THE GERMAN BALANCE OF PAYMENTS CRISIS, 1950-1*
In October 1950 I was asked by the Managing Board of the European Payments Union to join Per Jacobson in preparing a report on the growing German deficit with the EPU.
The crisis had blown up suddenly in the wake of the Korean War which broke out towards the end of June 1950. It was feared that hostilities would spread and produce a confrontation between the Western Allies and the Communist countries, leading to a cataclysm of world-wide proportions. Consumers in many countries, including Germany, rushed to buy what they could; manufacturers and traders also sought to lay in stocks, especially as wholesale prices, which had been falling, started to turn upwards; and governments from the autumn onwards embarked on an all-out effort of rearmament which strained and distorted their domestic economies and created new international imbalance.
At first there was no sign of anything untoward in the German economy. Since the currency reform in 1948 there had been an astonishingly rapid recovery in German production and exports. Industrial production accelerated, doubling in two years, while exports doubled in successive years and the volume of exports of finished goods, which had been only about 12 per cent of the 1936 level in 1948, was almost back to the 1936 level by the third quarter of 1950. This phenomenal expansion showed little sign of slowing down: the volume of exports, for example, was nearly 50 per cent greater in the third quarter of 1950 than it had been in the first.
The rapid increase in Germany’s trade, however, made her more vulnerable
* Published (in German only) in Die Korea Krise by Gustav Fischer Verlag (Stuttgart and New York) for the Ludwig-Erhard-Stiftung Ev. Bonn, 1986. This volume contains two further papers of mine on the German crisis: first, a report on the activities from 28 October to 3 November 1950 of the two experts (Jacobsson and myself) appointed by the Managing Board of the European Payments Union (this was presented to the Managing Board on 9 November 1950); second, a much longer report on ‘The Handling of the German Case after February 1951’ by the European Payments Union. This was circulated on 9 August 1951 to a few officials of the OEEC only, not to the Managing Board.