Current Weather
The Spy FM

A European Solution Germany Can Feel Good About

Filed by KOSU News in World News.
December 1, 2011

There are basically two solutions to the European debt crisis. One, someone can show up with really deep pockets and bail out all the countries. Or, two, the European Central Bank can create a bunch of money and loan it to the countries who need it. The problem is there’s a barrier blocking both these potential solutions — a certain European country known for its beer and brats: Germany.

Germany doesn’t want to have to use its own money to bail out its neighbors because if it doesn’t work, they stand to lose a lot. And they don’t want the European Central Bank to do it because they’re worried creating more euros could lead to hyperinflation.

Philip Coggan writes the Buttonwood column for The Economist. He says Germany is afraid of history repeating itself.

“If you go back over history and look at examples of hyperinflation, that is when prices were going up 10 to 20 percent a month or a week, those examples have all been when governments have been unable to borrow money from private investors and have got the central banks to buy all its debt to print the money to finance the deficits, ” Coggan says.

In other words– governments got themselves into trouble and asked the central banks to print a bunch of money to get them out of it.

The most famous example of a government abusing the power of the central bank is Germany in the 1920s. The country was in horrible debt so its central bank printed more and more money. The result was chaos. Prices doubled within hours. People carted around money in wheelbarrows. Ever since World War II, Germany has insisted that its central bank never repeat that mistake. and that was its main condition for entering the euro.

“Germany only gave up the deutsche mark, its cherished currency, on the condition that the new European Central Bank, which replaced all the individual central banks, would not be involved in funding the deficits of individual countries,” says Coggan.

So far, the ECB is sticking to what Germany wants. It’s been focusing on its mandate of preventing inflation, and its new president Mario Draghi has been aggressively fending off calls from the rest of Europe to intervene by creating more money.

But observers in Europe say the stance at the ECB could change. The only way for that to happen of course would be somewhat on Germany’s terms. For Germany to feel comfortable with the ECB printing more money, the rest of the European countries would have to make some big changes. They would have to agree to new rules to get their spending under control.

Right now finance ministers from the 17 eurozone countries are talking about these changes, mulling over the possibility of closer fiscal ties. And just this morning, Mario Draghi hinted that the ECB might take more action. He said that if leaders can reach an agreement, “other elements might follow.” [Copyright 2011 National Public Radio]

Leave a Reply

6PM to 6:30PM Marketplace

Marketplace

Hosted by Kai Ryssdal, award-winning Marketplace is public radio's daily magazine of business and economics.

Listen Live Now!

6:30PM to 7PM All Things Considered

All Things Considered

For two hours every weekday, All Things Considered hosts Robert Siegel, Michele Norris and Melissa Block present the program's trademark mix of news, interviews, commentaries, reviews, and offbeat features.

View the program guide!

7PM to 9PM The Oklahoma Rock Show

The Oklahoma Rock Show

The Oklahoma Rock Show filters through dozens of submissions a week to find the best in new local music. Ryan LaCroix is the host and mastermind behind the show and teaches at the Academy of Contemporary Music at the University of Central Oklahoma (ACM@UCO).

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center