“I fear that austerity without end will bring about a return to the unstable populist politics the European Union was designed to prevent. That could shatter the eurozone and, with it, the EU, thereby ending the most successful attempt to build peace and prosperity in Europe since the fall of the Roman Empire. Moreover, it is clear – and has long been so – that the responsibility for preventing that outcome rests on Germany, Europe’s central power, in every sense. As Charles Kindleberger argued, in a panic, the creditworthy country has to lend freely if a fixed exchange rate system (or in this case a currency union) is to survive.
It is often forgotten, not least in Germany, that the rise of Adolf Hitler to power was preceded not by the great inflation, which occurred a decade before, but by the great depression and the austerity of Heinrich Brüning, in response. Thus, votes for the Nazi party jumped from a relatively insignificant 810,000 in 1928, to 6.4m in 1930, and 13.7m in July 1932. Deep economic collapses are dangerous.
Deep economic collapses are very dangerous. Mr Schuknecht, with his emphasis on the long term, completely ignores these dangers. If trying to avoid such a dire outcome is “short-termism”, so be it. I think of it as trying to find a practical exit from the current trap. Without it, the eurozone may never reach the long term.
Fiat justitia, et pereat mundus (let justice be done, even if the world perishes) is a dangerous motto.”
The above quote is from Martin Wolf’s reply to Ludger Schuknecht, the Director General of the German Ministry of Finance. Herr Schuknecht took strong exception to a recent column (“The riddle of German self-interest“) by Mr. Wolf.
Regarding populist politics — of the right-wing variety, this article in the FT is a warning of what may become a more commonplace occurrence.