As the Euro crisis intensifies, Germany is still adamant that the European Central Bank must not step in to save everyone.
(Whether the ECB actually can save everyone, permanently, is a matter of intense debate, but most observers now agree that massive ECB intervention is the only way to avoid catastrophe).
Why are the Germans so rabidly against ECB intervention?
Well, for one thing, because the Germans will ultimately be footing the bill. (Germany’s finances are in better shape than the rest of Europe’s.)
And, for another thing, there are folks in Germany who still remember the hyper-inflation of the Weimar Republic after World War 1, when the value of the currency was obliterated.
This hyper-inflation threw the country into disarray and set the stage for the rise of Hitler. And, not surprisingly, the collective memory of the period has been seared into the German sub-conscious.
Earlier this week, John Mauldin passed along an essay by Grant Williams that included a passage from Adam Fergusson’s book When Money Dies. The passage includes a vivid description of what life was like in that period:
Over most of Germany the lead was beginning to disappear overnight from roofs. Petrol was syphoned from the tanks of motor cars. Barter was already a usual form of exchange; but now commodities such as brass and fuel were becoming the currency of ordinary purchase and payment. A cinema seat cost a lump of coal. With a bottle of paraffin one might buy a shirt; with that shirt, the potatoes needed by one’s family. Herr von der Osten kept a girl friend in the provincial Capital, for whose room in 1922 he had paid half a pound of butter a month: by the summer of 1923 it was costing him a whole pound. ‘The Middle Ages came back,’ Erna von Pustau said.
Communities printed their own money, based on goods, on a certain amount of potatoes, or rye, for instance. Shoe factories paid their workers in bonds for shoes which they could exchange at the bakery for bread or the meat market for meat.
Those with foreign currency, becoming easily the most acceptable paper medium, had the greatest scope for finding bargains. The power of the dollar, in particular, far exceeded its nominal rate of exchange. Finding himself with a single dollar bill early in 1923, von der Osten got hold of six friends and went to Berlin one evening determined to blow the lot; but early the next morning, long after dinner, and many nightclubs later, they still had change in their pockets. There were stories of Americans in the greatest difficulties in Berlin because no-one had enough marks to change a five-dollar bill: of others who ran up accounts (to be paid off later in depreciated currency) on the strength of even bigger foreign notes which, after meals or services had been obtained, could not be changed; and of foreign students who bought up whole rows of houses out of their allowances.
There were stories of shoppers who found that thieves had stolen the baskets and suitcases in which they carried their money, leaving the money itself behind on the ground; and of life supported by selling every day or so a single tiny link from a long gold crucifix chain. There were stories (many of them, as the summer wore on and as exchange rates altered several times a day) of restaurant meals which cost more when the bills came than when they were ordered. A 5,000-mark cup of coffee would cost 8,000 marks by the time it was drunk.
Grant Williams concludes:
Stories like these still live and breathe in Germany so it is no surprise that the language of Mrs. Merkel and Messrs. Schauble, Wiedmann et al have been defiant whenever the subject of money-printing has arisen. But this week, as the Eurozone threatened to spiral out of control, it became abundantly clear that the Euro has reached the point of no-return.
The ECB now has to either become the lender of last resort that Europe so desperately needs (and trample over Germany’s sensitivities in the process), or the Euro must fall. There is no other choice.
And at this point, there probably is no other choice.
Of course, ECB action, however aggressive, will only alleviate the near-term stress. Unless Europe’s economy suddenly starts growing again, and rapidly, many Euro countries will ultimately have to restructure their debts and budgets. And the Euro treaty will almost certainly need to be renegotiated.
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