Germany and their inflation phobia

We are and have been in the middle of a period of economic uncertainty. A lot of experts have warned that a double dip recession is a possibility and the ones that don't believe that, still agree that economic recovery in the industrialized world has been very slow since 2008.

The US was the main focus of the recession that started in 2008, despite the involvement of many other nations in its development. While the US is still a very similar country in terms of economic policies to what it was in 2008, this time around economists have indicated that economic instability for the next recession is likely to come from the EU. Countries like Greece, Spain and Portugal are some of the main problem nations, but there are a lot of other trouble makers as well. However, not all countries in the EU are in trouble, which may be the only reason their economy hasn't collapsed yet. Germany has had a strong economy for many decades, and despite the economic events in recent years, the nation still boasts of fiscal responsibility and economy stability.

Recently, as expected, a lot of the troubled nations have been approaching Germany for loans and other forms of help. Not only that but they have also been asking for help from the European Central Bank. One interesting bit of information about this central bank is the conditions in which it was created. Back when European nations decided a centralized bank would be a good idea, Germans were very hesitant, so in order to go ahead with the creation of the ECB, a clause in the contract said that the ECB could not engage in quantitative easing. This was a main condition in order to keep Germans comfortable with this unification.

The European systemic instability that we have been seeing has led some countries to ask the ECB for help, even though the help they are asking for is prohibited. The other interesting aspect of this story is the reason why Germany is so reluctant to allowing the central bank to print money.

This goes back to the 1920's and it has everything to do with inflation. After WWI the german government was in a lot of debt, so they had to borrow a lot of money from the rest of the world and often that wasn't enough. This led the government to issue an order to their central bank to print as much money as they needed. This obviously led to a massive loss in value of the Deutsche Marks (German currency), which is another way to say high levels of inflation ensued. The following decade of high inflation is thought to have enabled the Nazi party to gain popular support. Social distress caused by hyperinflation in Germany was not very different from the social distress in Italy that allowed for the rise of Fascism in that country. So it isn't hard to understand why Germans are so hesitant to break these rules established during the institution of the ECB. This is aside from the obvious fact that printing money to pay debt seems like a shortsighted solution to anyone with half a brain.