More on the European bailout.
The key player in all of this, of course, is Germany. And from what I can tell - and what recent local elections have indicated - the average German citizen is less than thrilled with the role they are being forced to play in bailing out Southern Europe.
Modern Germany has always had a focus on fiscal probity and a strong currency. I can well remember Helmut Schmidt in the late 1970's lecturing Jimmy Carter about US economic policy, when we were experiencing a plummenting dollar and double-digit inflation rates.
The famous announcement (well, famous to me at least) that then-Fed Chairman Paul Volcker made in October 1979 that the Fed would be targeting money supply rather than interest rates was made in direct response to huge pressures by the Germans.
One of the reasons that Germany has always focused on inflation was due to the horrific experience the country had with hyperinflation in the 1920's. The onerous reparations that the victorious Allies had forced on the country in the aftermath of World War I lead the country to print money to try to repay debt burdens it could not possibly bear. When the inevitable economic collapse came, it eventually gave rise to Hitler and World War II.
In any event, it is probably not surprising that the German reaction to the European Union's proposal was to fixate on the possibility of inflation. This article appeared today in the on-line version of Der Spiegel, a German business magazine. Here's the key passage:
The sell-off on the markets was no attack by speculators. It was a vote of no confidence by investors in the euro and in the Europeans' crisis management. But when everyone rushes to the exit at the same time, panic spreads. That was the situation on Friday. The politicians feared the markets' reactions -- and they began to panic. In response, they approved a rescue plan that will go down in economic history. It is, after all, unique.
And uniquely dangerous. The Europeans and the International Monetary Fund want to make €750 billion available to shore up foundering euro-zone states if they find themselves in a financial emergency. They don't seem to be bothered by the fact that the EU treaties don't contain provisions for such aid. Indeed, they had already ignored the no-bailout clause in the Maastricht Treaty when they agreed to rescue Greece.
But that wasn't enough for the rescuers of the euro -- they wanted to send a message that they were truly serious. So they sacrificed the independence of the European Central Bank (ECB) -- and paved the way for a European Inflation Union.
Welcome to the Inflation Zone: The Dangers of the Euro Bailout - SPIEGEL ONLINE - News - International
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