Fabian Lindner: In Today's Debt Crisis, Germany is the US of 1931
Fabian Lindner is an economist working at the Macroeconomic Policy Institute (IMK) of the Hans-Böckler-Foundation. He studied in Germany and France and holds master degrees in political science and economics. He also writes the blog Herdentrieb for the German weekly Die Zeit.
A country faces an economic and political abyss: the government is on the brink of bankruptcy and pursues fierce austerity policies; public employees take huge pay cuts and taxes are drastically increased; the economy slumps and unemployment rates explode; people fight each other on the street while banks collapse and international capital flees the country. Greece in 2011? No, Germany in 1931.
The government's head is not Lucas Papademos, but Heinrich Brüning. The "hunger-chancellor" cuts government spending by decree, ignoring parliament while GDP falls without limit. Two years later Hitler will be in power, eight years later the second world war will begin. Today's political situation is still different, but the economic parallels are frightening.
Like in today's crisis countries, Germany's key problem in 1931 was foreign debts. The US was Germany's biggest creditor, Germany's debts were denominated in US dollars. Since the mid-1920s, its government had borrowed huge sums abroad to service reparation payments vis-à-vis France and Great Britain. Foreign credit also financed Germany's roaring twenties – the economic boom after the 1923 hyperinflation. Like Spain, Ireland and Greece today, Germany's 1920s upswing was caused by a credit bubble...