So it's no surprise that the ECB wound with its headquarters in Frankfurt, and with a single mission: Keep inflation in check. In 1992, Germany was the biggest economy in Europe, and it had a lot of influence over the shape of the new European Central Bank. European countries are setting up the euro, and the new currency needs a new central bank. You don't do this."įast forward 70 years from Germany's inflation nightmare to 1992. "This historical experience tells every policy maker: You don't mess around with inflation," says Klaus Frankenberger, an editor in Frankfurt. Many Germans believe it helped lay the groundwork for the rise of the Nazi party - a belief that has left the nation with a profound fear of inflatoin. But the result of the hyperinflation was an economic catastrophe. The waiter says, 'Well, you haven't finished!' And he says, 'Yes, but if I don't order now, prices will be double by the time I finish my first beer!' " "Immediately, when the waiter carries the beer to his table, he orders the second one. "There's this famous example that somebody sits in a pub and orders a beer," says historian Carl Ludvig-Holtfrerich. Money started losing value by the second: The currency was so worthless, it was used as wallpaper in German bathrooms. At one point, it cost a million marks to mail a letter. The result was possibly the most destructive case of inflation in history.ĭuring the Weimar inflation, people carted money around in wheelbarrows to do their shopping. So Germany's central bank printed a bunch of money and loaned it to the government. And no other country would lend it money. Reparations to France and Britain were enormous. Soldiers back from the war needed money for pensions. To understand why Germany is so freaked out about a central bank lending money to troubled governments, you need to go back nearly 100 years - to when the German central bank did just that.Īfter World War I, Germany was deep in debt. The thought of hitting up a central bank's ATM would send many Germans fleeing in panic. ![]() ![]() ![]() The problem with this idea? Europe's biggest economy hates it.Ĭue inflation-fearing, deep-pocketed Germany. It could lend that money to the governments in need. Paper money is stacked in a Berlin Bank in 1922.įor troubled European countries, the European Central Bank could be like a giant ATM.Īfter all, the ECB has the unique ability to print unlimited amounts of euros.
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