If West Germany had one unique asset, it was the bedrock stability of its currency, the Deutsche Mark. Chapter 4 introduces the principal defenders of German stability – the economy and finance ministries, the Bundesbank, and the Council of Economic Experts. In fall 1965, Chancellor Erhard identified the maintenance of price stability as the foundation of German policy – with enormous repercussions for foreign relations. In 1965-66, development aid programs, restitution to Israel, and offset purchases from the United States would all be scaled back in order to keep Bonn’s budget balanced and avoid stimulating inflation. German monetary experts worked closely with U.S. officials to uphold the Bretton Woods monetary system; but Lyndon Johnson was furious that Erhard had broken his offset pledges, particularly since West Germany remained reluctant to send personnel to Vietnam. In spring 1966, Erhard’s cabinet tried to unthaw relations with the USSR by issuing a “peace note” calling for mutual renunciation-of-force declarations; but the Soviet bloc rejected the approach as inadequate. When West Germany slipped into recession, Erhard’s coalition collapsed in failure.

Chapter 7 depicts a severe cleft in German politics as the Grand Coalition headed toward Bundestag elections in September 1969. Chancellor Kiesinger tried to coax the USSR into softening its enmity toward West Germany, but his hard-line stances on Berlin and the NPT stalled progress. Egon Bahr, Willy Brandt’s controversial aide, urged the SPD to cast aside old ballast: Bonn should sign the NPT, stop isolating the GDR, and renounce territorial claims in Poland. Economy minister Karl Schiller, the SPD’s central figure in the 1969 campaign, insisted that the German mark should be revalued. Kiesinger’s CDU/CSU rejected all of these proposals, and the coalition cabinet proved incapable of decisive action for most of the year – causing economic havoc across Western Europe. The SPD–FDP coalition won the election only narrowly, but as Chancellor Willy Brandt acted decisively to revalue the mark and pledge German support for “deepening” and “widening” Europe at an EC summit in The Hague. On Ostpolitik, Brandt signed the NPT and authorized soundings with the USSR and Poland; but Bahr grew impatient and angled to open a back channel to the Kremlin.

The year 1968 brought a powerful affirmation of West Germany’s uniquely stable economy and society, with ripple effects across Western and Eastern Europe. Chapter 6 opens by explaining how the Grand Coalition pursued reforms that reinforced West Germany’s commitment to price stability and economic growth. When youth protests escalated in 1967–68, driven in large part by anger over U.S. and West German policies toward Greece, Iran, and the war in Vietnam, German workers declined to join in – a stark contrast to the turmoil in neighboring France. Speculators rushed to sell French francs and buy up German marks, touching off a currency crisis. Western finance ministers converged in Bonn demanding that West Germany raise the mark’s parity value – yet Bonn refused, an unprecedented display of independence. Meanwhile, the “Prague Spring” raised hopes of West German credits for Czechoslovakia, perhaps via the Bundesbank; and German visitors poured in. When the Soviet bloc invaded, de Gaulle blamed the Bonn government for provoking it. Yet the main takeaway in Moscow was that West Germany, clearly Europe’s strongest economy, could become a significant economic partner.

In 1992, the United Kingdom had reluctantly joined the ERM, mainly to help with inflation management at home. But in the wake of the Maastricht referendum in France, pressure mounted on sterling and other European currencies. The Government did not want to ease the pressure by increasing interest rates. This would have displeased mortgage owners that voted it in. The small tension turned into a full currency crisis. Following remarks by the Bundesbank president, the Bank had to spend $22 billion yet failed to save the pound. Britain left the ERM and stopped managing the pound altogether. The focus was now no longer on exchange rates but on inflation targeting.

In 1992, the UK had reluctantly joined the ERM, mainly to help with inflation management at home. But in the wake of the Maastricht referendum in France, pressure mounted on sterling and other European currencies. The Government did not want to ease the pressure by increasing interest rates. This would have displeased mortgage owners that voted it in. The small tension turned into a full currency crisis. Following remarks by the Bundesbank president, the Bank had to spend $22bn yet failed to save the pound. Britain left the ERM and stopped managing the pound altogether. The focus was now on inflation targeting, no longer exchange rates.

Not only the member states should be given credit for the survival of the single currency. The European Central Bank deserves credit too. Throughout the crisis it resorted to ‘unconventional’ measures that have proven crucial for the stability of the currency union, especially its government bond programmes SMP and OMT. This chapter examines these programmes and argues that they are an intrinsic part of the transformation of the euro. Since the Bank’s mandate and constitutional position ultimately rest on the Founding Contract between the member states, it could not intervene in bond markets without a prior change in this Contract through which states committed themselves to a different currency union based on a broader stability conception. Only such a contractual change, and confirmation of it through concrete action, could provide the necessary political cover for bond purchases that pushed the boundaries of the Bank’s original mandate.

The change in the Founding Contract that political leaders initiated on 11 February 2010 put great pressure on the legal set-up of the euro that remained largely unaffected. When the European Court of Justice had to rule on the actions to which the change had given rise it consequently found itself between a rock and a hard place. It was not in a position to strike down actions that had been crucial to the single currency’s survival. Yet, in order to approve of them it had to engage in a Herculean struggle with the law that still largely reflected a stability conception from the past. This chapter examines this approval. Two cases are central: Pringle and Gauweiler. Both cases ultimately turned around the question whether and to what extent the law can accommodate the currency union’s new stability conception, characterized by the need to protect financial stability. Most of the Court’s reasoning in these cases is sound or, where it is strained, could have been justified through the use of different arguments. At one crucial point, however, the Court encounters the limits of what can be justified through legal reasoning alone.

This chapter examines the world in which the BdL was established. It centres on the period 1948–51, the latter being the year when monetary sovereignty was transferred by the Allies to the West Germans. The chapter documents the opinions of West German elites in the lead-up to the creation of the BdL, noting that they were split on the question of central bank independence. It argues that a political struggle surrounding the future of the central bank incentivised a variety of West German elites to confront their inter-war monetary history. The chapter then shows how the BdL adopted an active press policy in the effort to influence the Bundesbank Law. Such efforts failed to prove effective during this period, however. Other events, such as the Allied decision to transfer monetary sovereignty to West Germany in 1951, proved more decisive. But it was in this very period that the central bank established a workable framework of historical narratives that could be applied for political ends.

Chapter four argues that the shadows of the Reichsbank and National Socialism troubled the Bundesbank well into the 1960s. This was in large part because of the central bank’s president, Blessing. After years of using the president’s inter-war record as a source of credibility, the central bank began to see these historical narratives being challenged. Chapter four examines three case studies that centred on Blessing’s questionable past. The chapter documents the re-emergence in the public sphere of Schacht, Blessing’s mentor during the Reichsbank years. The former Reichsbank president used his notoriety to popularise the term ‘third inflation,’ while accusing Blessing of having a role to play in the second one. In 1965, too, news reports emerged in West Germany of the central banker’s past membership in Himmler’s Freundeskreis. These revelations forced the central bank to intervene covertly in the public sphere, with the aim of killing these stories as quickly as possible. These accusations, and the Bundesbank’s difficulty in addressing them, highlight how the legacy of the inter-war era continued to trouble the West German central bank even two decades after the end of the war.

This chapter examines the independence of the central bank in a decade riven by economic crises. In 1973, the Bundesbank faced a challenge to its independence – a challenge that emerged from within the SPD, which shared power in a coalition government. The argument of this chapter underlines Chapter 3’s concluding argument. It highlights how the Bundesbank Law provided the impetus for conflicts between Bonn and Frankfurt, in turn prompting the use of historical narratives concerning the two inflations applied in support of central bank independence. Furthermore, the chapter goes on to note the extent to which the 1970s were littered with monetary anniversaries. It argues that these occasions, coupled with the economic crises at hand, served as moments of reflection that allowed the Bundesbank to bolster its reputation and reinforce the parameters through which West Germans interpreted the monetary past. The chapter concludes by examining a ceremony that marked the thirtieth anniversary of the deutschmark in 1978.

This chapter examines the final years of the Bundesbank Law debate. It devotes particular attention to a 1956 public attack launched by the chancellor, Adenauer, on the central bank. The chapter argues that the crucial consequence of the ‘Gürzenich affair’ was the narrowing of the parameters of monetary debate through which West Germans interpreted the inter-war era. It argues that the provisions outlined in the Bundesbank Law reconfirmed an institutional conflict between Bonn and Frankfurt, one that was originally left behind by the Allied authorities. In providing no formal process through which conflicts between the federal government and the central bank could be solved quietly, the Bundesbank Law increased the likelihood that such disagreements would become ‘dramatised’ and spill into the public sphere. These disagreements gave rise to public controversies surrounding central bank independence, and in turn, provided further instances in which inflation narratives could be geared in support of the Bundesbank. It explains West Germany’s cultural preoccupation with inflation in institutional terms.

When two journalists of Bild, German’s best-selling tabloid, arrived in March 2012 at the European Central Bank (ECB) to interview its president, they brought with them a special gift. It was a Pickelhaube, or Prussian military helmet, dating from the time of the Franco-Prussian War.1 The present, the journalists explained, was to remind Mario Draghi, an Italian, that the newspaper had deemed him back in 2011 as the ‘most Germanic’ of candidates in the race for the ECB’s top position. According to Bild, the manner in which Draghi pursued his career demonstrated that he was imbued with what the tabloid saw as ‘Prussian virtues’.2 This fact overcame his problematic nationality – at least in the eyes of Bild – and made him the ideal man for the job.3