Under mounting political pressure to do something to stimulate West Germany's slumping economy, the Bonn government today announced a series of incentives to boost business investment, particularly in energy and new technology.
To help finance the program, West Germany and France formally disclosed a joint plan to float $6 billion worth of specially denominated credits on international capital markets during the next 18 months.
The new West German measures represent mild concessions by the center-left coalition government to labor unions and leftist Social Democrats who have demanded federal initiatives to revive the national economy and ease unemployment.
Bonn officials have resisted major new investment programs, however, fearing likely inflationary effects and worried already by the high level of the government's current borrowing.
A combination of high oil prices and foreign competition, particularly from Japanese firms, has squeezed the powerful West German economy into an expected decline of 1 percent or more in real growth this year. Heightened budget consciousness had led Bonn to stretch out or cancel several long-term defense programs and to seek curbs on West German payments to the European Community.
Outlining the 10-point catalogue of fresh incentives, Bonn Economics Minister Otto Lambsdorff sought to avoid describing them as a "stimulus program." Instead, he said they were being introduced to improve West German competitiveness and to aid companies adjusting to changes in the world economy.
The new funds raised will be set aside for lower interest rate loans to small and medium-size enterprises for investment, especially in new technology, energy-saving and oil-substitution projects. These businesses have been hit especially hard by the high domestic interest rates felt necessary by West Germany's central bank to attract capital and maintain a strong mark.
Opposition Christian Democrats called the measures insufficient, and the Association for German Industry also criticized the package, expressing its "surprise" at what appeared to be a rushed and inadequate set of incentives.
But Lambsdorff, a member of the probusiness Free Democratic Party, which is the junior coalition partner, said there is no need for West Germany to adopt a whole new economic program. He cited recent encouraging economic figures on incoming orders, production and retail turnover.
The West German-French loan, which Chancellor Helmut Schmidt had described as a French idea, is cleverly designed to avoid adding too much to Bonn's already worrisome borrowing requirement of an estimated $14 billion this year.
This will be done by channeling the special borrowing through the German Bank for Reconstruction, owned jointly by the federal government and the provincial states. In this way, the Bonn government will end up paying only the difference between the interest paid by the bank on the money raised abroad and the lower interest rates earned from the loans to industry for which the money will be used.