Why Germany needs another Ludwig Erhard?

Ludwig Erhard served in the German Army as an artillery man in a brief spell in WWI. After he was seriously wounded in 1918, he was discharged from military service. He then mastered the subject of economics and at the end of WWII got a new job as to steer German economic recovery. Today Germany needs another Ludwig Erhard!

Undoubtedly, Germany is in bad state today in terms her economic stability, low growth, high energy cost, sluggish demand for her exports that have collectively pushed the country into economic stagnation. From the coveted position of “Engine of growth in Europe” Germany is now a lesser mortal. So let us turn to the era of Ludwig Erhard and pursue what he did for this Prussian Land.

Post war Germany faced similar situation where a truck load of Reichsmark had to be exchanged for a pound of loaf. Chancellor Konrad Adenauer picked Ludwig to handle the economic portfolio in his cabinet. At that time Germany did not have any gold reserves, bankable foreign currency or for that matter any industrial production. Ludwig understood that no amount of foreign aid can recoup the lost production capacity. No chance of debt notes be issued by the treasury as there was no appetite for German bonds.

Ludwig quickly found a way out. He would issue a new currency called Deutsche Mark, just a pro note, to replace existing Reichsmark which was later rendered invalid in 1948. The holders of these Reichsmark can exchange these for the new Deutsche Mark notes in every banks. The new Deutsche Mark was not backed by gold reserves but by the guarantee of the State that it be accepted and valuable. A strong support by the treasury was the only backing the new Deutsche Mark had and nothing of intrinsic value for this legal tender.

That brought out the miracle. Germans started to put their shoulders to the wheel. Production started, shops were filled with goods. Demand was rising, labour is recruited and wages started to flow into the hands of workforce. Within two years Germany achieved the level production that existed before the start of WWII. Exports led growth began on the horizon afterwards.

By the end of 1958 Germany once again became the leading economic workhorse in Europe even beating the British Isles.

As a keen proponent of the concept known as “Social Market Economy”, Ludwig established a business strategy that embodies twin aspects: Germans shall have trust on the state and belief in the new currency. On the other side of the bargain the state would ensure economic stability and at the same time ensuring the welfare of the people.

People were encouraged to increase production, enhance efficiency, and bring out quality outputs so that German products are valued domestically and abroad. The geoeconomics pressure over exports, more exports and better exports was the cornerstone resulting in the economic miracle of the 20th Century.

Today Germany needs a re-incarnation of Ludwig Erhard to pilot the ship of German economy amidst the geoeconomics storm she is faced with. A re-think of the national strategy is also a sine-quo-non.

 

Cheers!

 

Muthu Ashraff Rajulu

Strategy Adviser

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Strategy Advise