Bonn Plans Cut In a Loan Rate To Aid Growth

Thomas A. Boyle, Nov. 30, 1987, The Wall Street Journal

Summary by Josef Skoldeberg

According to senior-level government officials, the West German government planned to lower interest rates at a state-supported lending unit to help stimulate its economy. This is the first example of immediate actions that will be taken by Finance Minister Gerhard Stoltenberg to strengthen the economy. Mr. Stoltenberg has come under pressure from the US and others to strengthen the German economy in order to help alleviate the US budget deficit. Although he has resisted bold fiscal measures such as accelerated and enlarged tax cuts, he has not ruled out fiscal policy changes entirely. The rate reductions at Kreditanstalt fuer Wiederaufbau, which is 80% owned by the German government, will more than likely be announced later in the week. They are expected to accompany news of further rate cuts by Germany’s central bank, Bundensbank, which last week led a round of interest-rate cuts by four European nations, partly in response to the US budget agreement.

Last week Stoltenberg said that the German Government would soon unveil new methods for strengthening its economy, most likely through a passive nature such as allowing government budget deficits to grow beyond current projections. However, with growing international pressure, Mr. Stoltenberg is expected to announce that Germany will become more aggressive in its attempts to bolster its economy. Sources are suggesting that Mr. Stoltenberg has been waging a behind-the-scenes campaign to influence the Bundensbank interest-rate policies. It was originally thought that a discount-rate cut by the central bank would be seen after the G-7 meeting, which wasn’t scheduled for several weeks, but now a cut is expected much sooner. Other devices designed for immediate stimulation are expected to accompany the interest rate cuts. One notion, for example, would be the increase in capital investments at large government-owned institutions like the Bundepost, the state-owned postal and communications monopoly. The Bundepost is expected to be deregulated after the G-7 meeting, putting it in a more long-range economic stimulus plan as well.