Jeffrey Fear: The Long Shadow of German Hyperinflation

Jeffrey Fear is a professor of business administration at the University of Redlands. The opinions expressed are his own.

In February, Axel Weber surprised much of Europe when he resigned as Bundesbank president. Weber said that he felt isolated for his “clear positions” in opposition to the European Central Bank’s policy of purchasing distressed euro-area sovereign debt on secondary markets.

In September, Jurgen Stark, the Bundesbank representative on the ECB's board, also resigned. He was concerned that further ECB bond purchases would destabilize the euro and undermine the central bank's independence. Monetary policy, he feared, was propping up profligate national fiscal policies.

In November, the new Bundesbank president, Jens Weidmann, said that the ECB could not act as a lender of last resort for countries; it would be a direct violation of the European Union treaty. Only adherence to treaty rules and to fiscal discipline could create long-term financial credibility and price stability.

The Germans' strict opposition to the monetary financing of governments isn't just petty legalism -- it's a bedrock principle, based in history, which was purposefully built into EU treaties and Bundesbank policies.

It's worth revisiting why the memory of hyperinflation has seared itself into the minds of many Germans, and how it's shaping their thinking and the future of the euro itself....