A Cold Harsh Economic Winter for Germany Is on the Horizon

Winter is coming, Game of Thrones

In the hit series ‘Game of Thrones’, one of the underlying themes of the first few seasons is that winter is coming. Winter in the show, however, is measured in years and not months. An economic winter is probably coming to Germany and the European Union (EU) soon, and it will be measured in years as well.

Some smaller countries in the EU have already felt the cold winds of austerity, blown in off the Teutonic steppes of Germany. A vicious circle has been created. Cuts to social programs have helped force economies to contract, which have lessened tax revenues, causing more unemployment and pain for the people. Another round of austerity is called for by Berlin and the European Central Bank (ECB)-read Germany-and the whole process is begun anew.

France has even begun to feel the sting, but may thumb their collective nose at austerity. They recognize that in times of economic malaise, spending increases do more quicker to relieve the pressure than cuts. Businesses in France want more flexibility to lay off workers, but the strong ideas of workers’ rights are imbedded in the French psyche and will be difficult to dislodge. The French are often portrayed as a people who enjoy a good work strike for the sake of it. Let’s hope they continue.

Germany's hyperinflation of the Weimar Republic always lurks beyond the surface

In the 1920s during the Weimar Republic, a loaf of bread in Germany cost a wheelbarrow of money on Monday and a truckload by Thursday. I have never sat in on any history lessons at a local school here in Munich but apparently this idea has been seared into the minds of all Germans at a most impressionable  age. Germans can be the most frugal fellows during booms, and hoarders during busts. And that’s putting it nicely.

I will not go so far as to say that economically the Germans suffer from Münchausen syndrome by proxy, like some on the far, far left of other EU countries have intimated. But it is out there.

If the EU’s economy completely tanks, or worse still, the EU dissolves, Germany’s currency will skyrocket in value and it’s exporting empire will crash as it will be unable to sell anything to anybody from this planet. Germans rarely spend money domestically on anything other than the most necessary items, so there would be little relief for the economy there.

A few months ago I recall reading in a British newspaper of how the Germans had fought for a year longer at the end of World War II than the Brits would have if faced with the same predicament. And it was not only because of a crazed dictator in a bunker in Berlin. The article stated that England would have sued for peace in the best terms available at the end of 1943 or the beginning of 1944.

After Allied bombings destroyed most of the trains, then the trucks, cars, motorcycles and even bikes, Nazi Germany still had postal service better than more than half of the world today. If a shoemaker’s shop was blown up, he simply made a sign and moved across the street and carried on about his business. History shows us that Germany will carry on until there are no more trenches to hold.

The tenacity of the Germans is a very commendable characteristic, but unfortunately, economically, it may be their undoing. The rest of the EU will be collateral damage if they don’t have the good sense to get off the current economic track.

Yes, winter is coming.

What do you think? Is fiscal frugality the way to go? Or is the Keynesian economic idea of stimulus pumped into the economy by governments a better way to go?

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3 thoughts on “A Cold Harsh Economic Winter for Germany Is on the Horizon

  1. Can’t really comment competently on macroeconomics, but was raised on a strict dogma of ‘don’t spend money you don’t have’. When I moved to the UK aged 19, I was gobsmacked that people would not only take out loans to buy cars, but also for stuff like furniture etc. Can’t speak for all Germans either, but in my family/social circle, that would have been unthinkable.

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    • Here’s the thing. If a government borrows $10 billion today, and has to pay it back in 20 years with interest, then the amount might be $11 or $12 billion then. In 20 years that money will not have nearly the value that it has today. With interest rates so low, it’s almost ludicrous not to borrow. That’s why some banks were giving the German gov’t money a few years back To Borrow!

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  2. Pingback: The Saxons Are Coming, Run for the Alps! | Laptops and Lederhosen

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