Shouldn’t Germany Have a Unique Appreciation of the Political Consequences of Foreign Denominated Debt?

For those who haven’t been following the slow-motion pandimensional clusterfuck that is the Eurozone periphery (e.g., Greece, Spain, Ireland), the fundamental problem is that these countries can’t control their own currencies. In essence, there is a ‘United States of Europe’, but it lacks a federal sovereign that could spend money to reverse the economic downturn. Moreover, Germany, a keystone of the Eurozone, is ideologically committed to austerity and combating inflation at all costs, making the depression in many EU states even worse.

One would think Germany would understand the relevant political history here (boldface mine):

I fear that austerity without end will bring about a return to the unstable populist politics the European Union was designed to prevent. That could shatter the eurozone and, with it, the EU… Responsibility for preventing that outcome rests on Germany, Europe’s central power, in every sense. As Charles Kindleberger argued, in a panic, the creditworthy country has to lend freely if a fixed exchange rate system (or in this case a currency union) is to survive.

It is often forgotten, not least in Germany, that the rise of Adolf Hitler to power was preceded not by the great inflation, which occurred a decade before, but by the great depression and the austerity of Heinrich Brüning, in response. Thus, votes for the Nazi party jumped from a relatively insignificant 810,000 in 1928, to 6.4m in 1930, and 13.7m in July 1932. Deep economic collapses are dangerous.

…Mr Schuknecht, with his emphasis on the long term, completely ignores these dangers. If trying to avoid such a dire outcome is “short-termism”, so be it. I think of it as trying to find a practical exit from the current trap. Without it, the eurozone may never reach the long term.

Meanwhile, outright fascists are not only gaining seats in the Greek Parliament, but the Interior Minister is literally a fascist thug–his nickname is “The Hammer” because he used to beat opposition party members with a hammer.

First they came for the migrant North African workers….

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3 Responses to Shouldn’t Germany Have a Unique Appreciation of the Political Consequences of Foreign Denominated Debt?

  1. albanaeon says:

    You’d think a lot of nations would look at austerity and how forcing pain and suffering on people tends to make them look for extreme solutions and say “Ahh… let’s try something else.”

    But the Masters of the Universe have no need of history…

  2. Laie says:

    Crisis? What Crisis?
    Whatever happens elsewhere in Europe, in Germany we don’t feel the pain.
    Besides, everybody knows that the southern europeans are just lazy and irresponsible. That trope builds on cliches of long standing, and has been bounced back and forth between media and politics so much for so long, it has become a truth of sorts. The public opinion tends strongly towards “Let them suffer, they brought it upon themselves”. If the chancellor even suggested that anything might possibly be considered — that would be political suicide.

  3. Kaleberg says:

    The current European crises keep reminding me of the repeated German reparations crises between the wars. Basically, it was a debt that could not be realistically repaid, but no one wanted to write it off. Eventually – I think in ’36 – Hitler simply repudiated it. Despite this, he still managed to find folks to lend Nazi Germany money. In fact, the Matchbox King Ivar Kruger’s last big deal before he blew his own brains out was a $50M loan to Germany. I’m wondering if the Greeks will effectively move back to the drachma and repudiate their national debt. If they do, or even seem to, they will likely be followed, since most of the debts cannot be repaid, especially not with the current austerity policies. The banks guessed wrong. They should be wiped out. There will be lots of people willing to lend.

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