Over the last few months, during all the hand-wringing and arm-twisting at the multiple summits to save the euro, one question seemed to unite the quarrelling nations: what's wrong with the Germans? Specifically, there has been some bafflement as to why Angela Merkel is so squarely opposed to a more active role of the European Central Bank. Why won't Germany agree to the ECB buying up Greek or Italian bonds?
Politicians, economists and journalists on both sides of the Atlantic are trying to explain this pig-headedness. For most of them, the answer seems clear: it's the "national psyche". The experience of a total breakdown of the currency during the Weimar Republic, goes the argument, is still branded so deeply into the German collective mind that any manoeuvres threatening higher-than-normal inflation rates are deemed highly dubious.
Thus, the historical shock of Weimar hyperinflation still informs German politics today. The Daily Mail's Simon Heffer recently claimed that "the newsreel images of people pushing wheelbarrow-loads of reichsmarks to a shop to buy a loaf of bread" were still burned into the German consciousness, while the New York Times argued that "the hyperinflation of the 1920s deeply scarred the German psyche". Even the Guardian saw "Berlin's 90-year-old psychological fears" as a major obstacle in reaching a common fiscal policy in Europe. In a variation on the theme, the Telegraph warned that the obsession with the fate of the Reichsmark has "blinded" the Germans to the fact that it was not inflation at all that got Hitler into power, but deflation. In the Times, the "wheelbarrows full of valueless banknotes" showed up again, "still haunt[ing] the national psyche".
There is no such thing as a "national psyche". This superimposition of individual psychology onto a collective level is highly problematic, because it pathologises politics. As the conservative Frankfurter Allgemeine remarked huffily, the suggestion that contemporary German fiscal strategies are guided by historical events taking place at the beginning of the last century makes Merkel's demands seem more like a post-traumatic stress disorder than seriously thought out politics. Her plans certainly are debatable, but cod psychology isn't helping in weighing up the pros and cons.
Even if 82 million Germans shared a common psychological makeup, it surely would not be an irrational fear of inflation. On the contrary, Germany is a nation of savers. According to the OECD, Germany had a net savings rate of 11.3% in 2011 (percentage of disposable household income), one of the highest in the western world. In total, German savings deposits amounted to nearly €623,000,000,000, according to the Bundesbank. This would make no sense at all if Germans really lived in constant fear of out-of-control inflation.
In the 1920s, when exchange rates climbed to the high-water mark of 4,200,000,000,000 marks to one US dollar in a matter of a few years, the sensible savers, who had prudently put money away for a rainy day, saw their assets wiped out in the bonfire of the billions. People with huge debts, on the other hand, paid back their loans for a fraction of the initial value. The age-old moral of the frugal ant and the careless grasshopper was turned on its head.
However, despite such drastic historical events, Germans of today clearly still believe in squirrelling away money for the future. I remember opening my first savings account when I turned 16: it was a rite of passage, the first step to becoming a sensible adult. In fact, it was my grandmother – the only member of the family old enough to actually remember the fallout from the Great Inflation – who supported me most in my honourable quest to save up, slipping me five marks now and then to put in my account. In all honesty, I did a lousy job and most of my granny's money never made it to the bank. But this was more down to the seductive lure of American blockbuster movies and British pop music than to a pathological fear of hyperinflation.
Obviously, most of my fellow Germans were more conscientious, and the billions in their savings accounts are a much better explanation for Merkel's cautiousness than any "collective trauma". The fact that a majority are living in rented apartments, and that rental prices tend to rise with inflation, is another very contemporary answer to the question why Germans are uneasy about the ECB printing money to buy up unlimited national bonds.
If you are really looking for an underlying cultural reason for contemporary German fiscal politics, a protestant work ethic that sees debt as morally wrong, a tradition of manufacturing feeding a distrust of anything that seems "conjured up" out of thin air and a strong middle-class belief in living within your means are more important factors than a single historical event, however traumatic it might have been.
So why do the media still use the inescapable "wheelbarrow full of money"? Well, I have been a journalist long enough to know that such an almost universally recognised image is hard to pass up when you are trying to say something coherent about something so complicated (or boring, depending on your interests) as "contemporary German fiscal politics" in an easily digestible format.
But I believe there is also a uniquely British side of this problem. As much as I hate to agree with Michael Gove, I think he was right when he said history education at British schools has a shockingly narrow focus on a few periods, the rise of the Nazis in Germany being one of them. Of course I think the reasons why such a brutal regime could take hold in the middle of 20th-century Europe – the shock of Weimar's hyperinflation being one of them – are a very important lesson that should be on the curriculum of any nation. But while teaching undergraduates at British universities, I realised this is often the only thing they know about Germany.
To make things worse, only a small minority learned German at school. Knowledge of the living, changing language is the only way, I believe, to really understand a country and its culture. So my students' image of today's Germany is mostly made up of historical references and it has been very hard to convince them that there are developments and events in my country that aren't somehow connected to the Third Reich. Sadly, it seems that British journalists have not learned much more about Germany since their school days.
Comments
22 December 2011 9:12AM
Very sound. There would be no crisis if every European country have the same "psyche"
22 December 2011 9:12AM
Thank you - this is important and needs to be said. British attitudes towards Germany often seem restricted to either an obsession with WW2 or a Clarkson-style reference to German efficiency. We just don't seem able to move on from events that took place over 60 years ago.
22 December 2011 9:13AM
No - its about their national economy, which is the last sound economy in Europe.
We should all run our economies like they do, and we wouldn't be in the sh1t we are today.
22 December 2011 9:21AM
I love it. Nicely put. I think the counter-argument will be that this 'national psyche' stuff is short-hand for patterns of memories and 'lessons' embedded in culture. You could well argue that the English Civil War still has resonance in England, because even now republicanism has connotations in England that seem to not be shared elsewhere. This sort of thing can easily be overstated, however. People were keen to see Pearl Harbour in 9/11, but were less keen to see Vietnam in Iraq. What 'lessons' we decide to learn from history seems to be dependent on the interests of the political elite at the time.
22 December 2011 9:22AM
If Germans were so completely obsessed with the 20s inflation, they would have never have joined the Euro in the first place.
22 December 2011 9:23AM
"We should all run our economies like they do, and we wouldn't be in the sh1t we are today."
If we all tried to run our economies like they do then no-one would end up running their economies like they do not even Germany. That is the whole point.
22 December 2011 9:23AM
Two very good points. There's an article in that.
22 December 2011 9:28AM
China's leader recently criticised the West because of its addiction to debt. Letting a country live on borrowed money can be used for political advantage.
China dosent bother with elections and has no lage debts. I think that the West needs to get out of the debt habit.
22 December 2011 9:29AM
Let's face facts.
The Germans live in the modern age and have learned from the past.
The British government and media live in the past and haven't learned anything.
22 December 2011 9:31AM
Thanks for pointing out once again how awful the coverage is of European politics in the British medai is. What I would really like to see now is an article explaining the real thinking behind German policy on the euro.
Any chace CiF?
22 December 2011 9:32AM
That's BS. Really it is. Their electoral system may not be the same as the UK, but it does have a working one.
On the other hand, no one voted for the present coalition. Perhaps there are more similarities than I thought?
22 December 2011 9:35AM
Its a pity they don't have a similar aversion to lending those savings to borrowers who cannot repay. Had the German banks not loaned those savings to customers who are now unable to repay the debts, then the German economic miracle would not have happened. It is not possible to consistently export more than you import without a debt arising.
22 December 2011 9:39AM
They certainly dont have the same electoral system as the UK, but its not like North Koreas.
True, nobody voted for the coalition, but Labour didnt win either.
22 December 2011 9:43AM
While I agree with the main point of the article, that the fear of 1920s hyperflation is exaggerated because it is a useful image for journalists, I think the alternative explanations offered, "protestant work ethic" and not trusting finance, fall into the same category. If German citizens have high savings and German institutions (mainly banks) are major creditors then a more rational explanation for fear of inflation is simply that savers and creditors will suffer losses to which they are extremely averse.
22 December 2011 9:44AM
printing money is a betrayal to our old people who saved for their old age, and for those who have a sense of responsibility , not surprisingly the ones most in favour of
this socialist style of economics are those that haven't saved and are envious of those that have,..... namely socialist.
22 December 2011 9:45AM
Is that coalition "nobody voted for" Cameron's or Merkel's? They both lead conservative parties that needed liberal party partners to get a majority in their respective parliaments. There the similarity ends though because Germans accept that that is inevitable in representative democracies if the seats in parliament are reasonably proportional to votes cast, whereas the British are still wedded to the idea that politics is a matter of one side who is always wise and right taking on another who is always silly and wrong.
22 December 2011 9:45AM
You don't vote for single party governments either. You vote for an MP.
22 December 2011 9:46AM
When you have a productive economy like the German one, simply printing money and keep your citzens idle doesn't make sense.
22 December 2011 9:47AM
The notion that the Germans have a particular aversion to inflation is a relatively recent one. In both the pre and post war era, German governments ran loose monetary policies with no particular evidence that the public opposed it (in both cases, the policies were very successful at providing a necessary stimulus).
Of course, people will say 'everyone should run their economy the way the Germans do'. In which case, as several economists have pointed out, we'd have to fast discover some extraterrrestrial planet to export to - the German economy while very efficient is also highly distorted, with permanently suppressed domestic demand (just as with China). What is often forgotten is that the property bubbles in Spain and Ireland in particular were fueled with German money - in effect, they were German bubbles, it was just that the policies pursued by Germany meant that they were pushed offshore. German banks are among the worst in the world. They were the biggest mugs in investing in US subprime, and the worst culprits at shoving cash at inept and incompetent Irish, Spanish, Greek and east European banks. At least British, American and French bankers recognise fools and knaves when they see them (probably a mirror reflection).
On a more serious level, one of the major culprits is German economists. For whatever reason, and I'd love to see an article on this, they have a baleful influence on German and European policy, insisting on outdated theories in the face of overwhelming contrary evidence. There seem to be very few voices within the German economics and financial world pointing out just how damaging their extreme form of monetarism really is (a form of monetarism which has long ago been abandoned elsewhere, as it has been demonstrated to be an inaccurate description of how economies really work). We tend to assume that German efficiency applies equally to their financial and academic worlds - it doesn't.
22 December 2011 9:47AM
Germans of today clearly still believe in squirrelling away money for the future.
Where do they squirrel it away to keep multiple-trade managers' hands off it?
22 December 2011 9:48AM
Or...
They recognise that Financial services at the end of the day is essentially just a load of IOUs ( pensions, insurance etc etc).
And we have built or economy on it.
22 December 2011 9:48AM
Talking to Germans, watching TV and reading the newspapers, one gets a very clear impression that quality, durability, functionality and total cost of ownership are at the heart of every purchase. It matters not what it is, a house, car, jacket or salami, only when all the boxes are ticked can it be said to be good value for money. In the UK, 'value for money' is synonymous with cheap.
Recognising what is worth buying too is something which needs to be learned and it is not uncommon in Germany to hear a father scold his son, "Hast Du schon wieder Scheiße gekauft?"
22 December 2011 9:48AM
A very good article!
But it still doesn't really explain what is going on inside Angela's and other politicians' heads.
My impression of the German psyche always was that they are very straightforward, no-nonsense people who figure out a solution and then go for it. But they seem to be trying to muddle through in a very English fashion with a rather limited set of concepts.
My new impression is strengthened through recent experience of working on a German-led project. I have found decision making very plodding and sometimes poorly conceived. Which leads me to think that maybe they don't always know what they are doing.
22 December 2011 9:48AM
In other words, since we can't all be winners, we should stop trying and accept failure instead.
22 December 2011 9:49AM
Having worked for a National bank in Europe the control that Germany had over the ECB was very evident. They are so used to having absolute control that it does scare them to believe that the ECB could operate independantly. Even though they insist that the ECB is independant it is holding some 400 billion Euros from Germany, whilst other nations owe money to the ECB.
What makes the Germans unhappy is seeing their finacial security being wittled away by having to underwrite other countries. They live in fear of what will happen if Germany goes broke. I personaly dont blame them. At least they practice prudence rather than say they do (mssrs Brown) and do otherwise.
I dont really think it has anything to do with the 1940s barrowfull of money its much more basic than that.
22 December 2011 9:50AM
"According to the OECD, Germany had a net savings rate of 11.3% in 2011 (percentage of disposable household income), one of the highest in the western world. In total, German savings deposits amounted to nearly €623,000,000,000, according to the Bundesbank. This would make no sense at all if Germans really lived in constant fear of out-of-control inflation."
The author could not be MORE wrong. With €623bn sitting in savings they have far MORE to fear from inflation than a nation with low savings rates.
This surely is completely obvious.
22 December 2011 9:50AM
Interesting article.
Though wouldn't fear of inflation be an entirely rational fear for a nation of savers?
22 December 2011 9:50AM
It has to be possible to countries like germany. You have to face that germany has no big reserve of raw materials. All what germany can rely on is the high demand of high quality products. Its not germany's fault that people buy on debt what they cant effort. Nobody is attacking saudi arabia for their big trade surpluses cause we all knew we rely on their goods. I think its the same about high quality engeneering.
22 December 2011 9:53AM
I have no problem with the Eurozone going down the swanny because Germany refuses to participate in QE. Just stop going around with your begging bowl to the UK asking us to contribute billions to the IMF to bail out your currency. Its your problem, you sort it out.
22 December 2011 9:56AM
Hi all,
thank you for your comments. Evenflow is right that trying to find an explanation in a "protestant work ethic", etc. is quite similar to talking about the 'national psyche', and it obscures my point about 'the nation of savers'. It just goes to show how hard it is to get away from these generalisations. However, I think a long-stading tradition of protestant values still makes more sense as an explanation than a single historical event - and it doesn't pathologise politics like the talk of a 'national psyche'
For anyone who reads German, there is a very interesting article on Der Spiegel by Wolfgang Münchau who argues that the German stubborness about ECB politics is down to a (falsely interpreted) 1960s-style monetarism: http://www.spiegel.de/wirtschaft/0,1518,805027,00.html
22 December 2011 9:57AM
I have worked with German engineers and scientists, and also with Japanese, American, British and Russian.
IMO, German engineers are the best in the world by a long shot.
22 December 2011 9:58AM
I think we have a translation problem and in that respect we we seem to be unable to interpret balance sheets in the same way. Savers have the false notion that their hoarded cash is removed from the economy and placed in a big vault where it grows organically from stale air. It does not. It is used by others to undermine the saver
Hoarded cash is used to speculate on assets (Commodities, currencies,etc..) which has a direct impact on the price of consumables. Savers end up with below inflation returns and ultimatetly are responsible for not only inflation but stagflation.
There is also a false assumption of a finite money supply which is exposed and contradicted daily by ECB through its general operations, latest of which is the half a trillion in loans to Euro banks. Every politician in the world can't seem to fathom any of this.
22 December 2011 9:59AM
Germany is actually right. Printing money quickly generates inflation which is much harder to address. Just look at what is happening in the UK. Our MPC keeps predicting inflation will drop, but it never does and it just stays ludicrously high (hitting those already in difficulty but not affecting the Boys From Bullingdon on Millionaires Row.
MPC has now lost its ability to control inflation which for "some strange reason" no longer obeys BoE predictions. Once you let it start it is very very difficult to stop - particularly if you keep doing things like QE. As the economists all keep saying, "we are in new unknown territory here", yet the dinosaurs are sticking to their old already shown to fail principles.
22 December 2011 10:02AM
I fear that for all the resolve and fortitude of the German economists, their plight like that of the Euro, is akin to being trapped in a lift with several fat people.
Whilst the Germans might well wish to lighten the load and have the occupants get off, floor by floor, the cable has snapped and your all heading for the basement!
22 December 2011 10:03AM
Could one describe this as "Fawlty Thinking"?
I was stationed in Germany as a soldier and I was the only member of my regiment who spoke German and when the Army laid on German lessons for the Brigade (c. 5000 men) I and two medical officers went.
22 December 2011 10:04AM
The German position has next to nothing to do with German history and culture. It has everything to do with the position that all creditor countries invariably adopt in these situations - that its all the fault of the feckless debtor nations. I dare say if you put any other nation in the same economic position as the Germans today they would support that same diagnosis.
Still, it doesn't alter the fact that the diagnosis is wrong. The underlying problem was not budgetary indiscipline among feckless debtors - Ireland and Spain going into the crisis had better public accounts than Germany. The underlying issue is a structural balance of payments problem between the surplus and debtor countries of the Eurozone reflecting the divergent competitiveness of those economies - and which requires policy responses on BOTH the surplus and debtor side of the equation to close the gap and eliminate the ongoing imbalances.
In concrete terms Germany needs to write-off a good part of its claims on the debtor countries and stimulate its own economy to rebalance so it consumes more. Either that or the Eurozone will limp on in a zombie state until it breaks up, to a greater of lesser degree. Simply imposing austerity on the periphery will not succeed and merely push it further under water.
So yes, it's not culturally specific. But that's hardly important. The important point is that they are wrong....
22 December 2011 10:04AM
... solid sensible article ... thanks ...
22 December 2011 10:04AM
That's my point. If the Germans really would think their currency could lose its value any minute (like it did in the 1920s), then investing their savings would make far more sense than keeping them in their accounts. So the suggestion German culture is still influenced by Weimar hyperinflation clearly is wrong.
22 December 2011 10:08AM
Very good point about German economists. If you read German, have a look at that Spiegel article I mentioned earlier. It basically supports your argument.
22 December 2011 10:09AM
"City bonuses are expected to total £4.2bn in 2011, down 38% on the £6.7bn paid out last year, according to the Centre for Economics and Business Research (CEBR) thinktank."
This policy is no surprise. As you rightly point out the people making the policy are not suffering, only utterly unimportant people are, and that is the way the policy-makers like it. Of course they make all the right noises, they are, after all, led by an expert in PR.
22 December 2011 10:10AM
reading comprehension is not your strong point, is it?
22 December 2011 10:13AM
Iagree, it is plain to see that the notion of a "national psyche" is ridiculous. That it's espoused by lefties who claim to be "European" shows how much they actually know.
22 December 2011 10:14AM
I think you've missed the point. Of course surplus countries can run structural surpluses over long periods. Many do, as you point out. The same is true in reverse for countries with structural deficits. But there needs to be a mechanism of adjustment between countries that do this - which is normally achieved through currency realignment.
But where such surplus and debtor countries share the same currency this is not possible. The only alternatives then are:
1. The surplus countries lend to the debtors until the point is reached that the debts cannot be repaid, when both surplus and debtor countries suffer. I.e where we are now.
2. Structural changes are made in both sets of countries to eliminate the structural imbalances gong forward. Nice idea. Probably unachievable in this case. The differences are too great.
3. The surplus countries subsidise the debtors indefinitely - e.g. through formal fiscal transfer or in disguised form (lending more money in the knowledge it is unlikely to be repaid, printing money)
4. The currency union breaks up.
22 December 2011 10:16AM
"If you are really looking for an underlying cultural reason for contemporary German fiscal politics, a protestant work ethic that sees debt as morally wrong, a tradition of manufacturing feeding a distrust of anything that seems "conjured up" out of thin air and a strong middle-class belief in living within your means are more important factors than a single historical event, however traumatic it might have been."
I can understand the faith in things mechanical and the distrust of the "conjured up" or "triumphs of the will".
The facts of the matter are though that had there not been a monetatry union the weaker economies would have seen their currencies devalue and Germany would have found it much much harder to sell their goods. Germany should accept that its hard work has been so fruitful because of this, and not take this gor granted.
The Eurozone as a whole does not have crippling debts on aggregate, however unlike other currency zones it has no mechanism, fiscal or monetary, to even out imbalances. The populations wont migrate and Germany has made it clear it wont stand behind the weaker members.
These leaves euroland like a chain, linked in series and only as strong as its weaker members. Once balancing mechanisms are introduced, the links become parallel and the chain is as strong as the sum of its members, not the weakest.
If the mechanism turns out to be a fiscal transfer from rich to poor Europe, then the cost of this is fully carried by northern europe. If it is a monetary mechanism, i.e. print Euros then the cost is carried by all Euro holders, so the cost is spread outside Europe.
As the author points out Germany is a large holder or Euros prefers the fiscal approach (tax financials) so the UK carries the load, rather than Germany.
Seems the european brotherly ideals have proven as hollow as the pan Arab brotherly ideals demonstrated in Syria.
22 December 2011 10:16AM
Thank you for the reply,
I might give that article a try. Wolfgang Munchau often has good articles in the Financial Times in English too. With my high school German and google translate I might just slowly manage the German version. It will be good practice.
22 December 2011 10:18AM
Great post. Nail on the head.
22 December 2011 10:20AM
A little learning can be a dangerous thing.
22 December 2011 10:21AM
Not that they live in fear of it...but that for a nation of savers, inflation is very unpalatable (that's the point - not that they're afraid of it..but opposed to it)...since those savings become progressively destroyed in value.
Also, it's worth pointing out that the higher interest rates in the eurozone (only recently revised down) were benefiting the German savers.
What the Germans don't seem to grasp is fiscal austerity is going to shrink the debtor economies and make them far less likely to be able to pay back their debts. For me, there is no difference morally between a reckless borrorwer and a reckless lender...we are all in this together and working for a common solution is in everyone's interests.
22 December 2011 10:24AM
"In other words, since we can't all be winners, we should stop trying and accept failure instead"
No. It means if Germany wants to run a trade suplus then it will have to allow someone else to run trade deficits. The only way to finance a trade deficit is either to run a budget deficit or for the collective populations to run up private debt. The former is preferable
.
As its main trading partners are also its currency partners Germany needs to get over its paranoia about rules because those rules will kill the euro and the trade.
22 December 2011 10:25AM
BSspotter
22 December 2011 09:32AM
Response to LabourStoleMyCash, 22 December 2011 09:28AM
China dosent bother with elections and has no lage debts. I think that the West needs to get out of the debt habit.
That's BS. Really it is. Their electoral system may not be the same as the UK, but it does have a working one.
On the other hand, no one voted for the present coalition. Perhaps there are more similarities than I thought?>>>>>
Who voted for Germany's coalition I wonder ?