Following World War I, the major powers–Britain and France–forced Germany to pay reparations which were burdensome. Germany was already devastated, both physically and morally, by the war; but, the piling-on of the financial payments, as well as its own economic mismanagement following the war had two horrendous effects: the hyperinflation of 1923 and the rise of Adolf Hitler and the Nazis some years later.
A decade before World War I, Norman Angell, a British philosopher and journalist, wrote “The Grand Illusion”. In it, he suggested that, in the modern era of the time, the concept of Wars of Conquest–the basis of “…to the victors belong the spoils”–no longer made sense. Angell stated that in the Twentieth Century, wars were devastating to all parties. As we are seeing today, economic woes–not just from warfare–in one country, can rapidly spread to nearby countries, as well.
As noted previously, part of the problem with the EuroZone is the fact that the countries of Northern Europe tend to be more frugal in their economic policy, while the ones in the South (a/k/a “Club Med”) seem to prefer carpe diem–or a seize the day philosophy. This frugality is nowhere more ingrained in a country’s psyche than in Germany. As the EuroZone’s banker, Germany has called the shots with regard to the bail-outs of countries who are part of the Euro.
Unfortunately, when it comes to the current negotiations with Greece, in re-financing its bail-out package, Germany appears to have forgotten a vital part of its own post-World War I history. The official bail-out negotiation is between Greece and “The Troika” (the European Central Bank, the European Commission and the International Monetary Fund); however, Germany is really in charge. In fact, Germany pretty much demands Austerity from all of the countries within the EuroZone–as it does of itself; but, especially from those that need the financial assistance. And, the repayment demands currently being placed on Greece are surely more than it can handle, while trying to dig itself out of an economic hole.
Inflation has not skyrocketed in Europe, unlike post-World War I Germany; however, that is probably because the economic stagnation has been prevalent throughout the Region since The Great Recession (4Q07-1Q09). In fact, Greece has been suffering from deflation–the opposite, or negative inflation–for the past year. Deflation, which causes an economy to contract, has also been of concern for all of Europe recently. So, perhaps Angell was right about the spread of hard times. Sure, the weak economy in Europe was not caused by war; however, to the average man or woman on the street, its the effect that counts–not particularly the cause.