Macropolicies focused on stability and growth
When the deutschmark was introduced in 1948, after years of painful
experiences with previous paper money, West Germans were able to hold a
stable currency in their hands for the very first time. The deutschmark proved to
be particularly stable under the Bretton Woods system with many currencies –
most notably the French franc – depreciating against it.
Low inflation rates, resulting from the Bundesbank’s long-termism in monetary
policy, were the primary factor in the deutschmark’s stability. The central bank’s
strategy also led to the introduction of a money supply target (before all other
central banks) and thus to lending controls based on trend growth rates. Even
though the Bundesbank managed this goal pragmatically, its strong focus on
stability meant the German base interest rate often rose a lot earlier and more
sharply than other countries. For example, after the second oil crisis the
Bundesbank raised interest rates to put a brake on inflation. The French,
meanwhile, kept the base rate unchanged in an effort to curb the oil shock’s
negative effects on growth.
German industry adapted to the consequences emerging from the varying
monetary policies of different central banks in Europe. Although the fall in the
value of other European currencies against the deutschmark led to a short-term
decrease in German competitiveness, this gave German companies an
increased incentive to strive for market leadership and quality in their export
goods. This remains in the DNA of German companies to this day.