As the minutes tick down before Sunday’s deadline for Greece to reach an agreement with its creditors or else face bankruptcy, the Greeks and their supporters are accusing Germany, their main creditor, of hypocrisy. After all, in 1953, Germany’s creditors forgave half that nation’s debt so that the fledgling republic could recover from the war Germany had inflicted on those creditors, and thrive economically.
But Germany, which now adamantly declares that adherence to the rules of debt repayment must trump all other considerations, can rightly claim that in at least one crucial instance, it was anything but a hypocrite. As the Great Depression descended on Germany in 1930, its government — a coalition of centrist parties headed by Chancellor Heinrich Brüning — insisted on balancing its budget in order to convince its creditors (the nations to whom it was paying economically ruinous reparations as compensation for World War I) that it was a responsible debtor. In the hope that the creditor nations would respond by eventually canceling those reparations, Brüning slashed social spending and investment. He trod the path of fiscal rectitude even as unemployment reached record heights — the same policy, under the same depression conditions, to which today’s chancellor, Angela Merkel, has demanded Greece adhere.
There was, to be sure, an unfortunate downside to Brüning’s policy. As the Depression deepened and Germany’s centrist and even social democratic parties continued to insist on a policy of balanced budgets uber alles, increasing numbers of voters abandoned the center for extremist parties in the 1932 election. Soon thereafter, one of those extremist leaders — I think his name was Hitler — became chancellor.
One of the great paradoxes of our time is how Germany has done so exemplary a job in recent decades of understanding and accepting responsibility for the horrors of the Nazi era while continuing to entertain a willful ignorance of the economic policy errors that paved the Nazis’ path to power. The solution to this riddle is that Germans’ deep-seated debt obsession (in German, the words for “debt” and “guilt” are the same) has blinded them to the consequences of that obsession.
You’d think, for instance, that Germans would have learned from John Maynard Keynes’s 1920 book “The Economic Consequences of the Peace,” which correctly predicted that the onerous reparations inflicted on Germany by the Treaty of Versailles were economically unsustainable and politically perilous to the prospects for German democracy. You’d think they’d have learned from their own descent into Nazism that balancing budgets when unemployment is at record heights can undermine a democracy’s viability. You’d think they’d have learned from the London debt agreement of 1953 that debt forgiveness and reasonable repayment terms can foster prosperity and strengthen democracy in the debtor nation — which, in this case, happened to be Germany.
That Germans have learned none of these lessons is now — tragically, for Greece — apparent. Germany’s insistence that Greece continue to slash services and social investment if it is ever to qualify for debt forgiveness remains unaltered, even though Greek unemployment stands at 25 percent, even though 40 percent of Greek children live in poverty, even though a neo-Nazi party (Golden Dawn) has come out of nowhere to win seats in Greece’s parliament.
“Does democracy trump debt? Of course not,” Jochen Bittner, the political editor of the German weekly Die Zeit, wrote in a New York Times op-ed Tuesday, blissfully unconscious, it would seem, that such sentiments helped speed the Weimar Republic to its doom. Yet such sentiments have shaped German policy toward Greece since the beginning of the euro crisis. Worse, they have shaped the policy not only of the governing Christian Democrats but also increasingly of the opposition Social Democrats.
Despite a heroic history of advancing democracy and building an uncommonly equitable and vibrant economy, the German Social Democrats also have a history of subordinating their social democratic creed to their German-ness at critical moments. They did this when their parliamentary delegation voted to go to war in 1914, when they acquiesced to Brüning’s fiscal insanity in 1930 and when, in our own time, they joined in the Merkel chorus making impossible demands on Greece. They do this despite the fact that the most scathing critique of Germany’s debt obsession and historic amnesia, and the most plausible outline for a harmonious resolution of the Greek debt, came in a 2013 paper by Jürgen Kaiser published by the party’s own stellar think tank the Frederich Ebert Foundation.
To its great credit, Germany has accepted the burdens of its history. To its detriment (and now, to Greece’s), it has not accepted the burden of learning enough of its history to be a responsible economic power.