CASE STUDY: Why Germans are so frightened of inflation

Antes de efabular sobre a aceitação pela Alemanha da mutualização da dívida e outros mecanismos que permitam a Portugal continua a endividar-se sem remição, convém ter em conta a história. «The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class» de Frederick Taylor poderá ajudar a perceber porquê. Para já comecemos pela review da Economist.

«GERMANS are terrified of inflation. German politicians (and their colleagues in the euro zone) understand this, though mostly they ignore it as they try and steer their way out of the euro crisis. By the end of “The Downfall of Money” it is clear why these fears are so deeply embedded. At the root of the trauma lie the events of 1923, when the German currency plummeted from 7,500 Reichsmarks to the dollar to a rate of 2.5 trillion.

This is not just a story of financial mismanagement. The dice were loaded against Germany as soon as it became clear, late in 1918, that it would lose the first world war. As often happens, the winners wrote the history and set the terms for peace. The Treaty of Versailles, signed in 1919 but not finalised until 1921, was designed by the allies to suck dry what was left of Germany. Worse still, France entered and occupied Germany’s industrial heartland, the Ruhr and the Rhine, in January 1923, making it even harder for Germany to keep up its reparation payments.

Add to that a weak central government, threatened daily by extremists on the left and right, and it is remarkable that the world’s second-biggest economy didn’t disintegrate. Frederick Taylor, who has written several books on this era, is careful to blame no one—except perhaps the French. He is quick to offer parallels with the recent financial crisis, when many governments turned to quantitative easing (buying assets with newly created money) to avoid recession or even depression. And his book has suggestions about where the world may be heading if it is not careful.

Living in hyperinflationary Germany was very hard, unless you had a good supply of dollars. For civil servants, whose salaries never kept up, and savers, whose holdings shrank to nothing, it was a slide into poverty and worse. Manual labourers were better rewarded than white-collar workers. Landlords earned a pittance in rent. Pensioners starved. House-buyers had a better time of it; at least their mortgages shrank to nothing. For the quick- witted it was a game of barter and raiding the countryside where most people at least were not starving. Two million migrated back to the land from German towns. Fat cats thrived by trading property and black-market goods and so did a handful of industrialists.

Karl Helfferich, a nationalist politician, Hans Luther, the finance minister, and Hjalmar Schacht, who later became Hitler’s economics minister became intent on currency reform. Helfferich first proposed the idea of a currency indexed to the price of rye and other agricultural products. That evolved into the introduction of a “gold” mark whose issuance was severely restricted by a new bank, called the Rentenbank. Just in time, as it happened.

Things came to a head in November 1923. The central government was nearly toppled by the communists and socialists in Hamburg, Saxony and Thuringia, and by Hitler and his Nazi party in Bavaria. The putsches failed, although Hitler lived to fight another day.

The gold mark came in on November 15th, and the paper mark settled down to a rate of 4.2 trillion to the dollar by the end of the year. Germany became stable enough to attract foreign investment and a huge American loan. But the residual fear of hyperinflation helped Hitler’s rise to power a decade later. Mr Taylor notes similarities between the Treaty of Versailles and European economic and monetary union. Both, broadly, were attempts to tie down Europe’s giant and help prevent another war. Versailles failed. As for the EU, this book, if written five years ago, would have had a happy ending, he says. Now “Germany finds itself widely hated…and the root of the problem is, once more, a currency in difficulties.”»