Some say the Germans should Remember that Austerity gave them Hitler and should therefore Forgive some Greek Debt

Posted by PITHOCRATES - February 19th, 2012

Week in Review

There are more Nazi comparisons in the continuing saga of the Greek debt crisis as people keep picking on Germany.  The strongest Eurozone state.  And the only one who can bail out the weaker ones (see Germany has forgotten the lessons of war reparations by Jeremy Warner posted 2/17/2012 on The Telegraph).

While on the subject of historical parallels, there’s another which has not yet been given sufficient an airing. This was the vexing question of German war reparations after the slaughter of the First World War, brilliantly identified by John Maynard Keynes at the time in his polemic, “Economic Consequences of the Peace”, as fundamentally unfair on the Germans. Keynes branded the Treaty of Versailles a “Carthaginian Peace”.

True.  The Treaty of Versailles did treat the Germans unfairly.  A word commonly bandied about at the time in Germany was humiliated.  And betrayed.  Even stabbed in the back.  Because the Germans didn’t start that war.  Everyone was eager to go to war.  And nearly everyone did thanks to those entangling alliances that George Washington warned us about.  And another thing.  The Germans didn’t lose the war.  No one did.  And no one won the war.  It ended in an armistice.  Much like the Korean War.  And yet during the treaty process they identified Germany as the sole culprit that caused the war.  And the allies all tried to recoup their losses and rebuild their empires by bleeding Germany dry.

Part of Germany’s purpose during interminable attempts to renegotiate these debts on less oppressive terms was to demonstrate that the German economy was in no position to pay – ergo, the creditor was at some stage going to have to take an almighty hit. Indeed, it is sometimes argued that the Weimar hyperinflation was deliberately engineered in order to demonstrate this fact beyond doubt. There can be no other explanation for the bizarrely ruinous policies of deficit financing pursued by the Bundesbank at that time. No sane central banker could possibly have sanctioned such a strategy…

Given its history, it is quite strange that Germany has such difficulty in grasping this reality. It is sometimes said that German attitudes to the economy and the current crisis are instructed by experience of Weimar inflation and its catastrophic consequences. Yet it wasn’t hyperinflation that brought Hitler to power, but rather the depression of the early 1930s, which in Germany’s case was greatly exaggerated by the pro-cyclical austerity the government of the time insisted on applying to the problem. Those who who [sic] don’t learn from the past are doomed to repeat it.

The Weimar hyperinflation played a part.  But what really motivated Hitler was the Versailles Treaty.  Hitler was a veteran of WWI.  He served bravely.  Was promoted to corporal.  Suffered temporary blindness from a gas attack.  And he knew the Germans weren’t beaten.  Exhausted?  Yes.  War weary?  Yes.  But militarily defeated?  No.  It was the humiliation of the Versailles Treaty that drove Hitler.  So much so that when his panzer armies conquered France he met the French in a special rail car to sign the instrument of surrender.  The same rail car the Germans signed the humiliating Versailles Treaty.

Many Germans rallied around Hitler because they felt the same way.  Germany had grown to be the dominating European power.  And that treaty did what Germany’s enemies couldn’t do.   Change the balance of power in Europe.  To reverse the German successes of the last century or so.  This is what brought Hitler to power.  Vengeance.  To right the wrongs done to Germany.  Had they not been so wronged it is unlikely that a gifted orator would have risen to inflame the masses.  For there may have been no hyperinflation without those punishing reparations in the first place.  And without that economic crisis the world wouldn’t even know the name Adolf Hitler.  (Probably.  Unless a prosperous Weimar Germany liked and bought his art.  Then instead of remembering him as a crazed mass murderer we would remember him as an artist.)

In contrast nobody wronged Greece.  They got into this mess on their own.  By irresponsible government spending.  And the cure for irresponsible spending is responsible spending.  Not forgiving debt so they can keep spending irresponsibly.  German hyperinflation resulted from unjust war reparations that destroyed the German economy.  The Greek crisis resulted from irresponsible spending that destroyed the Greek economy.  Spending is the problem.  It needs to be cut.  So they stop running deficits.  And stop growing their debt.  But cutting government spending is easier said than done.  For once the government makes the people dependent on government benefits the people tend to not want to give them up.  But they must.  It’s the only way to fix the underlying problem.  Irresponsible spending.  And forgiving debt not only misses this central point.  It encourages more of the same.

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