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Analysis
Kohl and currencies

Kohl and currencies

Chancellor with down-to-earth economic approach 

by David Marsh in London

Mon 19 Jun 2017

Helmut Kohl, German chancellor for 16 years in the 1980s and 1990s, who died on Friday aged 87, was inextricably bound up with three great monetary transformations. He did much else besides. Burly, fiercely anti-intellectual but sometimes thin-skinned and defensive – he once told me he was good at football but was also one of the main users of the Bundestag (parliament) library – Kohl was the longest-serving German leader since Otto von Bismarck, in office in 1871-90.

Kohl headed the West German government for eight years between 1982 and 1990, then was chancellor of united Germany between 1990 and 1998. Most importantly, Kohl presided over a dramatic period of peaceful change in which Communist-run East Germany – a principal victim of the lack of a post-second world war peace agreement and the consequent division of Germany – was merged expensively but bloodlessly with its powerful, unrequited neighbour, the Federal Republic, in 1990.

The first monetary adventure, which significantly shaped his life as an 18-year-old, was the 1948 establishment of the D-mark, replacing the war-shattered Reichsmark. The changeover was seen by many (including Kohl) as the mainspring of the post-war German ‘miracle’ which returned the country both economically and politically to the first echelon of internationally significant nations.

The second transformation was the introduction of the D-mark into East Germany in July 1990. Kohl decided this – without consultation with the Bundesbank, the hitherto all-powerful German central bank – in February 1990 in the helter-skelter aftermath of the fall of the Berlin wall the previous November. This was the essential prelude to formal reunification in October 1990. The conversion of bankrupt East German marks for the prized western currency at an over-generous (for the East Germans) exchange rate greatly hampered the initial competitiveness of the East German economy. But it helped fulfil one principal condition of unification: that it would take place without a complete exodus of cash-starved East Germans to the West.

The third was the replacement of the D-mark by the euro in January 1999 as the European single currency, marking and, it was hoped, uniting Europe in a new era of integration. Implementation came after Kohl was defeated in the autumn 1998 elections, by Gerhard Schröder, a relative eurosceptic. The euro’s birth followed a decade of tortuous preparations in which Kohl and French President François Mitterrand were the two crucial political figures. The D-mark became both a central instrument of German monetary unification and a sacrificial legacy bequeathed by the Germans to the rest of Europe. This was a vital signal that united Germany, rather than flexing its muscles, would be just as European-minded as the old western-orientated Federal Republic.

For all his pivotal influence on monetary affairs, Kohl had little formal interest in economics. He understandably did not take kindly to stories of his shortcomings in economic understanding relayed by Karl Otto Pöhl, Bundesbank president during the 1980s, with whom Kohl had an increasingly fractious relationship. Even when he was (especially during the second half of his long reign) strutting the world stage, Kohl remained a quintessential representative of the German provinces, a man of steadfast beliefs and homespun truths, a master in deploying raw and sometimes rough psychology in dealing with friend and foe alike.

Over the years as a Financial Times journalist, I had many dealings with him and several long interviews. I became aware of the forcefulness of his opinions but also of the reliability of his promises. At a midnight press conference in December 1991 in the Dutch town of Maastricht, during the summit that sealed the path to monetary union, Kohl harangued the crowd on the attractiveness of the single currency – including for the UK. ‘The [British] government always does what the City wants... The City will ensure that Britain joins monetary union.’ I disagreed, and bet the chancellor six bottles of wine that, by the first possible date (1997), Britain would not be a member. Kohl (on a reminder from me) kept to his word. At the chancellor’s office in Bonn in 1997, he personally handed over six bottles of Meerspinne Riesling and Biengarten Weiβburgunder from his local wine-growing region – and we drank a glass together.

Kohl’s bias was towards action rather than words. Helmut Schlesinger, Bundesbank president between 1991 and 1993, took over after Pöhl resigned following mounting discord with Kohl, who seldom even acknowledged Pöhl’s letters. Schlesinger once told me: ‘It was not much use writing Kohl a letter. If you wanted to communicate with him, it was necessary to see him in person. I did this on several crucial occasions. He had time and we succeeded each time in having a meeting of minds... Kohl needed to see things and persons in front of him.’

After a combative two-hour interview in February 1989 in which Kohl revealed important parts of his negotiating tactics over nuclear missile modernisation and over German unification, I wrote in the FT, ‘He is a man of massive certainty. Faustian wavering appears unknown.’

‘His mind wanders ceaselessly in search of a favourite anecdote or well-honed political slogan. Mr Kohl appears to relish a verbal tussle and politely prefaces a diatribe with the word “Excuse me”. An interviewer needs strong lungs – and also needs to enjoy being told by Mr Kohl in homely Palatinate German that his views are “absurd”, “rubbish” or “nonsense”.’

In another long FT interview, in London in March 1990, Kohl told me that recovery in East Germany would follow the path of the successful ‘social market economy’ pioneered in West Germany after the 1948 currency reform. The arrival of the D-mark in the East would trigger ‘a great investment boom’ – led by consumption. ‘The Germans have a tendency towards eating, drinking, cars and travel. The car is the status symbol. And when the East Germans have a lot of cars, then of course they will need a lot of repairing. And what does the wife say? “At last I want a decent bathroom.” And this will be a unique chance for the plumbers and handymen.’

After a decade in which Kohl, incapacitated by old age and illness, has been absent from public life, he now finally leaves the arena. The chancellor of unity with a down-to-earth approach to monetary economics will be mourned by many more than the car-dealers, plumbers and handymen.

David Marsh is Managing Director of OMFIF.

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