I am currently reading The Origins of the First World War (3rd Edition), during a pause in my reading I started thinking about not the origins of WWI but its results. Â To say that the peace of Versailles was flawed is anÂ understatement. Â Given the unsettled economic situation of the Euro and the recentlyÂ announced renunciationÂ of deposit guarantees by the government of Cyprus I started to wonder if there areÂ parallelsÂ between then and now despite the lack of a just concluded titanic war on the continent. Â I think that the economics are similar, even to the extent of the various crises being self-inflicted wounds.
There were many things wrong with the Treaty ofÂ VersaillesÂ but perhaps the most fundamental from my perspectiveÂ wasÂ the regime of reparations and warÂ indemnitiesÂ imposed on Germany. Â The total of debt was equal toÂ severalÂ hundredÂ billionÂ dollars at today’s rates. Â In fact, theÂ GermanÂ government finished paying off the last private investors who heldÂ bondsÂ related toÂ reparationsÂ in 2010. Â There is much debate aboutÂ whetherÂ the reparations were too high, whether a price can be put on the suffering of war, but that is not the subject if this post. Â There is also plenty of debate aboutÂ whetherÂ Germany could have repaid in a timely matter without destroying there own economy. Â I tend to think they could have, but it would have been painful. Â In any event, what theÂ GermansÂ did after Versailles was toÂ progressivenessÂ devalue their currency to the point of worthlessness alÃ¡Â Zimbabwe in the 90’s. Â TheyÂ essentiallyÂ inflated away their obligations until they eventually quit payments altogether under Hitler.
I justÂ wonderÂ if some of the otherÂ EuropeanÂ countries are now doing the same thing to their economies in a back-door way to manage their own debts. Â How else are we to see theÂ spendthriftÂ policies of the PIIGSÂ groupÂ of countries after the introduction of the euro in 2002?