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.  To say that the peace of Versailles was flawed is an understatement.  Given the unsettled economic situation of the Euro and the recently announced renunciation of deposit guarantees by the government of Cyprus I started to wonder if there are parallels between then and now despite the lack of a just concluded titanic war on the continent.  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 of Versailles but perhaps the most fundamental from my perspective was the regime of reparations and war indemnities imposed on Germany.  The total of debt was equal to several hundred billion dollars at today’s rates.  In fact, the German government finished paying off the last private investors who held bonds related to reparations in 2010.  There is much debate about whether 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.  There is also plenty of debate about whether Germany could have repaid in a timely matter without destroying there own economy.  I tend to think they could have, but it would have been painful.  In any event, what the Germans did after Versailles was to progressiveness devalue their currency to the point of worthlessness alá Zimbabwe in the 90’s.  They essentially inflated away their obligations until they eventually quit payments altogether under Hitler.

I just wonder if some of the other European countries are now doing the same thing to their economies in a back-door way to manage their own debts.  How else are we to see the spendthrift policies of the PIIGS group of countries after the introduction of the euro in 2002?