West Germany, according to a new congressional report, "appears on the verge of a major economic recovery," enough to make it once again "the powerhouse of Europe." Growth this year is projected as high as 4 percent, up from 2.4 percent in 1985.
But some of the very latest indicators -- as well as a skeptical internal assessment by the German Bundesbank -- cast doubt on the optimism of this report, suggesting that Bonn's major allies, led by the United States, are right to be pressing the coalition government for even greater stimulus.
Just prior to the Tokyo economic summit, a senior Reagan administration official suggested that Germany accelerate its planned tax reductions, and then snapped: "We want them to grow more so that they can . . . take more of our imports, so that they won't be firing as much this way. Germany is sitting there with a negative inflation rate, 9 percent unemployment and a doubling of its [international] surplus, and they're not willing to go along with us in this most recent interest rate reduction."
He was referring to the U.S.-Japan-led reduction of central-bank interest rates in April.
But heavily influenced by Finance Minister Gerhard Stoltenberg, the West German government won't budge, although the U.S. suggestion on taxes has been endorsed by West Germany's five senior economic-research institutes.
The report, by Joint Economic Committee economist John Starrels, makes the point that Stoltenberg, a Christian Democrat, is following his party's conservative line, which gives priority to reduction in West Germany's budget deficit over long-term growth. But other observers make the point that there is no real support among the Free Democrats, either, for an expansionary policy. In Germany, fear about price inflation crosses party lines. In fact, it borders on paranoia, even though the inflation rate hovers between zero and a minus number.
All of the political pressure comes from the outside -- from Germany's trading partners and from organizations such as the International Monetary Fund. In its recent "World Economic Outlook," the IMF for the first time devoted a chapter to analyzing the impact of economic policy decisions by each major nation on the others.
In deference to sensitivity among individual nations, the IMF chapter as published is a watered-down version of policy recommendations made in private by IMF Managing Director Jacques de Larosiere. Nonetheless, it still pointedly calls on Japan to cut its trade surplus and, in milder terms, suggests that fiscal restraint in the United States be matched by a more stimulative policy in Germany.
Germany, as Starrels says, looks very strong at the moment. Japan's global trade surplus last year of around $50 billion gets great attention, but Germany is not far behind with a surplus of $30 billion (40 percent of that with the United States). It owns the world's largest monetary reserves -- $45 billion at the beginning of 1986. And from 1960 to 1980, per-capita income quadrupled, while gross national product expanded fivefold. Thus, by any definition, the German nation and people are among the richest in the world.
The weak spot in the statistical picture -- and one that argues most convincingly for greater expansion -- is that record high unemployment number. Labor in the past few years priced itself out of the German industrial sector, accelerating the trend to automation: about 2 million jobs, net, were lost to machines between 1979 and 1983.
The German government contends that when adjustment is made for the different ways in which the jobless are counted here and in Germany, the 9 percent rate there isn't so shockingly different from U.S. rates. And besides, they say, recent experience shows that it's counterproductive just to throw money at the unemployment problem.
But the argument for stimulus is broader-based. As the JEC study shows, the great German economic success since the end of World War II can be traced to export-driven growth nurtured "as a result of membership in the Western economic order." Exports and imports now account for about one-third of the German GNP. (In the United States, the same figure is about 11 percent.)
In other words, the case made by other industrial nations and the IMF is that West Germany (like Japan) owes the rest of the world something. Yet, a former U.S. government official with wide business contacts in Germany says: "If the U.S. position is that the Federal Reserve Board won't cut interest rates here again until Germany does, it may wait a long time."
To be sure, things can change swiftly. The Kohl government may be worried enough about the growing threat of an agricultural trade war with the United States to give in to Treasury Secretary James Baker's drive for coordinated action on exchange and interest rates. And if actual GNP growth rates don't hold up to the projections, foot-dragging in Bonn could end abruptly.