NEW GERMAN SOVEREIGNTY ECONOMIC IMPLICATIONS OF THE NEW POSITION

Press, Volume XC, Issue 27499, 5 November 1954, Page 12

NEW GERMAN SOVEREIGNTY ECONOMIC IMPLICATIONS OF THE NEW POSITION

[BP

"LYNCEUS"

of the ••Economist-)

{From The Economist Intelligence Unit)

London, October 26—Ever since the results of the nine-power London conference on Germany’s position in Western Europe were published, public interest has been focused almost entirely on its political implications. Very little interest has yet been taken in a most important aspect of the likely results of this conference, namely, its economic repercussions for Germany, for Europe and for Britain. In Britain these economic repercussions are viewed as falling into two quite separate parts. The first is the effect on the balance of payments of the fact that from a given date the charge for maintaining British troops in Germany will cease to be borne by Germany and will fall on the shoulders of this country That will be a twofold burden, a burden on the taxpayer who will have to provide the pounds needed to make these additional payments and a burden for the balance of payments and the reserve, since the pounds in question win have to be converted into marks. The other aspect of these economic repercussions of the London conference on Britain is of a much wider and more diffuse character. It is concerned with the likely effect that Germany’s contribution to the defence of Western Europe will have on Germap wages, costs and capacity to compete in world markets. In dealing with these problems one is handicapped by a certain lack of precise information; but there are some figures that should help us to see clearly through what is still a somewhat misty and imprecise picture. Regarding the flrst point, the occupation costs and the likely effects of changes in these on the balance of payments, it is known that these amount to nearly £600,000,000 a year. The greater part of this is spent on current needs of the occupying troops but about £100,000,000 is accounted for by capital works, the building of airfields, barracks, and so on, which will continue after the occupation, statute comes to an end. As for Great Britain, it seems probable that if military establishments in Germany are maintained at anything like their present level, the balance of payments between Great Britain and Germany may move against us and in favour of Germany to the tune of about £80,000,000 a year. A "Sizable Figure” This- is a sizable figure, especially as it will have to be fitted into a balance of payments which is already running appreciably in Germany’s favour,’ as may be Seen from the current position of the’United Kingdom and Germany in the European Payments .Union, where Germany still heads the creditors while the United Kingdom is first among the debtors. This additional burden will not, however, be felt immediately. Germany will continue to pay the odcupation 'costs until next June and will then pay one half for a year, so that the full burden will not fall on: Britain until June, 1956. Some offsetting factors must be taken into consideration. These arise from the second of the broad series of economic repercussions of the London agreement, namely, their impact on German industry, on the German wages and costs structure and, therefore, on German capacity to compete m the markets of the world. It is widely believed in Britain—and the view can hardly be contested—that one_ of the explanations of the extraordinarily rapid and dynamic rein the general level of industrial activity and of prosperity in Western Germany in the last three years is to be found in the fact that Germany has not had to bear any r S ab i e I re ? Em a burden. This has meant in the first place that the budgetary charges and, therefore, the fiscal burden on industry has been less 'han those borne by other countries E. ur °P e - The occupation costs which Germany has paid have been proportionately smaller in terms ot national income and taxable revenue than the burden which ”e-

armament has placed on most nucountries of the North Atlaniir Organisation uc «a Apart from this the absence appreciable rearmament efto? Western Germany has me-"" i whole of the product of Getnu * dustry has been available for ! consumption, capital develonnZ? home and exports. That, no dS one. though only one. of the ” reasons why so substantial a i» tion of the products of Germ.?' dustry in particular, has been s mediately available for exports helps to explain the astoni*il l successful show which has been 2 by German exporters in world"’ kets in recent months. How far is this likelv to be afk. by rearmament in Germany, finite answer to this question e»? given as long as precise details available of the likely size and ex the new German army or the to which the United States win initial stages at least, contribute s' equipment. There are, however 1 ports that a German army o f i? 500,000 men would involve a, penditure of close on £1 onondim. 1 the' first year and very nearlyiJ that figure in the second. Ever, smaller figure would nearly the current expenditure by GerS on occupation costs. * This is a development which cm hardly be without serious efled the German budget and on Gen, taxes. It may well be, therefore.# looking to the next few y«m , degree of German competitions, expected by British firms nunsomewhat softened by this a higher tax burden to be botS Germany. Gernun Industry’s PetentU! | The other point that arises in o context is whether there is in & man industry room for expahsim production sufficient to take in stride the rearmament programme, at the same-time to maintain tbe.cn rent level of domestic consiumti and of exports. Some potential tm , pansion certainly exists. Though th, is a larger volume of unemplovj in Western- Germany than exists Britain today, it is also well resiii that within this- moderate redusuta of labour there is in fact an an shortage of skilled labour espeth in the engineering industries a will be those most directly affecte rearmament. Another point to best mind is that the creation of an sn of, say, half a million men will itself have an immediate and subsh tial effect on the labour situation.! this score it can, therefore, be arm that the economic repercussions German rearmament will be to ti some of the keenness oft the edse German competition in the worldm kets, by conducing to a gene though probably modest, increase the level of German wages and of cos t lt may well be, however, that c rise m wages and costs will be mJ than compensated tor by a contimi increase in the productivity of 1 German worker. In this context tte is an interesting parallel to be dm with the experience of British Mi try, when it was called upon in 11 to face the sudden acceleration of :i rearmament programme. At tbst tii it. was not the unwillingness ot tl industrial worker to make the > ditional effort required; it was s sheer lack of essential tnateriii which caused the machine to move much lower gear than had h< hoped. Steel was the main problr There was not enough of this h commodity to meet the addition needs of rearmament, to maintain fc domestic capital programme cr.tf» feed the export markets. That 11: handicap from which the German re armament programme and the Ge man economy should not sutler, fact, it may be argued thof the m tribution which Western Germany make to the defence of Europe is precisely the added stin to demand, which is now requital maintain the dynamic rate of pansion in German industrial tai tion, which here and there is be ning to show a few signs of tai off,