Erhard Urging West German Austerity

Press, Volume CIV, Issue 30944, 28 December 1965, Page 6

Erhard Urging West German Austerity

(N.Z.P.A. -Reuter— Copyright)

BONN.

West Germany is facing a wave of wage demands, coupled with a sharp rise in prices, while the Government preaches austerity to combat economic dangers.

Economic experts have warned that unless there are drastic cuts in Government spending and wages restraint, the country will price itself out of world markets, and the West German mark, one of the world’s hardest currencies, will be in danger. The fat years of the “economic miracle” seem to be over. The Government fears that lean years will follow undess the free-spending West Germans stop taking prosperity for granted. Chancellor Ludwig Erhard, returned to power after per-’ sonal success in the autumn election, is the right man for the difficult job ahead. As Economics Minister, he was architect of the spectacular rise of a defeated nation to second place among the world’s trading nations. But it looks as though Dr. Erhard now faces a task every bit as formidable as that which confronted him when steering the West German economic recovery. Will the German people, now used to unparalleled prosperity, believe his sombre warnings of hard times ahead? The Chancellor’s message of “concern and caution” in his Government statement at the beginning of November seemed slightly unreal in a country bursting with material well-being. The trade unions have long campaigned for a 40-hour week, and here was Dr. Erhard actually asking them to put in one hour more than the present weekly average of 44 hours. “There is no other way—we must cut down our demands or work more,” he said. The unions’ answers came while the Chancellor was confined to bed with a bad attack of influenza. Mr Otto Brenner, leader of the Metal Workers’ Union, said the “work-more” plea was an “unheard of provocation.” The 3,500,000-strong union promptly demanded an allround pay rise of 9 per cent. At the same time, the union made it clear that there would be no backing down from its existing agreement with employers for the reduction of the working week in the industry by one hour and a quarter to 40 hours by next July. Already, there are signs that other unions will follow the same course. Apprehension

The Employers’ Federation greeted the demand with “the greatest apprehension,” and a warning that the wage' increases must bring further price increases. This, in turn, could endanger West Germany’s competitive position abroad. As if to underline the warning, the big Volkswagen plant tempered its announcement of a big increase in output this year with news that profits remained largely unaffected because of rising costs. Shareholders were warned that if the trend continued the price of Volkswagen cars would definitely rise.

Part of the present difficulty lies in the acute labour shortage. West Germany has had to import 1,200,000 foreign guest workers and there are still 600,000 unfilled jobs. The labour shortage is reducing productivity, but consumption and investment continue at the same high levels. Labour costs are soaring, but output lags behind. Another alarming sign lies in the latest balance of payment figures. In the five years to Decern-

ber, 1964, West Germany showed an average annual trading surplus of 5500 m West marks. But the first nine months of 1965 showed an export surplus of only 616 m West marks. The deterioration is mainly because of increased imports from the Common Market to satisfy the high domestic demand. “Any further continuous inflation of income and main-

tained increase of prices must dangerously threaten our competitive position,” said Dr. Erhard. He can take some cold comfort in the first Parliamentary reaction to his decision to cut budgetary increases for 1966. The Bundesrat (the Upper House) decided that his planned economies of 2700 m West marks did not go far enough.