War Reparations, Seven Decades After The Fact

Last evening, checking sitemeter, I noticed an extraordinary number of visitors to my weblog from India. Tracing their incoming paths, I was able to ascertain that the readers in question were coming to me from The Economic Times Of India website—where, to my alarm, I learned that I had been identified as a World War II expert.

I am no such thing. I disclaim any attributions of expertise on the subject of World War II.

This morning, checking sitemeter, I noticed an even more extraordinary number of visitors to my weblog from Greece. Tracing their incoming paths, I was able to ascertain that the readers in question were coming to me from a Greek newspaper website—where, to my dismay, I learned that my 2011 post about the 1931 German banking crisis had been cited as evidence that the European Union needed to abandon its current austerity program.

Whoever authored this morning’s Greek newspaper article has drawn wrong conclusions from the 1931 German banking crisis. The 1931 German banking crisis has no applicability—and no parallels—to the current European Crisis.

Today’s European Crisis is rooted in institutionalized budget deficits. It is an old-fashioned, Latin-American-style debt crisis, pure and simple. (It is also, in part, a demographic crisis.) Debt crises are solved by paying down debt, by writing off debt, or by inflating as deliberate policy. Debt crises are never solved by acquiring more debt.

The 1931 German banking crisis was an old-fashioned trade-and-currency crisis rooted in the foreign policies of other nations: a nation running large budget and trade surpluses was forced to send those surpluses overseas for years at a time as part of war reparations. The crisis might have been averted by halting the payment of war reparations (which Britain and France were unwilling to forego) and by allowing Germany to invest its domestic wealth-production internally (which is precisely what happened as soon as Hitler was installed as Chancellor).

I find it amusing that other European nations now want Germany, once again, to send its large budget and trade surpluses overseas.

It is a long-delayed war-reparations strategy of sorts.