enterprise scarcely exceeded $1 billion in 1972, about 5% of total borrowing by that sector.

Government credit plays only a minor role in financ

ing the German economy. For the most part, low interest credit consists of loans from Marshall Plan (European Recovery Program) counterpart funds. Originally some 7. 3 billion deutschemarks, the fund had grown through repayments of interest to 11.8 billion deutschemarks by the end of 1972 ($3.7 billion). About $9.1 billion in loans had been extended over a 20-year period, to help finance German economic

reconstruction.

By the early 1970s, funds were reserved to a limited number of purposes. About 2.3 billion deutschemarks were expected to be available for new loans in 1973, 7.5% more than in the previous year. Funds were to be available primarily for less developed regions of Germany, Berlin and areas near East Germany, for financing export credits to and investments in less developed countries and for environmental

protection.

Since the funds were obtained without cost to the German government, they could be lent at below market rates to further national economic policy objectives without burden to the federal budget. Nevertheless, interest rates were generally set at 7.5% for 1973, though loans for various purposes were available at rates varying between 4 and 6.5%. In 1972, interest received on all outstanding loans equalled about 3.4% of the loan portfolio.

Interest rates have been volatile in response to the

business cycle and to the government's monetary policy. Since 1967, the Central Bank's discount rate has varied between 3 and 7.5% and

call money has ranged from an annual average of 2.58% in 1968 to 10.19%

in 1973. Three month loans were reported at an average of 4.7% in May, 1972 and 14.5% in August of 1973. By the end of 1973, the money market had eased a bit, but rates were still around the 14% level.

With the exception of the recession period, 1967-68, long-term bond yields had been more stable. Industrial bond yields fluctuated from 7.5% to 8.0% between the mid-1960s and the early 1970s, while mortgage bonds and bonds issued by various public authorities ranged in yield between 7 and 8.5%. Early in 1974, mortgage and public authority bonds were around 9.5%-9.6%, about half a percent less than during the previous summer. Industrial bonds were quoted on the secondary market at 10.6% in July, 1973, and 10.1 in February, 1974.

To protect its exchange rate and to check inflationary pressures, the government had, early in 1973, both tightened domestic credit and put a prohibitive penalty on foreign borrowing by German nationals. Interest rates responded with the sharp increases noted above.

The German government has substantial holdings in German industry, largely as a result of government policies in the 1933-45 era. The post war government has sought to operate these enterprises as though they were private commercial enterprises and to sell them to private stockholders as opportunity presented itself without disrupting efforts to reestablish a vital German private capital market, e. g. Volkswagen. The Federal government continues to own railroads and other public utilities as well as interests in coal, steel, shipbuilding and other heavy industry.

The government of the Federal Republic has an extensive program of subsidies and tax benefits, designed to achieve certain stated economic objectives. Its cost equals some 4% of GNP and 18% of tax collections. Most of the aids were related to the need for rebuilding the physical and capital structure of the German economy after World War II and the special economic problems of West Berlin and the areas adjacent to the borders of East Germany. The subventions include payments from the budget of the Federal Republic and the states (Lander). They fall into three major groups: loans below market interest rates, payment of part of the interest charges on loans from the capital market, and various tax incentives. A report to the Parliament on October 23, 1973, estimated such subventions as follows for the years 1971 to 1974:

Half of these subventions were received directly by individuals and families, largely for housing. The rest went to business enterprises as follows:

Even after allowing for the increase due to exchange rate changes, the size of the subventions is increasing. In terms of deutschemarks, the increase from 1971 to 1974 for business enterprises exceeds 16%. Such subventions were equal to about 30% of the reported profits of nonfinancial enterprises, 40% of their reported tax payments, to 15% of the self-financing and 20% of net borrowing for new investment reported by all business enterprises.

The German anti-trust laws, adopted in the post war period under American influence, are the most comprehensive of any European country. Horizontal agreements (between companies marketing similar products) are invalid if they would restrain competition. Price fixing, market division and exclusive buying or selling arrangements are specifically prohibited horizontal arrangements. However, certain cartels are permissable, including crisis cartels, rationalization cartels, emergency cartels and import cartels when German importers face a monopolistic or oligopolistic supply situation. The exceptional circumstances in which cartels are permissable appear to permit a wide range of collaborative activity.

(4) Export Promotion Policies

The export-mindedness of the German economy has

been proverbial for two decades and has received strong government support. That support has, however, been somewhat attenuated in recent years when large export surpluses were forcing successive revaluations of the German currency.

HERMES is the German government's export credit institution. It offers export credit insurance and guarantees, at a premium, which typically runs to 1-1/2% for the first six months and another 0.1% per month thereafter. The insurance can be obtained to cover up to 90% of the political and economic risk of such credits.

II.

DIRECT AND INDIRECT MARITIME SUBSIDIES

In 1950, the size of the German fleet was around 250 thousand tons. Its ocean-going fleet of merchant ships increased to some 3 million gross tons in 1956, 7.8 million at the beginning of 1971 and 7.9 at the beginning of 1972. Since the end of 1970, the size of the fleet has been stable, despite the delivery of about a million g. r. t. a year of new tonnage to German owners. Sales and transfers to foreign flag, in addition to scrapping, halted further growth in gross tonnage. Repeated domestic currency revaluations accelerated the disposal of older and smaller vessels. In 1971 and 1972, more than 2.5 million g. r. t. of ships were sold abroad. The average age of the ships sold in 1971 was 15 years and the average size was about 4, 450 g. r. t.

In 1970, the German flag fleet carried 126 million tons of cargo, about a third of which was carried in ships chartered to foreign operators. Half the tonnage carried by German operators was in the cross trades, largely based on Benelux ports.

The shipbuilding industry has been less dynamic over the past decade. Deliveries of ocean-going vessels increased from about 1 million g. r. t. in 1963 to almost 1.9 million in 1971 and then declined to 1.4 million in 1972. The Federal Republic delivered 17.3% of world-wide gross ship tonnage in 1956 and 11.6% in 1963, but only 5. 2% in 1972. However, in 1972 German yards delivered 42% of the world gross tonnage of container ships. In the late 1960s, the German yards concentrated on building specialized ships, so that the value of new ocean-going ships produced has risen steadily from $285 million in 1963 to $880 million in 1972. German yards also built $140 million worth of fishing boats and other non-ocean-going vessels in 1972, and did about $200 million worth of repair work.