The Price of Unity Was the Deutsche Mark Sacrificed for Reunification?

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Part 2: 'An Insidious Two-Class Model' Between the Mark and Franc


Expectations were therefore suitably muted when German Chancellor Helmut Kohl and French President François Mitterrand made another attempt to get the ball rolling in the mid-1980s. At the time, the French were particularly unhappy about the existing currency system, which they saw as an insidious two-class model that effectively penalized them.

By contrast, Germany's export-based industry thrived under this system because European exchange rates could fluctuate only within preset limits. That same European stricture was a disadvantage for Parisian financial and monetary policymakers, who found themselves helplessly at the mercy of the humiliating dictates of Germany's central bank, the Bundesbank. Every time the Bundesbank raised its interest rates, the French were obliged to follow suit. And every time prices in Germany rose a little faster than those of its neighbor west of the Rhine River, Paris had no choice but to devalue the franc. The system was thus a globally recognized symbol of economic inferiority. "We may have the nuclear bomb, but the Germans have the deutsche mark," officials at Elysée Palace, the office of the French president, apparently said.

In an attempt to defuse the conflict, the European Council -- the combined EEC heads of state and government -- assigned European Commission President Jacques Delors in the summer of 1988 to draw up a plan for European economic and monetary union. Just under a year later, Delors presented his plan for the phased introduction of a common currency. The concept was met with widespread approval across Europe, and even the major political parties in Germany agreed to it. However, one important factor was overlooked amid the general jubilation: The "Delors Plan" failed to resolve key areas of the dispute between Paris and Bonn.

'I Was Convinced We'd Have to Wait At Least 100 Years for That'

For instance, it said nothing about whether the future European financial regulator should be answerable to European governments (as the French had demanded) or be independent, like the Bundesbank in Germany. Nor did it clarify whether a common currency should be preceded by greater political union, which Bonn was keen to see, or whether the future European currency would be viable even without further European integration. And last but by no means least given the Franco-German wrangling over economic supremacy, the Delors Plan did not state whether the headquarters of the new pan-European central bank should be placed in Paris or Frankfurt.

So great were the differences that the then-Bundesbank president, Karl Otto Pöhl, saw absolutely no cause for German concern, believing he would never live to see the introduction of the planned European currency. "I was convinced we'd have to wait at least 100 years for that," Pöhl says.

Paris wasn't prepared to wait that long, and in the second half of 1989, France capitalized on the fact that it held the rotating presidency of the European Council. This six-month elevation to Europe's primus inter pares is always a useful opportunity to promote domestic agendas, and the German chancellery office in Bonn duly received increasingly urgent calls from Mitterand's staff at the Elysée Palace to speed up the pace of European monetary union. Indeed the French went so far as to insist the date of an appropriate intergovernmental conference for the following year be set by no later than the EEC summit scheduled to take place in Strasbourg on December 8 and 9.

'Public Opinion Not Ready to Give Up Deutsche Mark'

In Germany, all eyes were focused on a very different political date: that of the next general election, which was due to take place at the end of 1990. Chancellor Kohl was well aware that the abandonment of the deutsche mark would not only be resisted by the Bundesbank, the Finance Ministry and large parts of the conservative Christian Social Union (the CDU's Bavarian sister party), but also by the German people themselves. "The deutsche mark is part of our national pride," Kohl confided to US President George H.W. Bush. Giving up the German currency would have been tantamount to campaigning for the far-right Republicans party, which was busy gaining its first parliamentary seats in the European Parliament and regional governments on the back of brash anti-European rhetoric. That summer Kohl told Mitterrand, "Public opinion is not yet ready to give up the deutsche mark."

A few weeks later, he confirmed his statement in writing. In a letter to Mitterand, Kohl repeated Germany's assertion that currency union should be coupled with greater political union within Europe. The German chancellor demanded more rights for the European Parliament and suggested holding a second intergovernmental conference on institutional reform, whose deliberations would be completed in 1992 to coincide with the conclusion of the currency negotiations.

Mitterrand's advisers were aghast: They suspected the Germans were playing for time.

But while government officials in Paris and Bonn were playing a high-stakes game of poker behind closed doors, the German public knew little or nothing of the machinations of its elected representatives. At the time, the average citizen was gripped by the events unfolding on the far side of the Iron Curtain. In the summer of 1989, Hungary opened its borders with neighboring Austria. In October, hundreds of thousands of East Germans took part in the regular Monday night demonstrations in Leipzig. In November, the Berlin Wall came down.

From one day to the next, a topic that most people had previously considered far more utopian than the idea of a common European currency thrust itself into hearts and minds around the globe: Germany reunification. In late November, Kohl presented a 10-Point Plan to the German parliament to set up a German-German confederation so that "the German people can regain their unity by their own volition."

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