ABSTRACT
The main domestic task of the new Government was to restore confidence in West Germany’s continued economic prosperity. But this could best be achieved by success in two other tasks. The first was to reverse the policy of deflation and get the economy expanding again. This was all the easier because by the time the Great Coalition took office, there was unmistakable evidence that the boom had run its full course. Whereas in October there had been 300,000 more unfilled jobs than unemployed, by December the second exceeded the first. The Bundesbank was thereby helped to overcome its hesitations about reducing the interest rate, a step which it was all the readier to take because the very formation of the Coalition was evidence of an intention to tackle the other main source of inflation, namely the Budget. To believers in the Keynesian principle of working against the cyclical trend, the very fact that this was unbalanced was a recommendation in its favour. Not only did the Grundgesetz require it to be balanced, but also the inbred fear of rising prices and mounting debts, due to memories of 1923 and 1948, made the crude form of deliberately incurred deficit out of the question.
