The Eurozone Crisis and German History: The Lessons of Versailles

By Zimmermann, Klaus F. | The International Economy, Summer 2011 | Go to article overview

The Eurozone Crisis and German History: The Lessons of Versailles


Zimmermann, Klaus F., The International Economy


The eurozone crisis just seems to be lingering on, with no resolution in sight. Germany, in particular, is often criticized for providing no leadership. All that seems to happen is that every week brings new variants of disparaging news, from Finnish election results to Greek anarchists. And yet could it be that German history, of all things, provides a constructive and even healing guide to overcoming the current protracted eurozone crisis? That would be a major stunner, given that German history has traditionally proven to be a treacherous ground, especially when it comes to the country's twentieth-century history.

It is often said that the pivotal experience in modern German history, when it comes to fiscal and economic matters, was really the bout of hyperinflation of the 1920s. That item is always trotted out, with good reason, as a kind of economic Old Faithful to explain why Germans hate inflation and now want to impose their own preference for fiscal probity on other European nations.

But we cannot overlook that something equally historic but completely different has shaped Germany's economic mindset at least as much: the memory of how the aftermath of World War I toppled the country first into social and economic instability, then ruin and, ultimately, fascism.

The European history of 1919, whatever its causes, was a botched start into Europe's democratic era. Simply put, the lesson from the reparations-driven Versailles era of European politics is this: While it is constructive to help a country back onto the path of fiscal virtue and economic growth, it is destructive to be intransigent and demanding to the point of stifling these countries' incentives--and even theoretical opportunity--to improve and reshape their own act.

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While the memory of that era is waning, today's Germans are aware what a long and protracted road it was for their country to come back from that abyss. And they are vividly aware that European integration was part and parcel of that recovery process--even if not all Germans are willing to admit that at all times.

That memory teaches a fundamental point about the importance of economics in politics: Countries that find themselves in deep economic turmoil which is precisely the state that Ireland, Greece, Portugal, and (to a lesser degree) Spain find themselves in today--must do their part to reform themselves. …

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