The hyperinflation of the early 1920s Weimar Republic is often mentioned to explain German opposition to Eurobonds. Men in caps swarming around a bank with suitcases instead of wallets; a wheelbarrow overflowing with devalued banknotes; bills swept into the gutter and feeding a fire: the collective 1923 psychosis of lifesavings evaporating within months and a loaf of bread costing 3 billion Reichsmark has supposedly scarred generations of Germans. Nearly ninety years later, they still dread inflation like the plague.
On the whole, there is ample reason to be skeptical about the “stability bonds” proposed by Jose Manuel Barrosso. Not the actual fact of them— but the conditions they come with. Arguably undemocratic, questionably attractive to investors, the conditions of a bail-out impose severe austerity measures on countries such as Greece and Spain that may lead to disaster. The solution that the entire world is hysterically clamoring for and Germany still opposes is perhaps not all that irrational to be skeptical of.
The New York Times recently ran a front-page article on how “haunted by ’20s inflation, Germans balk at Euro aid.” By staging Chancellor Angela Merkel and finance minister Wolfgang Schäuble as “driving the world off the economic precipice and into another deep recession” by hesitating before eurobonds based on a dim historical memory, the complexity of the situation at hand is entirely obfuscated. It is doubtful that Merkel and Schäuble are basing their hesitation solely on historical hard-wiring.
As economist Sebastian Dullien writes, the hyperinflation of 1923 was not nearly as harmful to the German middle-class as the depression in later years, and the high unemployment rates of the 1930s—which eventually led to the rise of Adolf Hitler. But it has remained in collective memory as the starting point of the downward spiral of poverty, fascism and war. Indeed, it was in response to Chancellor Gustav Streseman’s attempts to stabilize the economy by calling off the strike in French-occupied Rhineland that Hitler and his gang first tried to take over Munich in November 1923.
Allowing countries like Greece, Italy, Spain, Ireland and Portugal to drop off the economic map may just as likely lead to inflation as pooling debt. Taking another look a little further down in history proves to be quite revealing. In an article in Die Zeit, Fabian Lindner points out that the austerity measures currently being called for by Merkel in Greece and Italy are dangerously similar to the ones taken by Chancellor Heinrich Brüning in the early 1930s. These measures led the German economy to buckle and national-socialism to thrive. As haunted as it is by the prospect of hyperinflation-unemployment-extremism in its own backyard, Germany may indirectly launch this process elsewhere, especially with the whiff of neo-fascism already coming from the Danube in the East.
Memory is far from rational. We may have forgotten all about Truman’s example of generosity in foreign aid while blowing the spectre of the wheelbarrows out of proportion. Eurobonds may not be the fool-proof magic solution, but they are the only one left on the table. Germany needs to formulate the bail-out’s fine-print very carefully, based on its own scarring experiences of severe austerity measures in the 1930s, rather than categorically refusing the bail-out due to a dubiously interpreted historical phobia.