GERMAN FINANCIAL POLICY MAKERS IN RARE DISSENSION
Karl Otto Poehl, head of West Germany's
central bank, and Finance Minister Gerhard Stoltenberg are
normally so much in agreement that some foreigners doubt the
central bank's independence.
    But a rare public row between the ebullient Poehl,
president of the Bundesbank, and Stoltenberg, over a
controversial investment tax proposal, has added to the woes of
the country's already nervous financial markets, bankers said.
    Poehl told an investment symposium in Frankfurt last
Thursday he feared the tax would raise borrowing costs and
interest rates
    Stoltenberg quickly issued a statement rebutting Poehl's
criticism, saying West Germany would remain an attractive place
for foreign investors.
    "The obvious lack of coordination between the Bundesbank and
Finance Ministry does not instil confidence in foreign
investors," said one economist for a London broker, who asked
not to be identified.
    Bankers here expressed confidence the two top financial
policy-makers would quickly patch up their relationship to
steer the economy through a particularly difficult time.
    "There are plenty of objective pressures which will result
in things getting back to normal again after a period of ill
feeling," said Commerzbank AG chief economist Juergen Pfister.
    News on October 9 that the government was planning a 10 pct
withholding tax wiped billions of marks off shares and bonds in
a market already reeling from rising interest rates at home and
abroad.
    Bankers said the Bundesbank was angered by the way the
finance ministry announced the plan -- without consulting the
Bundesbank adequately, and allowing apparently conflicting
details to dribble out into an unprepared and uncertain market.
    Both Poehl, 57, and Stoltenberg, 59, have been under
extraordinary pressures lately.
    Poehl has had to switch to the hard line promoted by his
deputy, Helmut Schlesinger, jacking up interest rates to fight
inflationary fears and abandoning the pragmatic policies he had
pursued so far this year to promote currency stability.
    In recent statements Poehl has sounded more like
Schlesinger. For years the softly-spoken economist has been
warning in speech after speech that excessive money supply
growth would eventually lead to rising prices.
    Schlesinger now has a majority of support in the Bundesbank
council, and since late summer Poehl has had to represent his
views, bankers said.
    "Poehl is in a minority in his own house," said Commerzbank's
Pfister.
    "Poehl is in a dilemma. He must follow a policy that is not
entirely his own," said another economist.
    The dilemma is that if German interest rates rise too far,
they will attract funds into the country, pushing up the mark
and hurting West German exporters.
    The dollar has now shed some seven pfennigs since the
Bundesbank's new tack became clear in early October.
    Since last Thursday, United States Treasury Secretary James
Baker has criticized the Bundesbank rate increases.
    Bankers said this could foreshadow a revival of the 1986
war of words between the U.S. And West Germany, in which U.S.
Officials talked down the dollar to force West Germany to
stimulate its economy and thus suck in more U.S. Exports.
    One way West Germany agreed to do this was making a round
of tax cuts worth 39 billion marks from 1990.
    But financing these tax cuts has proved more difficult for
Stoltenberg than he had bargained for.
    The cool, unflappable northerner, who was regularly voted
most popular government politician last year, had to face
resistance from local barons in the government coalition
parties and from trade unions to his planned subsidy cuts.
    The withholding tax was intended to plug one gap by raising
4.3 billion marks.
    But it has caused an outcry among bankers, who say it will
push up borrowing costs. The extra amount this costs the
government could wipe out the revenue the tax brings in.
    Meanwhile Stoltenberg is dealing with a local political row
which has turned into the country's worst political scandal.
    Stoltenberg had to leave monetary talks in Washington last
month early to sort out a row in the northern state of
Schleswig-Holstein, where he heads the ruling CDU party.
    The state's CDU premier, Uwe Barschel, had to resign after
allegations of a "dirty tricks" election campaign led to heavy
losses for the CDU in state elections.
    Barschel was found dead in a hotel bath in Geneva last
weekend. Police say the death appears to have been suicide.
    Cooperation between Poehl and Stoltenberg is all the more
remarkable as Poehl is in the opposition Social Democrats, and
was appointed by former chancellor Helmut Schmidt.
    When Poehl's contract came up for renewal earlier this
year, Chancellor Helmut Kohl's CDU-led coalition government
gave Poehl another eight-year term.
    Werner Chrobok, managing partner at Bethmann Bank, said he
hoped the two men would soon be of one opinion again.
    But when Poehl criticized Stoltenberg's tax plans he was
not only voicing what many bankers felt but demonstrating the
Bundesbank's independence of government, Chrobok said.
 REUTER
