"1968" and the German Economy

Ludger Lindlar
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Ludger Lindlar: Groningen University

No 199733, GGDC Research Memorandum from Groningen Growth and Development Centre, University of Groningen

Abstract: The turning point in the postwar economic development of West Germany was 1973, not 1968. But the massive increase of the world prices for energy in 1973 did not hit an economy with bright prospects for stable growth rates and low inflation. Contrary, the pattern of economic growth of the 1960s was not sustainable. Union wage restraint despite extremely tight labor markets, limited exchange rate adjustments despite mutually incompatible objectives of domestic macroeconomic policies and huge, but largely unrecognized negative externalties from the extensive use of cheap energy and environmental resources inevitably required adjustment. But the institutions and attitudes that underpinned the postwar economic prosperity were incapable to engineer gradual change. Rather, the political and economic events of the late 1960s and early 1970s triggered off rapid adjustment requirements that culminated in rising inflation and stagnating output ? the stagflation of the mid 1970s.

Date: 1997
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