How German History Shapes Obama-Merkel Rift

CBS News ^ | June 26, 2009

[nickcarraway]

Despite the president's claim at a joint appearance this afternoon that "I like Chancellor Merkel a lot," President Barack Obama and Germany's Angela Merkel are widely believed to have a somewhat frosty relationship. The biggest perceived rift between the two? How best to respond to the global financial crisis.

Mr. Obama, of course, has pushed through a massive stimulus package and pressed for greater government spending worldwide to end the recession. Merkel, who helms the largest economy in Europe, has resisted such spending; her government has passed only a pair of small stimulus packages in response to the economic crisis.

One reason for the two leaders' different philosophies is ideological: Merkel is a center-right politician who has argued against bank bailouts in Europe. But German history is also a factor. Under the German parliamentary governmental system known as the Weimar Republic, Germans faced hyperinflation in the 1920s that destroyed savings and drove many people into poverty. Here's one (fictionalized) account of what it was like: The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks. He had two cups. When the bill came, it was for 14,000 Marks. "If you want to save money," he was told, "and you want two cups of coffee, you should order them both at the same time." The Weimar Republic stayed in power in Germany for another decade, but the period of hyperinflation is considered a significant factor in the emergence of the National Socialist German Workers’ Party – the Nazis.

Germans are thus particularly attuned to the dangers of inflation – and particularly wary of fiscal policy that they fear could bring it about.

"We learned from the worldwide economic crisis of the 1920s that an economic crisis can result in an incredible threat for all of society," Interior Minister Wolfgang Schaeuble told Der Spiegel magazine, as the Washington Post reported last year. "The consequences of that depression was Adolf Hitler and, indirectly, World War II and Auschwitz."

[pepsionice]

I’ve lived in Germany for fifteen years now and gained some insight over the banking sector.

First, credit card-mania has never occurred here. Most Germans might carry one and only one credit card. The limit on it? It likely won’t go pas $8k. Teenage kids in German college getting applications? No...unless they can show work or some asset ownership...they won’t be getting one.

Second, house prices going up? No, the German housing market throughout the entire country...is stepping at a very reasonable rate. You don’t get a 8 percent gain on the value of your house in one year. Want to buy a house? Put down the twenty percent down-playment or work with a insurance company which is going to be part of your package deal.

Third, bankrupt companies? The county typically doesn’t allow for them. If you have a 300-person company and it goes belly-up...then the government walks in and shows a court order. Then the government takes full ownership. You as the previous owner...are now out...and the government then appoints a guy to run the company until some type of solution is found. Either it’s bought out for pennies on the dollar by another company or you find a method of cleaning up the costs and actually making profit.

There are negatives in Germany...but the finance sector is very tightly controlled. People don’t go off to screw up the system. Almost every problem that the German finance sector has suffered over the past year....leads back to American laws, American badly managed banks, and American real estate problems.

Note, this is one of the few positives...because if you got me to talk about German healthcare...it’d be a woeful tale, and if I were talking about German energy policy...it’d be very sad.

[RobbyS]

Germans know how to pinch pennies, Of course, they have to. They really got screwed when they had to convert from the DM to the Euro. I remember when an item on the menu that was, say 12 DM, was a simply priced at 10 Euros. Lot of merchants did this because the banks were treating them much the same way.

[Shady Ray]

First, credit card-mania has never occurred here. Most Germans might carry one and only one credit card. The limit on it? It likely won’t go pas $8k. Teenage kids in German college getting applications? No...unless they can show work or some asset ownership...they won’t be getting one.

Second, house prices going up? No, the German housing market throughout the entire country...is stepping at a very reasonable rate. You don’t get a 8 percent gain on the value of your house in one year. Want to buy a house? Put down the twenty percent down-playment or work with a insurance company which is going to be part of your package deal.Both observations are dead on.

Many things can be said about the Germans, but financially irresponsible isn't one of them. That is one of my favorite things about living here...oh, and I like these a lot, as well:

[LRoggy]

For those interested, the quote in the above note was from Adam Smith's book Paper Money, one of a series of classics by the author (The Money Game, Supercurrency, etc.). For our younger readers, Adam Smith hosted a terrific PBS series called Adam Smith's Money World.

If you want to understand economics and the financial world there are no better resources than his books.