[clari.biz.economy.world] Cabinet agrees to plan on monetary union

clarinews@clarinet.com (PATRICK MOSER) (02/08/90)

	BONN, West Germany (UPI) -- The West German government agreed
Wednesday to begin immediate negotiations with East Germany on the
establishment of a monetary union between the two states, Finance
Minister Theo Waigel said.
	Waigel said at a news conference that Cabinet ministers had shown
particular interest in a proposed system that would introduce the West
German mark into East Germany, which would then have to give up its
monetary sovereignty.
	Economics Minister Helmut Haussmann, also speaking at the news
conference in Bonn, said it was possible to create ``a German-German
economic miracle, in both German states or in a unified state.''
	The proposal for a monetary union is largely seen as a step toward
the reunification of the two German states divided since the end of
World War II.
	West German Chancellor Helmut Kohl had suggested the monetary union
in what appeared to be an offer to bolster East Germany's troubled
economy, crippled by the migration west of an estimated 2,000 East
Germans each day.
	The Bundesbank, West Germany's central bank, had warned against
setting up a monetary union before East Germany had thoroughly reformed
its economy.
	But government and bank officials said Wednesday that Bundesbank
President Karl-Otto Poehl, in talks with government ministers, agreed
with the call for early negotiations on the issue with East German
	The move toward the monetary union was immediately praised and
criticized by some European economists, who said it would inevitably
cause complications in the European Community's monetary system.
	``Of course this will have consequences for the European Monetary
System,'' a European diplomat said. ``Consultations between EC member
states will be very important in this respect.''
	West Germany and eight other EC countries have linked since 1979
their currencies and the West German mark, the strongest currency, is
considered the linchpin in the system.
	In Bonn, Haussmann said the union could be agreed to before the
beginning of 1993, but Kohl said he wanted to act as fast as possible in
a bid to help restore confidence in the East German economy.
	Waigel said there were several possible alternatives for a monetary
union but he indicated that the West German government favored bringing
the West German currency to East Germany.
	``We have intensively dealt with and discussed the introduction of
the deutsche mark as legal tender in the GDR (East Germany), which would
speed up the mobilization of Western capital,'' he said.
	He said such a solution meant East Germany would have to
``partially give up its sovereignty'', hand over monetary control to the
Bundesbank and ``adopt our economic order and our economic laws.''
	Waigel also admitted that the proposal would initially cause some
problems, such as increase the rate of unemployment in East Germany.
	He said another, more gradual scenario would require ``patience,
political authority and much strength'' adding that ``it is questionable
whether these still exist in the GDR.''
	Poehl also told the Cabinet that ``he realizes one does not have
time and that he can understand the government is concerned and wants to
act quickly,'' a Bundesbank spokesman said.
	Kohl said earlier that although the proposed union could not be
established before the March 18 elections in East Germany, negotiations
should start soon because of the rapid deterioration of the East German
	He said he would discuss the issue with East German Prime Minister
Hans Modrow in Bonn next week.
	One European economist said the West German deustche mark was
strong enough to withstand a monetary union with East Germany.
	``The German stock exchange is on the upswing,'' said the financial
expert from Kredietbank, one of the major Belgian banks. ``Not only the
expected economic growth in West Germany, but also the expectations of
growth possibilities following German unification, are factors we should
not underestimate.''