Abstract:
Throughout the 1980s, the lead of Germany's central bank, the Bundesbank, in helping to align the currencies of the European Economic Union members appeared to serve a variety of potentially difficult-to-reconcile causes: political union in Europe, low interest rates and economic growth. But with the union of East and West Germany, the happy confluence of Germany's domestic economic policy and that of Europe generally came under great pressure. German inflation, and higher Bundesbank interest rates designed to control it, forced up rates in other EU member nations whose currencies were tied to the deutchmark through the European Exchange Rate Mechanism, but who would have preferred to lower interest rates to serve their own economic purposes.
Learning Objective:
This case tells the story of how Bundesbank officials, including its board members and economists, dealt with these conflicting internal and external pressures. It provides a rare window into the decision-making process of one of the world's most important economic planning institutions.
