State and Crisis Management, 1966–85

The year 1966 marked a distinct turning point in the political economy of West Germany. It is possible to overdo talk of ‘watershed’, but clearly the recession of 1966 / 67 represented more than an economic hiccough. Up to 1966 state institutions had been showing signs of nerves and irritation at the political failures of others, but in general their concern was about the inflationary dangers of overstretched state budgets. Thus they sailed mostly unawares into the winter of 1966 / 67 and the unexpected calamity of no growth and 800 000 job losses. As recessions go, it was a relatively mild affair, but against the background of 18 years of uninterrupted growth, it was a considerable shock, particularly to the credibility of the state, whose legitimacy was founded on the expectation of economic stability and constant growth. Not surprisingly therefore it coincided with the end of the ‘Erhard-Era’, the formation of a ‘grand’ coalition between Christian and Social Democrats and the brief experiment with Keynesian demand management under Karl Schiller.