the atmosphere it generated — the United States to the rescue — was important in giving the Germans hope for the future (though the contribution now seems quite small: Germany had less than France or Britain, and the amount received was less than had flowed in in the early 1920s, when American bankers speculated in the then wildly inflationary Mark). The presence of energetic American businessmen backed by generals who understood something of engineering was no doubt also important, but the essential was their insistence upon intra-European trade. Already in 1952 the great German firms were back on the European scene — Mannesmann, Krupp, BASF, Hoechst, BMW, Siemens-Schuckert, their chemicals and engineered goods popular worldwide. The German recovery then rolled on, with hardly a break, for the next quarter-century, but it was only the most striking example of an overall phenomenon in Europe. France, then Italy, experienced similar ‘miracles’. With the USA and Japan, western European countries became the richest on the globe.
The growth in foreign trade — at 6 per cent after 1948 — went faster than that of the GDP. Later on, foreign direct investment and capital mobility also rose faster. In Germany, for instance, the economy grew by two thirds between 1950 and 1958, but foreign trade nearly tripled, and exports rose from a quarter to two fifths of total output. What caused this boom in trade? Financial security mattered, of course, because the pound and the dollar had fixed parities. So did technology — much cheaper and more efficient (and uglier) ships. A sales team could travel by aircraft, and petrol was very cheap, at not even one dollar per barrel. But an important factor was the willingness to trade, to get rid of the tariffs that got in the way. The GATT was another of the post-war institutions, and in 1947 its first and most important meeting was held at Geneva. In the context of the Marshall Plan the Americans recognized that they must not stop Europe from selling in their market, and reduced their own tariffs by 35 per cent, though the previous heights had been absurd and the tariffs still remained strangely high by other standards. Overall, there were 123 agreements between trading countries, covering 45,000 different items, which corresponded to about half of world trade. There were two further GATT ‘rounds’ up to 1951, but they were less important, and mainly just confirmed what had been done. The central institution of the Marshall Plan, the OEEC, was now adapted to follow this, and changed its name to the Organization for Economic Co-operation and Development (OECD, with us still). When the European Payments Union (EPU) started, it too was an engine for liberalization. At the time, currencies were quite strictly controlled — the British could take only ?25 if they went abroad, the sum being marked in their passports — and the EPU existed to convert the one into the other in a closed system. The Marshall Plan provided a loan of $350m for the basic capital, and otherwise member countries contributed according to their resources and requirements. In the fifties it was a more than qualified success and the Code of Liberalization (for trade and investment) was the enduring monument to the Marshall Plan. It was proclaimed in September 1949, after the devaluations had set up manageable exchange rates. Overall OEEC countries’ exports increased by 1.7 times between 1948 and 1955, and trade within the OEEC bloc by 2.3 times. Countries were now competing, instead of sheltering themselves from more efficient producers, and the result was, apart from other benefits, low inflation.
West Germany was the locomotive. She became the largest market for the exports of all her western neighbours, and Italy. An export surplus might have led to inflation, as the profits returned to a domestic market, and the answer to that was to import so that domestic producers trying to increase their prices would face competition from abroad. Under Ludwig Erhard, Germany had a director pledged to liberalization there as well, even if in the short term it might harm some local producers. Erhard, like other prominent economists of that period, had learned from the Nazi era, when protection had been the rule, and Joseph Schumpeter (a brilliant economist who had once been Austrian finance minister before proceeding to a Chair at Harvard) even said that Germany in 1931 had ceased to be a capitalist country because so much was regulated by the State. An ex-NCO, thumbing through your underwear on a border, in search of paper money, said it all.
But, beyond that, there was a whole school of German historians and commentators who appreciated that what had gone wrong had something to do with the monopoly-capitalistic and protectionist ways of the last generation before the First World War. It had been called ‘The alliance of Iron and Rye’. Behind protectionist tariffs the great heavy-industrial works on the one side, and estate-agriculture on the other, had had a charmed life; finance capital, since the banks were part of the charmed circle, had joined in. Some crumbs from this table had been thrown to millions of peasants. Accordingly, there was a majority bloc in the Reichstag in favour of protection, and Germany had not been part of the world’s trading order on the same terms as, say, Britain or Belgium. Germany might have developed as a normal Western country, a sort of huge Netherlands, but instead, in politics, liberals and social democrats were in a large but hopeless minority; and some outstanding interpretative works on German history have been written in exposition of this (Lujo Brentano, Ralf Dahrendorf, Alexander Gerschenkron and, today, David Blackbourn). Now, with ‘Iron’ under a Ruhr Authority or an ECSC, and ‘Rye’ occupied by the Russians, there was a chance for a normal Germany, and Erhard well understood what he was doing. He had a strategy. Like so many other good financial managers, he was not a good politician, was happiest with businessmen, themselves generally none too good with politics, and was impatient with men less intelligent than himself. He needed Konrad Adenauer, who had the right and complementary gifts.
It was a measure of the change in Germany that Ludwig Erhard, a Bavarian Protestant, and Adenauer, a Rhineland Catholic, worked together, because the religious divide had been vastly important and even, in its way, a reason for the Nazis’ rise (the third of Bavaria that was Protestant had voted quite heavily Nazi, the Catholics, hardly at all). Erhard at least had a clean record, and had acted as an obscure adviser to some retailers. He emerged as executive director of the Economic Council for Bizonia, which the Allies set up in summer 1948 as a prototype for a West German government. His appointment was a fluke — one man’s resignation had been forced, and the politicians could not agree on anyone else. The fluke meant that Germans, at last, had a lucky break. All the other candidates were thinking only of more efficient rationing and some reduction of the tidal wave of paper money; then they would go over to a planned economy, such as the French and British were supposed to be doing. Erhard said no. He would ‘jump into the cold water’ of the market, would deregulate, would scrap much of the rationing, and would introduce a new currency altogether. The old one, with its endless noughts, would be abolished, and holders of these notes would get only limited compensation. That way, the entire wartime and pre- war debt would be wiped out; the tidal wave of paper money would become an orderly stream, and people who set prices would be free to do so without government dictation. After an uncomfortable moment or two, West Germany prospered, but there was another vital difference from the past. Erhard did not try to beggar his neighbours if they fell into deficit trouble because German competition undercut their goods and weakened their currency. By 1955 the EPU had become a machine for taking German money to pay for the trade deficits of other Western countries, and especially France. This was the financial base for the various meetings that led up to the Treaty of Rome. Erhard could have exchanged his winnings for dollars, and for a build-up of reserves. But Germany was now European — the solution that so many intelligent central Europeans had foreseen.
If a country were to be judged by its institutions, Germany was a nearly perfect place. The makers of the constitution were wise men of the Philadelphia class (some of whom had in any case been German). They had a truly dreadful precedent from which to learn. The republican constitution set up in 1919 at the historically enlightened town of Weimar had been designed to show the Americans how very democratic Germany had become. This was an effort at gaining American sympathy in Germany’s hour of defeat, and the men of Weimar proceeded with a literal-minded clumsiness that had a majority of Germans voting either for the Nazis or for the Communists within a dozen years of relentless elections, proportional representation, referenda, constitutional-court cases and the paraphernalia of self-destructive democracy. The method of decentralization had given the country seventeen different governmental spending and borrowing points, and finance soon became a headache: a hugely destructive inflation early on, an even more destructive deflation ten years later. Now, the wise men in Bonn composed a very sensible and even a model document. It was quite short, as these things go. There was decentralization of a sensible kind. States — eleven
The rules for politics were also sensible — a system of proportional representation, but not one that allowed tiny local parties to enter parliament. Rights of a basic kind were spelled out, and these included those of small children to be brought up by their mothers: tax was not to fall so heavily on the father that the mother would have to go out to work. Then again, Germany had the great benefit of not having a single capital, sucking in all of the
