Global Crisis/Innovation Blog

History DOES Repeat Itself, Only Losers & Winners Change Sides

By Shlomo Maital


  British PM Lloyd George, after Versailles


It is not only those who forget history who are doomed to repeat it, as Santayana warned. It is also those who remember history who repeat it. 

  On June 28 1919, the Treaty of Versailles was signed, imposing on Germany the responsibility for World War I and with it, the demand to pay (in 2011 dollars) the staggering sum of $442 billion in war reparations.   Germany could not possibly pay this enormous sum, with its post-war economy depressed.  So it simply printed marks, paid the reparations with worthless paper, created hyperinflation that destroyed Germany’s economy, and set the stage for the rise of Hitler in 1933.  Hitler’s war machine created jobs, income and employment, and ultimately destroyed Europe in WWII.  

    After Versailles, the British economist J.M. Keynes, who attended it as British PM Lloyd George’s advisor, went home to Cambridge and wrote a book,  The Economic Consequences of the Peace, protesting  the war reparations and predicting accurately that the result would be to destroy Germany and set the stage for a second world war.  

   Fast forward.  Nov. 29, 2011.  It is now GERMANY that is imposing ‘reparations’ on Greece, only they are not war reparations, but penance for overspending.  Germany’s psyche has a deep scratch from the 1920’s hyperinflation and hence Germany utterly refuses to allow the European Central Bank to print money and bail out Greece, Ireland, Portugal, Spain and Italy, nations that overspent and overleveraged.  Germany remembers history – all too well. 

   The problem is, just as Germany could not possibly pay $442 b. in 1919, in war reparations, so Greece cannot possibly pay all the debt it has accumulated, especially when bond traders are betting against Greece and raising the interest rates on new Greek borrowing to astronomical heights – a doom loop that is inexorable and fatal.  

   So history is repeating itself.  A rich nation is imposing a huge tax on a poor nation, in the name of justice.  And the result?  It will be ruinous for Europe, just as WWI and WWII were.  As Joseph Nocera points out in today’s Global New York Times, Germany too will suffer, because when Greece and perhaps other nations leave the euro block, the resulting turmoil will greatly hurt German exports.  Nobody benefits from chaos. 

    Treated unfairly in 1919, Germany now does the same to the profligate nations of “Club Med”, as the Germans call them.  History does repeat itself.  Everyone will lose as a result.