[clari.news.hot.east_europe] Bundesbank president backs proposal for monetary union

clarinews@clarinet.com (PATRICK MOSER) (02/09/90)

	BONN, West Germany (UPI) -- The president of West Germany's powerful
Bundesbank Friday endorsed proposals for the introduction of the
deutschmark to East Germany and said it would be a major step toward
reunification of the two countries.
	Karl Otto Poehl told a news conference in Bonn the suggestion of a
monetary union with East Germany is ``of national importance, possibly
even of historic importance.''
	Poehl earlier warned against rushing into such an agreement but
said Friday he and the Bundesbank fully back West German Chancellor
Helmut Kohl's suggestion for immediate negotiations with the East German
authorities on the issue.
	He admitted being taken by surprise by Kohl's offer to discuss a
proposed monetary union that would entail the introduction of West
Germany's currency and economic system into East Germany.
	Poehl said it is impossible to set a timetable for such a move but
warned that it could not be done overnight because many questions still
remain open, including the technicalities of switching from the East
German mark to the deutschmark.
	He said East Germany would have to be ``in a position and willing
to carry out radical changes to its current economic structures.
	``In reality, we are talking of the creation of a unified monetary
and economic area between the Federal Republic (West Germany) and the
GDR (East Germany),'' he said, adding that the plan was for the
deutschmark to become the only legal tender in East Germany.
	``That would be, if it comes about, a very important step toward
the economic and political unification of both states,'' Poehl said.
	``The aim is practically to reach a confederation in economic and
monetary areas,'' he said.
	Presenting the proposals earlier this week, government officials
admitted such a union would cause initial problems in East Germany, such
as an increase in unemployment, but could lead to a second German
economic miracle.
	``All West German firms -- large, medium size and small -- are only
waiting for the possibility to invest in East Germany,'' Poehl said.
	He dismissed fears that the proposed ``economic reunification''
would have inflationary effects and said the Bundesbank would not give
up its ``proven stability policy'' if the new system is adopted.
	He said the suggested union would not automatically stretch West
German monetary resources or lead to higher interest rates.
	``We have an extremely manageable capital market, we have extremely
high savings, so it is not at all necessary or compelling that a
stronger demand on our capital market for this purpose should have a
rate-increasing effect,'' he said.
	Bundesbank officials said the amount of money circulating in East
Germany is relatively low -- experts put it at about about 15 billion
East German marks, currently the equivalent of 5 billion deutschmark
($2.95 billion.)
	Officials hope a monetary union will help stop a massive migration
of East Germans to West Germany, which is further crippling East
Germany's already ailing economy.