I know that you’re a bit concerned about Alexis Tsipras and his election win in Greece. There’s lots of rhetoric floating around about all the debt that Greece won’t be paying under his stewardship, and that doesn’t sit well with (mostly) yourselves. The other members of the Eurozone as well – but especially yourselves.
And I know that it would be nice if the Greeks collectively agreed with you about your inflation fears. After all, they too had a hyperinflation. Awkwardly enough, they experienced it while they were under your occupation (totes awks – but still). But regardless, it would be nice if they had remembered the lesson as well as you have, amirite?
Except, I worry that you too haven’t learned some lessons here.
So first off, no one is denying that the Weimar Republic left you with a legacy of hyperinflation. Even though much of that hyperinflation was caused by the Weimar Government trying to pay back impossibly huge debts imposed upon you by the Treaty of Versailles, as the direct consequence of the war waged by a Kaiser that you subsequently rejected.
That said, this seems to have made you most wary of rampant money creation and not at all wary of the costs involved in external insistence on crippling debt, however justified.
But I also want to point out that the Weimar Republic left you with a second legacy. A legacy of austerity under the Brüning government between 1930 and 1932. When Chancellor Brüning decided that he should cut back on everything in order to pay down the reparations debt. Here’s a quote from the Economist:
…all classes lost out when Brüning’s government reacted to a projected fiscal deficit and gold outflows in 1930 with deflationary policies. The resulting economic tailspin hurt most groups in German society. Unemployment surged among both the working and middle classes. Businessmen went bankrupt. Civil servants were either laid off or had their wages repeatedly slashed. Creditors lost their savings and debtors had their homes repossessed when the banking system collapsed in 1931. The experience of deflation made Hitler’s promises to conquer unemployment and stabilise prices by any means necessary attractive to a wide range of groups in German society, making it into a mass political movement across Germany for the first ever time in the early-1930s. The rest, as they say, is history.
It’s the trouble with austerity – it creates the conditions for very anti-austerity parties to come to power. Parties with no clear economic agenda other that “not this”. Parties led by Hitlers.
At this point in time, you need to be more concerned with the second lesson.
After all, when a radical leftist Prime Minister decides to visit the tombs of war heros on the day of his inauguration, having formed a coalition government with a radical right-wing party, having just been swept to power on a stream of anti-austerity rage, how do you think things will end?
No one is advocating hyperinflation in the Eurozone.
But you need to soften your austerity stance here and try something else.
After all, austerity isn’t working.
And you should know this better than anyone.