The Sparkle Costs More

Though they have traditionally been noted for their frugality and discipline, West Germans today are grandly living, as they like to put it, wie Gott in Frankreich -- like God in France. Wages are rising almost twice as fast as productivity, imports are climbing twice as fast as exports, and the government has been spending much more than it has collected in taxes. The cost of such xtravagance is West Germany's gaudi est inflation in 15 years. With consumer prices up almost 4% from a year ago, the German Hausfrau has to pay $1.08 for a dozen eggs, $2 a Ib. for not-so-tender beefsteak. Last week Chancellor Ludwig Erhard, his re-election safely behind him, finally announced a cut back in government spending.

Mothers Must Wait. To wipe out a projected $1.75 billion deficit in the 1966 budget, the government slashed its defense outlay, aid to Berlin, civil service pensions and civil-defense spending. While it refrained from boosting corporate or consumer taxes for fear of inviting a recession, it symbolically hiked the tax on two national luxuries: sparkling wine, of which the Germans now consume more than the French, and schnapps. Most important, Erhard announced plans to renege on some of his party's pre-election promises by paring or postponing bills that were to give bigger handouts to his country's already well-subsidized refugees, mothers, students, farmers and coal miners.

Whether noted for its craft or its courage, the decision pleased German businessmen. They have been grumbling that the government's grandiose spending has nourished inflation and--worse yet--used up so much bank capital that private companies are hard put to find investment funds. Complains Ernst Schneider, president of the West German Chamber of Commerce: "The public sector is making demands on capital to such an extent that interest rates have reached a level worthy of an underdeveloped country." The Bundesbank has hiked Germany's discount rate twice this year, to 4% at present, and business loans commonly cost 7% to 8%. Still, German industrialists seem willing to pay the price to expand, have increased their investments 14% so far this year.

Chewing into Gold. A mixed blessing that flows from the country's inflation is the rapid climb in wages, which have risen 10% in this year's first six months to an average of $39.30 for a 41-hour week, the highest industrial scale in the Common Market. The rise has stimulated a surge in consumer demand not only for German products but for foreign goods as well. While helpful to the domestic economy, this spur has pushed up imports 22% (while exports have climbed only 10%), thus creating a $1.3 billion balance-of-payments deficit for the January-September period and chewing into Germany's $7 billion hoard of gold and foreign exchange.

German economists profess to be unperturbed, contending that the deficit is only temporary and that the country's high level of exports shows that Germany's fabled industry has lost none of its competitiveness in world markets. Furthermore, if West Germany's economy is not quite so miraculous as it once was, it continues this year to be better than that of any other major European country. The highly regarded German Institute for Economic Research predicts that the German economy's real growth rate, up 5% this year, will rise another 41% in 1966.

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