David McWilliams: The fiscal treaty will only make things worse
Published 30/05/2012 | 17:00
In early 1931, the German government under the stewardship of its finance minister, Bruhning, was facing an enormous economic challenge. The economy was contracting rapidly but Germany was dependent on loans from the US to maintain the Gold Standard's exchange rate. In order to qualify for these loans, the Germans followed orthodox policies, the sort that peripheral Europe is following now, to stay in the monetary union.
But qualifying for loans is very different from being able to pay them back. If you doubt this, ask the thousands of Irish people who "qualified" for loans in the credit splurge and now find themselves in an impossible position.
But as long as Germany followed austerity policies in the face of the recession, which soon became a depression, it secured the financing of its government deficit. So although the deficit was still in place (like Ireland now), the government's commitment to austerity was enough to allow it to qualify for the loans from the US.