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Economic Coup D'etat and German Guilt at the Dawn of the Euro
CJay Engel comment 2 Comments access_time 9 min read

When the West’s Bretton Woods monetary agreement (see Phase V here) fell to pieces in the late 1960s, the time was ripe for the European socialists to pursue their vision for a single European currency that would be used by as many countries as possible.

Because governments love fiat money that can be printed up at their beck and call to finance their ever growing deficits and allow them to have a limitless drive to expansion, many European governments were enthralled at the idea of a single currency system.

The reason why a single currency is needed for perpetual expansion is because in a world of competing fiat currencies, those currencies controlled by governments who don’t spend as much tend to be produced in smaller amounts. This means that the more financially constrained a government happens to be (relatively, of course), the less money needs to be printed, and the stronger the currency becomes relative to the others.  Thus, those governments that are extremely socialist and have the most massive welfare states (such as France) will have currencies that are the most devalued and inflationary.

But the dangers of devaluing one’s own currency when other nations do not follow suit are too well-known.  Therefore the desire was that the less inflationary countries should be forced, by way of various international agreements, to participate in the inflationary and devaluation attempts. Philipp Bagus explains what this meant in Europe in the 1970s:10525332

Indeed, an obligation to intervene in favor of falling currencies would have created perverse incentives. A central bank that inflated rapidly would have forced others to follow. Fiat paper currencies are introduced for redistribution within a country. Fixed fiat exchange rates coupled with an obligation to intervene allowed for redistribution between countries. In such a setup, the faster-inflating central bank (Bank of Spain) would force another central bank (Bundesbank [Germany’s Central Bank– CJE]) to follow and buy up faster, inflating one’s currency. The Bank of Spain could produce pesetas that would be exchanged into Deutschmarks buying German goods. Later the Bundesbank would have to produce Deutschmarks to buy pesetas and stabilize the exchange rate. There would be a redistribution from the slower-inflating central bank to the faster-inflating central bank.

Bagus, Philipp (2011-03-02). The Tragedy of the Euro (LvMI) (Kindle Locations 611-616). Ludwig von Mises Institute. Kindle Edition.

In other words, when an inflationary bank (Spain) wanted to inflate, Germany (who had a smaller welfare state, and thus less expenditures that needed to be covered by printing money) would be forced to print as well to keep the exchange rate relatively stable… so that all countries bound by the agreements would have their currencies devalued more or less in unison.  This would prevent an immediate “flight of capital” from the Spanish currency to the German one.

Germany, however, was not impressed by this “idea.” As Bagus very importantly observes:

The Bundesbank did not inflate as much on account of German monetary history. A single generation had lost almost all monetary savings two times, namely, after two world wars: in the hyperinflation of 1923 and the currency reform in 1948. Most Germans wanted hard money, and expressed that through the institutional set up of the Bundesbank, which was relatively independent of the government. What all of this means is that, in practice, the EMS [European Monetary System] would only function if central banks were only able to inflate as much as the slowest links in the chain: the Bundesbank and its traditional ally, De Nederlandsche Bank.

Bagus, Philipp (2011-03-02). The Tragedy of the Euro (LvMI) (Kindle Locations 623-628). Ludwig von Mises Institute. Kindle Edition.

The two world wars were devastating for the German economy, and the people weren’t about to go down the path of mass inflation once again.

And so, against the general desire of a people who had learned their lesson regarding central banking, the propaganda effort was aimed.  The Banque de France, clearly in a sour mood because it needed Germany to buy in to the plan so that they could print money for their welfare state, reached to the depths of typical socialist guilt manipulation and referred to Germany’s currency as “the tyranny of the mark.”  After all, if Germany was not willing to devalue their currency to the extent demanded by France, then the Germans were perpetuating the tyranny of their money! France needed as much money as possible for its grandiose socialist Plans.  Writes Bagus:

The French government had even wanted the EMS to include a pooling of central bank reserves, thereby obtaining access to German reserves. But this request was declined by Bundesbankers who were very skeptical about the whole project.

The European Monetary System never succeeded in convincing Germany to participate in its efforts toward cooperative inflation. The failure of the EMS to produce the goals of Europe’s socialist visionaries inspired them to blaze the path for Europe’s new single currency, the Euro.

Germany, however, was still a problem. Those Germans still wanted their beloved and (relatively) strong Deutschmark.  What happened was interesting.  The Bundesbank, Germany’s central bank, desired to stay independent of the Euro and keep their control of the relatively strong mark. Remember, it was only strong when compared to the other inflationary countries; compared to its own historical value, it has lost much of its value.  But while the Bundesbank wanted a more free market system as suggested by British economists decades earlier (competing currencies in Europe), the German government, clearly desiring more cash by which it could expand its expenditures, programs, and welfare state without taxing the people (thereby causing revolt– the people can only take so much), “preferred the socialist proposal of one fiat money for Europe.”  In fact, at one point during the EMS years, “German chancellor Helmut Schmidt threatened to draft a law ending the bank’s formal independence if the Bundesbankers would not agree to the EMS.”  In other words, the central bank in Germany had to participate with the German government’s desires if it was to keep its monopoly status.

To chase a rabbit trail here, this is why one should always remember that central banking ultimately relies on state power. Central Banks cannot achieve their status on the market alone. When it comes down to it, these central banks need the government for protection, thereby making the modern banking sector a massive crony operation that has nothing to do with the free market.

Here comes the propaganda by the German government against the German people who were skeptical of multinational central banking:

The German government acted against the will of the majority of Germans who wanted to keep the Deutschmark. The government launched an advertising campaign, putting ads in newspapers stating that the Euro would be as stable as the Deutschmark. The ad campaign’s budget was raised from 5.5 to 17 million Deutschmark when the Danes voted against the introduction of the Euro.

But it gets even worse. Just as is done often today, the politicians will use guilt and “historical grievances” to advance their position over against the masses.  Just as there are those today who lead the “race baiting” industry and seek to accumulate power by making, say, southerners feel guilty about slavery in the past, so there are those willing to use people like “Hitler” to convince the masses that they need to “get on board” the socialist train.  Bagus (with my emphasis added):

German politicians tried to convince their constituency with an absurd argument: They claimed that the Euro was necessary for maintaining peace in Europe. Former president Richard von Weizsäcker wrote that a political union implied an established monetary union, and that it would be necessary to maintain peace, seeing as Germany’s central position in Europe had led to two World Wars. Social democrat Günther Verheugen, in an outburst of arrogance and paternalism typical of the political class, claimed in a speech before the German parliament: “A strong, united Germany can easily—as history teaches—become a danger for itself and others.” Both men had forgotten that after the unification, Germany was not as big as it had been before World War II. Moreover, they did not acknowledge that the situation was quite different in other ways. Militarily, Germany was vastly inferior to France and Great Britain, and was still occupied by foreign troops. And after the war the allies had reeducated the Germans in the direction of socialism, progressivism and pacifism—to ward off any military opposition.

The implicit blaming of Germany for World War II and making gains as a result was a tactic that the political class had often used. Now the implicit argument was that because of World War II and because of Auschwitz in particular, Germany had to give up the Deutschmark as a step toward political union. Here were paternalism and a culture of guilt at their best.

The birth of the Euro, which depended on Germany’s buy-in, was in part a product of guilt manipulation.  And indeed, the allied powers have long blamed Germany for everything that happened during the build up to World War II without once reflecting on their own role in the matter (for more on this theme, please consider Pat Buchanan’s book and, short of that, Anthony Gregory has a great summary of that book’s narrative).  But this is besides the point.  It is simply amazing the extent to which guilt propaganda was used on something like Europe’s currency in order to produce the German people’s cooperation.  One must never ignore the great probability that the State’s advertisement efforts (whether they are for public schooling, more wars, the FBI, Obamacare, the TSA, the NSA, more wars, more police, new trade agreements, new education standards, global warming efforts, economic sanctions, arms buildups, and more wars) are simply means by which it aims to take down the guard of many people who should otherwise oppose the state’s deeds.

Bagus is right to state that “the introduction of the Euro in Germany resembled a coup d’état.”

Creator and Editor of Austro Libertarian. Lives in Northern CA, runs several businesses, spends time with his family, and reads as much economics and political theory as possible.