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The Bundesbank: The Bank that Rules Europe.

David Marsh. Heneimann. 1992. 359pp. 0 434 45116 9.

From at least the seventeenth century there have been corporate institutions which have had incomes, personnel and power beyond that of some sovereign states. The Dutch East India Company is an example from the eighteenth century; General Motors from the twentieth. The Bundesbank belongs to this select number. It can also be linked to the pre-requisites of a united Europe, which have existed at least since the time of Trajan: law, bureaucracy, citizenship and currency. These are the touchpieces, the four tests as to whether Europe was at any time truly united.

The present Bundesbank is the lineal successor of the original Reichsbank, established under the Banking Act of 1875, just after the unification of Germany under the Second Reich. The Zollverein or Customs Union of 1834 had called for the standardisation of German coinage, but this did not happen until after unification in 1871. Even this bank was the successor itself of the reorganised Bank of Prussia established in 1846. Under the 1875 Act the Reichsbank was given a central note-issuing role, so the roots of the Bundesbank and its status, and perhaps its ambitions, go back a very long way indeed.

The present Bundesbank was born in 1957, succeeding the Bank deutscher Lander, set up by the Allies after the Second World War. The new bank's legal status reflected the needs of a country allowed again to ran its own affairs. The bank is statutorily independent from the German Federal Government. Since its creation no other monetary institution has been the focus of such mythology and mystification. Its direct monetary command spreads across today's unified Germany, the world's third most important economy and the home of one quarter of the European Community's gross national product, but its sphere of influence is enormous. Europe itself counts, it should be remembered, for one third of world economic output.

What overrides every other consideration in the life of the Bank is stabilitatspolitik (stability policy). It was natural therefore that when the European Monetary System (EMS) was created in 1979, the purpose of which was exchange rate stabilisation, that other currencies would gravitate towards, or track, the strongest currency, namely the deutschmark.

At the same time moves were set inexorably afoot, (indeed, in some ways had preceded EMS) to bring about a single currency within the European Community. In practical terms it meant that any currency joining the EMS ceded its monetary sovereignty to Frankfurt. Even outside the EMS, whatever the Bundesbank does affects world currencies. Its rate cuts and rises are eagerly monitored by financial analysts throughout the world, because it gears the strongest economy and currency in Europe, and, one is tempted to say, the proto-currency for the future united (possibly federal) Europe. The Mayor of Leipzig is on record as saying, when Germany was united in 1990, that |Now the language of Europe is German'. Perhaps we could also say that the future Central Bank of Europe is German. For the not-so-well concealed sub-text of all these monetary machinations is the proposed European Central Bank, envisaged by the Single European Act and subsequent EC treaties. Although the recession has put the single currency and the single issuing bank on the back burner, it is still there.

The author of this book, David Marsh, is the European editor of The Financial Times and an established authority on modern Germany. He believes that French enthusiasm for a single European currency and a European Central Bank is founded on a desire to shackle the D-mark and eventually to bring about its demise. Naturally, the Germans themselves are far from convinced as to whether they want the D-mark to disappear and be replaced by a single European currency. To put it mildly, the Bundesbank has a distaste for the ECU, the proto-European currency. It is of course arguable now that the original pivot of the EMS should have been the ECU, and not the D-mark. But that was a miscalculation, is now in the past and little can be done about it. The strongest currency quite simply became the yardstick of the system. Even the name of the proto-currency was minimised by the Bundesbank, which of course had other ideas. |You don't baptise a child before it is born', said Karl Otto Pohl, then the President. What has been desired all along, and not only by the Germans, is stability of the currency, and to ask the Germans to give up a stable currency in return for a monetary system which is less secure would be unrealistic, and would be a dis-service, both for Germany and for Europe. Perhaps the proto-currency is indeed already here, for if there is to be a single European currency, the Bundesbank's preferred solution is that this should be the D-mark!

But would this be politically acceptable to Germany's partners within the European Community? Otto von Habsburg has recently spoken strikingly of the need to protect wealth, where there is weakness, insufficient protection, for this invites attack. The wealth is mainly in Germany and mainly controlled by the Bundesbank. One of the representatives of the Bundesbank is credited with saying, |We are arrogant because we are good'. But the rejoinder to that seems to be: |If you are good, do you need to be arrogant?' A wealth of history is contained in some simple sentences. David Marsh has written a vital contribution to the understanding of late twentieth century European development.
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Author:Nash, Michael L.
Publication:Contemporary Review
Article Type:Book Review
Date:Aug 1, 1993
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