Guardian, 22 December 2011

German aversion to the ECB printing money isn’t about the ‘national psyche’

To understand German fiscal policy, it is necessary to look beyond the cod psychology about a fear of 1920s hyperinflation

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.