The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (53 page)

Systemic and ingrained social problems apart, the problem for the eurozone countries that have been forced to accept ‘bail-out’ loans on what seem like draconian terms is that, unlike Germany, they do not have broad-based economies. The latest, Cyprus, for instance, developed an identity, in the last decades of the twentieth century, as a tax haven, especially favoured by Russian businessmen. Like British author Somerset Maugham’s pre-war French Riviera, Cyprus became a ‘sunny place for shady people’.

Formerly a British colony, Cyprus had remained a British military base, with, back in the 1970s, agriculture and tourism as its other main earners. Now its burgeoning financial sector became the basis of the island’s prosperity, leaving its economy increasingly dependent on a banking monoculture. This remained the case even after it joined the euro at the beginning of 2008. As a result, when it came to paying back the 2013 ‘bail-out’ loan, Cyprus’s creditors considered that only the island’s banking sector could provide the funds. Hence the bail-out providers’ imposition of a startlingly novel ‘bank deposits tax’ that, ominously, freezes and then guts bank accounts containing deposits of €100,000 or more. Capital and currency controls have been forced on Cyprus, completely against the spirit and letter of the EU’s founding principles – as if such controls had suddenly popped up on the border between, say, Connecticut and the rest of the United States.

In this context, Germany, as the richest and most populous country in Europe and therefore the main paymaster, is seen – to return to the similarities with the Weimar era – as a kind of combination of merciless financial vigilante, like France bearing down on Germany after Versailles, and ‘Uncle Shylock’, like the American bankers who would not forgive the loans taken out by France, Britain and its other co-combatants in the First World War. Had not the combination of these two factors condemned post-First World War Europe to permanent austerity and a ‘beggar-my-neighbour’ struggle for survival?

The real problem, arguably, is that, because they (voluntarily) remain within the monetary straitjacket of the eurozone, the modern debtor countries must abide by its rules, of which Germany is the undoubted guardian. Specifically, as a result, they cannot devalue their national currencies. Unlike Germany in the 1920s, they cannot ‘inflate their way out of trouble’, thereby, first, making their economies more competitive and, second (less virtuously), in effect cheating their creditors by repaying them in debased money.

Of course, as this entire story shows, Weimar Germany may have ‘inflated its way out of trouble’ for a while. The eventual result, however, was to help create another, even worse, kind of trouble - one that manifested itself a decade down the line in the shape of the Nazi dictatorship. This is a fact of which modern Germans are well aware. The spectacle of the Anglo-Saxon countries ‘solving’ the recession by conjuring money up from nowhere to keep the economy going unsettles minds east of the Rhine. London and Washington may call it ‘quantitative easing’, but to those Germans with even the dimmest memory of the early 1920s, the story of the Reichsbank’s printing presses clattering away around the clock to produce million, billion and trillion mark notes, and the chaos that resulted, is irresistibly brought to mind.

Germans’ awareness of their own history, including the price they paid for the hyperinflation – financial aversion therapy of the most drastic sort – as well as the benefits of financial discipline, which transformed the country after the Second World War, makes it obvious to most Germans that a similar course of action must be pursued by their troubled eurozone friends if they are to lift themselves out of the mire. The problem is that while this attitude may appear to opinion formers in Berlin to reflect simple common sense, to those on the southern European periphery, where the suffering is not decades in the past but very much an urgent thing of the present, it feels much more like arrogant indifference to wasted lives and crushed hopes.

Meanwhile, the communal memory of the hyperinflation lingers in the subliminal regions of the German unconsciousness, occasionally rising into the national awareness at times of crisis. ‘There is anecdotal evidence,’ as the correspondent of the London
Observer
wrote at the end of March 2013, ‘that some Germans have begun removing their savings from banks, and that others have opened new accounts to spread their savings around and avoid getting caught like Cypriot depositors with more than €100,000. The financial daily
 
Börsen-Zeitun
g
commented that while Germans – still collectively haunted by the currency collapses experienced by their forefathers – were not necessarily planning a run on the bank with their feet, “they are already doing it in their heads”.’
3

Clearly, for all Germany’s renewed prosperity, the ninety-year-old national sense of trauma has not yet been fully overcome. The problem for the world may be that Germany’s instinct is correct.

Appendix

Timeline of Key Events