus,Gennany' $ attemptto maintainits hegemony under"much-deteriorated c o n d ~ t i o n s ,rather than leading to a new set of rules, may simply meall a new step In theevolution of thecrisis withits long-termnegative consequenceson employment.

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REFERENCES

1950 1960 1980 1988Mining 80 106 82 65Basic industries 21 54 117 123Investment goods 18 58 122 149Durable consumption goods 28 65 114 115Food industries 29 64. 121 129Source: Schneilin and Schumacher (1992, p. t23)

Bank of Italy (1988),Ristrutturazionefinanziaria delle imprese (Rome: Bank of Italy).Boltho, A. (ed.) (1982), The European Economy: Growth and Crisis (London: OxfordUniversity Press).Capitani,G. (1981), 'Investirnenti all' estero e intemazionali1Zazionedell'economia tedescanegli anni '70' in Valli (ed.) (1.981).Carlin, W. and J.8cob R. (1989), 'Austerity policy in West Gennany: origins and consequences',Economie appliquee,'41( 1): 203'-:38.

J. ~ i n c e our period ends in 1990, we should use the tenns 'Gennany' and 'Federal Republic'tnterchangeably. For thesame reason, theEuropean Unionwill be referred to as the BEe.2. I t i s true th.at Bonn has lostsucha surplus in 1991. However, this wasneither dueto a spontaneous adjustment. nor to a policy-induced correction inspired by. theneed to help European

r e c ~ v e : > , p"?grammes. The Gennan deficit was, rather, causedby thevirtual impossibilityofachieVIng Simultaneously the objective of incorporating a formerly independent state andholding onto current account surpluses.3. Taking 1970 = 100, the production index for the main industrial sectors of theFRO was:

EMS lln.d the Bundesbank in Europe 291Ciocca, P. and Colonna, O. (1981), 'La politicaeconomica della Germania federale e isuoi riflessi intemazionali', in Valli (ed.) (1981).Cotta, A. (1991), La France en panne (Paris: Fayard).Dal Bosco,E. (1992), 'La GrandeGermania fra Este Ovest', Rivistadi Storia Economica,9(3): 249-53. ' . .Frateschi, Co' (1981), 'Salari e profitti nell' economia della Germania federale neldopoguerra', in Valli (ed.) (1981).Giavazzi, F. and Pagano,M. (1988), 'The advanthgeof tying one's hancfEMS'disciplineand central bank credibility' , European Economic Review,32(5): 1055-75. .- Giersh, H., Paque, K.H. and SchtrtiediJ;lg, H. (1992), The Fading Miracle (Cambridge:CambridgeUniversityPress).Graziani, A. (1991), 'L' inflazioneitaliana degli 30ni ottanta',Note Economiche, 21(3):458-69.Harrigel, Go. (1989), ' I n d u s t r i ~ l 1 order and the politics of industrial change: mechanicalengineering', in Katzenstein (ed.) (1989).Hennings, K. (1982), 'West Gennany', in Boltho (ed.) (1982).Kalecki, M. (1946), '"Multilateralism and full employment', in Collected Works ofMichel Kalecki (London: Oxford UniversityPress, 1990), vol. 1, pp. 403-16.Kalecki, M. (1971), Selected Essays on the Dynamics of the Capitalist Economy(Cambridge: CambridgeUniversityPress).Katzenstein, P. (ed.) (1989), Industry and Politics i West Germany (Ithaca, N.Y.:Cornell University Press). Kennedy, E. (1991), The Bundesbank (London:Royal Instituteof International Affairs).

Milward, A. (1984), The ReconstructionofWestern Europe, 1945:-51 (London: Methuen).Milward, A. (1992), The European Rescue of the Nation-State (London: Routledge).Nardozzi, G. (1983), Tre sistemi creditizi. Banche ed econom-ia in Francia, Germaniae [talia (Bologna: 11Mulino). . ..NaIling,W. (1993),Monetary Policy in EuropeafterMaastricht (London:MacrruJlan).Parbani, R. (1981), The Dollar and its Rivals (London: Verso). "Parguez, A. (1992), 'Budget austerity in France', Paris: u n p u b l i s ~ e d paper.Prodi, R. (1990), 'The economic dimension of the new European balances', BancaNationale del Lavoro Quarterly Review, 173: 139-54.Reich, S. (1990), The Fruits of Fascism (Ithaca, N.V.: Cornell University Press).Samuelson, A. (1991), Economie internationale contemporaine (Grenoble: Presses-Universitairesde Grenoble). .Schlesinger, H. (1977), 'Recent developments inWest G e ~ 3 O ~ ~ n e t ~ policy', in S.F.Frowen et al. ( e d s ) ~ Monetary Policy and EconomIc ActIVIty In West Germany, (Guildford,Surrey: Surrey University Press). . , .. .Schneilin"G. and Schumacher, H. (1992), Economie de I Allemagnedepuls 1945(pans.ArmandColin).Schumpeter, J. (1928), 'The instability of capitalism', in J. S c ~ u m p e t e r , . E s ~ a ) ' s onEntrepreneurs, Innovations, Business Cycles and the EvaluatIon of CapitalIsm, ed.Richard Clemence (Oxford: Oxford Transaction, 1989), pp. 47-72. .Steinherr, A. and Morel, C. (1979), 'The reaction of prices and ~ the b a l ~ n c e ofpayments to revaluation of the DeutscheMark', Weltwirtschaftllches Archlvt 115:425-49.Valli, V. (1981), ' 'Sviluppo setlzaoccupazionein un paeseimportatoredi forza l a v o r ~ :il caso dellaGennania occidentale', in ValIi (ed.),L' Ecoflomia Tedesc':l' lA Germanlafederale verso I' egemonia'economica in Europa (Milan: Etas Libri).

Money. and structural change in Europe90NOTES

4. As Nardozzi (1983) shows. this was achieved by means of restrictive policies which createdan interest ratedifferential between theEuromarket rate and thedomesticrate.Withthe fonnerlower than the latter, firms were pushed by the banks themselves to obtain credits on theEuromarket.5. According to Kalecki, 'The export surplusenables profits to increase above the level whichwould be determined by capitalists' investment and consumption. It is from this point of viewthat the fight for foreign markets may be viewed. Thecapitalistsof a country whichmanagesto capture foreign markets from other countriesare able to increase theirprofits at theexpenseof the capitalists of the other countries' (Kalecki, 1971, p. 85). . .

6. In the above context the function performed by theEuropean Payments Union (EPU), 'can betaken as an example. It allowed theEuropean economies,and Gennany in particular, to takefull advantage of the expansion of effective demand for capital goods created by the Koreanwar. In fact, while the Koreanwar generated a capital-goods boom fortheGennany economy(Carlin andJacob, 1989), it alsocaused,initially,a severebalanceofpaymetlts crisis forBonn.Thebalanceof payments constraintwasthen relieved bya US loanespeciallyapprovedby EPU.7. The structuralrole of the stateconsisted in that itacted direcdyon thecreationofpositive Jongtertn expectations (in the sense of chapter 12 ofKeyness GeneralTheory).8. This view is still presented today withoutthe benefit of historical hindsight (Nolling, 1993). .9. Milward (1992) has shown that Europe's exports to West Gennany increased during thet950-8 period morethan Europe'stotal exports. In the sameyears,the FRG exports t()WesternEurope expanded less than total Gennan e x p o r t ~ .