BERLIN – Prices in Germany are skyrocketing, just as they did half a century ago. Where are the parallels between today's price increases and inflation in the seventies? What is different now?

“Do you have to pay a higher heating bill?”, a television journalist asks a woman in front of the entrance to her house. She takes a piece of paper out of her pocket and says: “Until now we paid 40 marks a month, and from now on we will have to pay 80 marks. That is twice as much.” The currency itself already reveals that this is a television report from the archives, from the German public broadcaster ARD. “The energy crisis is affecting all countries of the Western world” – that could also be a statement by German Chancellor Olaf Scholz. But these are actually the words of former Chancellor Willy Brandt, also a Social Democratic politician, with which he promoted car-free days in November 1973 – due to the oil crisis, the use of vehicles was in fact prohibited.

The parallels between the seventies and the situation we have today are, according to economics professor Peter Tillmann from the University of Gießen, obvious: “Back then the price of oil quadrupled, now, above all, the price of gas has increased drastically.” As then, the whole world is today also in shock because of rising prices, and that is another parallel.

Eberhardt Flammer remembers the oil crisis and the rise in prices at that time, when he was twenty years old and had started working in a bank. Within a week, prices at gas stations doubled, to more than one mark per liter of fuel. The price of heating oil, he recalls, jumped from 10 to 60 pfennigs. Those who had only a little oil in the tank turned off the heating.

Society's reaction was vigorous: “The oil tycoons in the Middle East became enemies. Let them eat and drink their oil, we will no longer take it,” Flammer describes the mood at the time. Whether German society will now react in a similar way will be shown in the coming weeks and months.

At that time, rising energy prices pushed the inflation rate to a record level. In December 1973, the increase in prices amounted to 7.9 percent – identical to last month in Germany. Then, as now, there was a consensus among economists: when prices rise sharply, the main task of the Central Bank is to lower the inflation rate by increasing the key interest rate. Opinions differed only on the question of the right timing and the level of the interest rate.

Expert Tillmann believes that experience from history is now very important. In the USA and Europe, it was shown at the time that overly hesitant action can lead to even greater problems. “At least the US Central Bank has learned its lesson,” says Tillmann. He is calling for decisive action by the European Central Bank (ECB), which last week adopted a decision on the largest increase in the key interest rate in its history – they raised it by as much as 0.75 percentage points – to 1.25 percent.

The rise in the interest rate is, however, poison for economic development and can result in an increase in the unemployment rate. That is exactly what happened about 50 years ago, when the number of unemployed increased in a short time from 273,000 (1973) to 1.1 million (1975).

This is precisely where the biggest difference lies: instead of a reduction in the number of employees, the major problems now are demographic change and the shortage of skilled workers. The best example of this is the once young banker Eberhardt Flammer, who has for decades run a company that is a supplier for the automotive industry, with around 1,300 employees worldwide. He says that in recent years he has invested a great deal of effort in that company in training and further education for people.

A return of mass unemployment seems to be ruled out – which is reassuring in these times. But will inflation remain with us in the future as well? “We must not underestimate the crisis that has only just begun.” Chancellor Brandt's assessment from half a century ago could probably today be repeated literally by his successor, the current Chancellor Olaf Scholz.

Source: seebiz.eu