The Importance of the Deutsche Mark for the German Economy

It began as a delicate sapling, which grew into a tree whose crown would later overshadow all of Europe. Often overlooked is the fact that this sapling—planted by the Americans not without geopolitical calculation—did not initially flourish as splendidly as is often assumed in retrospect. Leading experts of the time, including such illustrious figures as Hjalmar Schacht, were unanimous in predicting that the Deutsche Mark would either succumb to a lack of foreign exchange shortly after its introduction or suffer the same fate as the Reichsmark, whose value had disintegrated into dust in the wake of the First World War. It required a nurturing environment in the form of Erhard’s economic policy and, not least, the goodwill of the Western powers for the Deutsche Mark to grow and thrive seriously. Eventually, it became a symbol of Germany’s regained strength—and, in hindsight, also a symbol of its borrowed sovereignty.

Ludwig Erhard was, it must be said, in many ways an eccentric. The 20th century, especially since the First World War, had been dominated by interventionism. Currency devaluation races among nations to promote their own exports had been a constant theme, repeatedly leading to significant tensions. But what did Erhard do? He not only abolished domestic price controls largely unilaterally and against the will of the Allies but—less well known—advocated for a revaluation of the Deutsche Mark as early as 1948. This was, to put it mildly, highly unconventional—indeed, a complete break with the prevailing economic doctrine.

Erhard bet on cheap imports rather than cheap exports—a gamble that almost ended in disaster, as West Germany was then an importing country that had to support the Deutsche Mark’s exchange rate through foreign currency reserves under the fixed exchange rate system. Reserves that Germany did not possess. Shortly after the currency reform, Germany’s creditworthiness was essentially exhausted. State bankruptcy was only avoided because Western European nations continually extended credit lines. The Deutsche Mark was devalued in 1949, and there were even temporary import restrictions in 1951, but this was not the critical issue. What mattered was Erhard’s vision: that monetary policy could drive an economy forward and spur it to ever-greater achievements. His calculation, which would define an entire era, was straightforward: those who could not be cheaper than their competitors on global markets had to be better.

Equally significant was that Erhard was not alone. He was merely the figurehead. Behind him stood an entire cohort of economists, central bankers, policymakers, and industry associations who supported his course or soon aligned with it, defending it even against domestic opponents like Konrad Adenauer. They collectively shaped a culture that can essentially be described as a second German Sonderweg (special path). However, unlike the earlier one, this was confined to economic and monetary policy spheres, though it was no less a product of German culture and identity.

It is no coincidence that this policy, which declared monetary stability and the Bundesbank’s independence (from 1957 onward, formerly the Bank deutscher Länder) as non-negotiable, was soon regarded abroad as a German fetish—a pathological phenomenon rooted in a fear of Germany’s own past, particularly hyperinflation. Yet this narrative merely revealed how little European nations understood the Germans. For Germans had always defined themselves through their (Prussian) virtues. The Deutsche Mark merely provided a framework within which German traits could reassert themselves in a manner compatible with the zeitgeist. Punctuality, diligence, precision, principle, and a sense of order—just to name a few virtues—translated into delivery punctuality, productivity gains, brand quality, and, not least, German Ordnungspolitik. These qualities might be seen as commercialized versions of original virtues, which they indeed were. But they also explain why the Deutsche Mark was beloved by Germans far beyond its economic significance.

The German economic model—importing cheaply, exporting expensively, and creating significant value in between—worked not least because it resonated with the German character. Even in the 19th century, Germany had been an industrial nation with technological leadership in numerous areas. Under the relentless discipline of the Bundesbank, postwar German companies were practically forced to pick up this thread, focusing on quality and high technology—on products that sold on global markets despite being significantly more expensive than competitors. At the same time, the Bundesbank’s uncompromising stability policy ensured the security of long-term investments, further cementing this model. Starting in 1951, revaluation followed revaluation, yet export success remained largely unaffected despite various economic crises. Over time, the Deutsche Mark itself became a brand, the world’s second-largest reserve currency.

However, this dominance posed a problem. During the Bretton Woods era, Germany’s export surpluses had already amassed more gold reserves than most European countries combined. During the European Monetary System (EMS) era—a precursor to the euro, though it was never stable—the Deutsche Mark rose to become Europe’s sole leading currency, enjoying privileges akin to the dollar. Particularly, the Bundesbank indirectly dictated interest rates to other European central banks. Any central bank that did not align with the Bundesbank immediately faced devaluation pressure, effectively stripping other nations of independent monetary policy. Inevitably, European nations pushed for the abolition of the Deutsche Mark. Germany initially resisted, but circumstances changed. With the fall of the Berlin Wall, reunification came within reach, and Germany made concessions to alleviate fears of a dominant, reunified Germany. In the autumn of 1990, the German government agreed to the euro’s introduction, sealing the Deutsche Mark’s fate.

This is the official version. Unofficially, another aspect must be added. The Deutsche Mark was not primarily a bargaining chip for reunification but rather for establishing an EU federal state. The intellectual stance of German politicians—from Erhard and Adenauer to Schäuble, Genscher, and Kohl—was consistently that Germany, unlike other European nations, was not a fully sovereign state. True sovereignty, they believed, could only be achieved through creating a new European sovereignty where all states equally ceded sovereignty to form a genuine political union. Erhard had outlined this vision in his book Germany’s Return to the World Market. Both Schmidt and Kohl always championed political union, often against French resistance. For the Kohl administration, the monetary union was not a means to achieve reunification but rather a step toward an EU federal state. Perhaps reunification could have been achieved without the euro, but German politicians never pursued this path, as they had a different goal. They sought to leverage the opportunity for concessions on political union—a goal that ultimately failed. As Helmut Kohl later wrote in his memoirs regarding the Maastricht Treaty’s monetary union agreement: “Maastricht proved that…German unification and European unification were two sides of the same coin.” European unification—not the euro. It was never a self-assured policy. Over time, subsequent generations will likely struggle to comprehend this stance.