120 RALF AHRENS AND ANDRÉ STEINER
the types of goods being traded, the growing percentage of commercial
fi nished products among the country’s imports indicated that the indus-
trialized Federal Republic had been able to take advantage of the benefi ts
of economic specialization through its growing integration in the global
economy.^63 Its progressive economic interdependence with Western na-
tional economies was refl ected in the respective shares of intra-industry
trade—that is, the reciprocal exchange of goods within the same indus-
tries.^64 Given these circumstances, inter-German trade was important in
terms of German-German politics, but it was very much a subordinate
economic policy concern.
Instead, West German foreign trade policy focused on dealing with the
consequences of the erosion of the international monetary system that
had been set up by the Bretton Woods Conference in 1944. The suspen-
sion of fi xed exchange rates and the fi nal dissolution of the system by the
U.S. government in 1973 granted the West German government and the
Bundesbank more fl exibility because Bretton Woods had tightly limited
autonomous monetary policies during crises situations and the options of
the “magic square” stabilization policy instituted on the heels of the crisis
of 1966/67. Yet because the harmonization of monetary policy remained a
core element of Western European integration, eff orts were made to sta-
bilize the currency exchange rates within the EC through the “currency
snake” introduced in 1972. Similarly, the European Monetary System of
1979 allowed exchange rates to fl uctuate to a limited extent, and capital
controls were still permitted in order to ensure monetary stability. Given
the economic strength of West Germany, especially in terms of exports,
the Deutsche Mark quickly became the European anchor currency.^65
The appreciation of the D-Mark against the U.S. dollar increased the
price of German products abroad, but it by no means brought an end to
West Germany’s regular trade balance surpluses. Although the earlier
undervaluation had certainly promoted export surpluses, the country’s
competitive economic strength rested fi rst and foremost on its manufac-
turing industry, which was doing well competitively in quality and inno-
vation in human-capital-intensive goods.^66
However, the internationalization of the West German economy was
even more clearly refl ected in direct foreign investments than it was in
its foreign trade statistics. Between 1960 and 1980, direct foreign in-
vestments rose almost three times as fast as domestic equipment invest-
ments. Whereas foreign investments only slowly gained momentum in
the postwar decades due to a lack of capital, they now took off , primarily
in the form of shares acquired in foreign companies. As such, they could
off set rising domestic costs as well as hedge against protectionism in
the countries that imported German industrial goods.^67 From a macro-