Weimar on the Aegean

Roundup
tags: economics, Greece



Paul Krugman joined The New York Times in 1999 as an Op-Ed columnist and continues as a professor of economics and international affairs at Princeton University. Mr. Krugman received his B.A. from Yale University in 1974 and his Ph.D. from M.I.T. in 1977. 

Try to talk about the policies we need in a depressed world economy, and someone is sure to counter with the specter of Weimar Germany, supposedly an object lesson in the dangers of budget deficits and monetary expansion. But the history of Germany after World War I is almost always cited in a curiously selective way. We hear endlessly about the hyperinflation of 1923, when people carted around wheelbarrows full of cash, but we never hear about the much more relevant deflation of the early 1930s, as the government of Chancellor Brüning — having learned the wrong lessons — tried to defend Germany’s peg to gold with tight money and harsh austerity.

And what about what happened before the hyperinflation, when the victorious Allies tried to force Germany to pay huge reparations? That’s also a tale with a lot of modern relevance, because it has a direct bearing on the crisis now brewing over Greece.

The point is that now, more than ever, it is crucial that Europe’s leaders remember the right history. If they don’t, the European project of peace and democracy through prosperity will not survive.

About those reparations: The basic story here is that Britain and France, instead of viewing the newly established German democracy as a potential partner, treated it as a conquered enemy, demanding that it make up their own wartime losses. This was deeply unwise — and the demands placed on Germany were impossible to meet, for two reasons. First, Germany’s economy had already been devastated by the war. Second, the true burden on that shrunken economy would — as John Maynard Keynes explained in his angry, powerful book “The Economic Consequences of the Peace” — be far greater than the direct payments to the vengeful Allies.

In the end, and inevitably, the actual sums collected from Germany fell far short of Allied demands. But the attempt to levy tribute on a ruined nation — incredibly, France actually invaded and occupied the Ruhr, Germany’s industrial heartland, in an effort to extract payment — crippled German democracy and poisoned relations with its neighbors.

Which brings us to the confrontation between Greece and its creditors. ...




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