Wednesday, March 04, 2009

Is the ghost of Weimar about to slay the Euro?

The Germans have suffered at least four great inflations in the last 100 years, and although all of their central bankers and politicians would quite willingly create another one, if it meant they kept all of their kleptomaniac goodies, the German Volk have other opinions. Let's look at those inflations:

1) 1914 - This war-paying inflation allowed the last Kaiser of the Second Reich to kill millions of Germans either on the Western or Eastern Fronts, or in the mass starvation brought about by the food blockade savagely administered by the Royal Navy. This war and its subsequent starvation engendered an entire generation of bitter angry men, foremost amongst them of course 'Mr Inflation' himself, Herr Schicklgruber.

2) 1923 - The famous Weimar inflation finally finished off the middle classes of Germany, after a century of growing prosperity, and led to the rise of the German international socialists and national socialists, who spent the next ten years fighting it out in the streets for political supremacy.

3) 1933 - Yet more monetary expansion allowed the re-construction of the Wehrmacht in preparation for its land-grabbing expansion in the early 1940s. The subsequent death of millions of Germans, whether in labour camps or fighting on the Front for the Third Reich, as well as in the appalling war crimes of Dresden et al, were all fed by this inflation. The consequent split of Germany into the American and Soviet imperial bastions, was also a direct result of this monetary expansion to pay for all of the tanks, planes, submarines, battleships, and death camps, used by the Wehrmacht.

4) 1945 - The Post-war inflation, administered by the Allies, took the average calorific intake of the typical non-connected German down to fifteen hundred calories a day. There are still many Germans alive today who remember this starvation horror. They are perhaps outnumbered by the numbers of East Germans alive today, who remember the days of the Trabant. These people also had to grow up in a national socialist country (the Third Reich), to then spend their adulthood in an international socialist country (the East German Democratic Republic). Could anything possibly be worse?

All of the above situations were a direct consequence of the ability of national governments to inflate. Of all the peoples in the world, the Germans have thus perhaps been on the receiving ends of the worst of this short-term ability to prop up long-term misery. This is why they will not tolerate another great inflation, despite the willingness of their current supine crop of politicians to consider it.

This is also why they were prepared to tolerate the hard 'Austrian-lite' economic policies of Wilhelm Röpke and Ludwig Erhard, once the Post-war Germans had managed to throw off the Keynesian economic shackles of the Americans in June, 1948.

This basic Teutonic antipathy and hatred of inflation may then be why the Euro is about to collapse. Check out the following two articles, one of them admittedly by the only man in England, Simon Heffer, who despises the EU more than I do:

=> It's the Europhiles versus reality, and reality is going to win

=> EU pledges eurozone rescue

Obviously, when you're as jaundiced as I am, and as hard-core as I think it is possible to get within Austro-libertarianism (unless you are a certain Herr Professor), then I probably do read things into every article that comes my way.

But if I was a proper big time speculator, the news that the EU has a contingency plan to shore up the Euro would be music to my ears. I would be shorting the Euro with every Swiss Franc in my arsenal. Because if you're big enough to maintain this squeeze, I reckon you are going to make tens of billions of Swiss Francs when/if the Euro collapses.

Fortunately, nothing in this life is inevitable, not even Death if you believe Aubrey de Grey, but let us see if my prediction holds: The Euro will be dead soon, within the short to medium term, and the Germans will kill it.


not an economist said...

Excellent post Jack.

Personally I don't think the Euro will survive this crisis. Its inherently unstable. It lacks the political culture that currencies in nation states often have to suppor them and which helps them to weather such crises. As the economies across Europe worsen so European politics will be dominated by calls for more aid from the poorer nations. The richer countries will either tell the poor ones to bugger off or leave themselves.

Jack Maturin said...

Let us see what the horrors of the G20 meeting bring us.

I have no idea how this is going to end, except perhaps in farce and acrimony.

The whole 'governmental' world is looking to Brown's conference to be the be-all-and-end-all of this financial crisis.

But because we are all living with fiat currencies, there is no further way down except more of the same.