Home » EUROPE » Saying Nein to Inflation

Saying Nein to Inflation

Valerie Weber

 

As the Euro crisis draws on, many are criticizing Germany’s firm stance on low inflation and rigid structural policy measures. Some argue that these non-negotiables are a by-product of their fear that history will repeat itself, as the country’s highest levels of inflation directly preceded and contributed to Hitler’s rise to power. Is inflation inherently bad in Germany because of its shackling past?

Germans realize that it is in their country’s best interest to uphold the monetary union of the Eurozone, and has thus found ways to compromise with the needs and worries of other nations. The German government has been fervent, however, on other aspects of the bailout, such as its opposition to Eurobonds and low inflation target, and is elevating an already strong voice of opposition on many issues on the table. But is it the fear of history repeating itself that is driving their platform?

Not exactly.

In a recent article in the Guardian, acclaimed German author Bernhard Schlink was interviewed on his perception of the repercussions Germans face today as a result of the historical discourse during the Nazi period. When asked whether Germans feel shackled by their past, Schlink said yes.

He argues that Germans are still very much trapped in history and are heavily influenced by it in terms of how they interact with surrounding nations, often rendering the Germany, ” intensely keen to show solidarity with the rest of Europe”.

But are its economic policies similarly bound by its past? No.

It is true that an integral part of fiscal policy pursued by Germany is the push for low inflation in order to avoid another recession as that of the 1920s, when levels of inflation skyrocketed and drove the country into a severe depression. There is little evidence to suggest, however, that current low-inflation policy pursuits have more to do with the fear of another Hitler than with the fear of another recession.

Other economic policies that underline Germany’s economic stability further fail to support this assertion, as they were enacted more in a strategic discipline to generate long term growth than anything else. Upon the creation of the Eurozone, for example, German workers accepted lower wages across the board to make the German economy more competitive internationally. This policy has caused the stable increase and solidification of a huge group of Mittelstand Firms in the country, which specialize in and perfect the production of input goods and machinery.

This stubborn need for perfecting even the most basic technology combined with the people’s engrained work ethic and frugality makes Germans careful with money – especially the kind that they don’t have. This is what drives German economic policy.

While not speaking on economic terms, Schlink’s analysis nonetheless highlights the unique situation in which Germany finds itself today: the country is currently the richest in Europe and knows that it can only sustain this position if other countries around it are not doing too badly either; however, being ‘once again’ in this dominant position may put hesitation on the strength with which it can propose ideals over others. Schlink reasons that this ‘burden’ of being German is likely to persist for several decades to come, and continues to influence outcomes of the Euro crisis.

Younger Germans have a different take on this. Staying true to their stereotypically pragmatic demeanour, they are looking at the issue at hand not through the eyes of their grandfathers and great grandfathers, but through their own – and most are not seeing a future without the Euro. To most Germans, the facilitation of trade through the Eurozone is a crucial part of their success story.

In order to continue profiting from the union, however, they need other countries not to be doing so poorly. The message they’re sending (a bit of German wisdom): stick to the rules.

For this to happen, Germans are arguing that rules must first be created, and a tougher structural framework must be formed to ensure that other countries will not find themselves in the same situation they are finding themselves in today.

While it may be impossible to create a better future without learning from the mistakes of the past, most Germans like to attribute their economic success to pragmatic and sustained efforts in the present, not to policies pursued in fear of something far and long condemned.

 

 

Photo by Duncan Hull

About Valerie Weber

Check Also

The Pariahs of the European Union

As the European Union (EU) struggles to dig itself out of an unimaginably large pit of ...

One comment