The Deutsche Bundesbank and
the Politics of Stability
In the postwar period, the economic performance of the Federal Republic of Germany was nothing short of remarkable. From a state of defeat and destruction, West Germany quickly rose to occupy a commanding position in Western Europe—indeed, in the world economy. As early as the late 1950s, observers talked about the "German miracle," and by the 1970s, they spoke of Modell Deutschland, a German model for other European economies. The much-admired basis for this miracle lay in West Germany's export-led growth strategy, which depended, in turn, on a comparatively low rate of inflation. Conventional wisdom attributes German price stability to the appearance of a new social consensus, founded in reaction to the hyperinflation of the 1920s. 1. After World War II, such memories of hyperinflation were certainly important. Yet since their influence dissipated with time, these memories—considered alone—simply do not suffice to explain the German phenomenon. This chapter argues instead that Germany's low rate of inflation is less the result of its prior experience than of its present institutional structure.
Particularly significant among German institutions is the independent Bundesbank, which is legally committed to the pursuit of price stability. Before 1973, the achievement of that goal was repeatedly thwarted by inflows of foreign capital. With the breakdown of Bretton____________________