Le Boche Payera Tout

Despite the belated acquiescence of the Greek government to Eurozone demands that further austerity measures be imposed, the latest news updates from Brussels continue to sound ominous, Eurozone officials now insisting on even tougher measures than previously demanded as evidence that Greece is finally getting serious about carrying out its commitments to bring its finances under control. All participants in this tragicomedy have plenty to answer for, but as I, along with many others, have said before, the primary blame rests with the policy of the European Central Bank, which, obeying the dictates of Mrs. Merkel and her government, has a policy that has allowed nominal GDP in the Eurozone to grow by just 5% since 2011, an average rate of growth of only 1% a year. For Greece, this policy has meant a catastrophic fall in nominal GDP since 2008 of about a third. No country could survive such a sustained reduction in its nominal GDP without irreparable damage to its economy.

The responsibility of successive Greek governments for the current disaster is palpable and universally recognized, but the responsibility of the ECB and its German masters for the damage to the Greek tragedy is equally palpable, but scarcely mentioned, at least outside of Greece. What is even less mentioned is how contrary this policy has been to Germany’s own self-interest, because, in devastating the Greek economy through the – dare I say it, yes I will say it – INSANE policy of the European Central Bank, Germany has, in what might easily be construed as a policy of deliberate and sadistic torture, doled out to Greece just enough in the way of loans to prevent its default over the past five years, even as it has systematically destroyed the capacity of Greece to repay the very loans that Germany has extended to Greece.

It is worth recalling that just over 90 years ago, another European country was in the midst of a debt crisis, a crisis that country had brought upon itself by its own irresponsible — indeed reckless and even criminal – policies. In case you don’t already know which European country I am referring to – and even if you don’t know, you should be able to guess – I am referring to Germany, which, in its pursuit of its goal of European domination and a colonial empire to match, if not, overshadow those of Britain and France, provoked the start of World War I, leading to the deaths of 17 million military personnel and civilians. The outrage against Germany after the War was such that, after the collapse of the German government and the flight of Kaiser Wilhelm, the subsequent Versailles Treaty of 1919 imposed punitive terms on Germany, obligating Germany to pay war reparations to the allies, primarily France on whose soil the Western front was largely fought.

In what was his most famous work until he wrote the General Theory, J. M. Keynes, who was on the British delegation to Versailles conference, wrote The Economic Consequences of the Peace in which he accused the allies of imposing a Carthaginian Peace on Germany, because the burden of reparations was beyond the realistic capacity of Germany to bear, thereby making Keynes a kind of national hero in Germany (“sic transit gloria mundi,” as they say). The next decade seemed to confirm Keynes’s warning, because Germany was either unable or unwilling to make the reparations payments required of it, and the United States and the rest of the world, by raising tariffs throughout the 1920s, showed little inclination to accept the trade deficits that would have been required if Germany had made the reparations payments it was obligated to pay. As if to demonstrate its incapacity to pay its debts, Germany in 1923 opted for a hyperinflationary meltdown of its economy — the political equivalent of a hunger strike — in a kind of passive-aggressive show of defiance toward its debt obligations.

Meanwhile, the prospect of receiving reparations payments proved to be equally unsettling on the chief prospective beneficiaries of those payments, the French. While most of the rest of Europe was struggling to restore their currencies back to gold convertibility, by adopting austerity measures aimed at reducing public expenditures and raising revenues, the French felt that they could adopt afford to increase public expenditures, because after all, “le Boche payera tout” (the Hun will pay it all), “Boche” being a French slang term of endearment for Germans that has somehow come to be translated in English as “Hun.”

The notion that it would be the Germans who could be made to pay for their self-indulgent extravagance had a poisonous effect on the French economy in the mid-1920s, causing a rapid inflation, and capital flight, which not halted until Raymond Poincare formed a national unity government in 1926 and Emile Moreau was appointed Governor of the Bank of France, together managing to halt the inflation and stabilize the franc, setting the stage for their own disastrous gold accumulation policy starting in 1927, thereby precipitating, with a huge assist from the Federal Reserve Board, the Great Depression.

There are really two points that I want to make by recounting this sad history of the aftermath of World War I. First, one might have expected that, having once been victimized by the demands of its European neighbors that it pay the debt obligations it owed them, the Germans might have some feeling of empathy or understanding for the national suffering imposed when creditor nations try to collect debt obligations beyond the capacity of the debtor nation to repay. But there is hardly any sign of such an awareness in Germany today. Rather the attitude seems to be “the Greeks must pay whatever the cost.”

Now one might say, in defense of the Germans, that the debts incurred by the Greeks were voluntarily undertaken, while the debts imposed on Germany were imposed against the will of the Germans. But that seems to me to be a distorted view of the war reparations imposed on Germany. The German nation went to war enthusiastically in 1914 in hopes of achieving European, if not world, domination, the same ambition that led to another war enthusiastically supported by the German nation only 20 years after the end of the previous war. The war reparations imposed on Germany after World War I may have been excessive, given the economic realities of the situation, but there is no reason to think that, given the appalling suffering caused by German aggression in World War I, the war reparations imposed upon them were less legitimate obligations than the current debts owed by the Greeks to the Germans.

The second point that I would make is that there is certainly nothing noble or uplifting about the French attitude “le Boche payera tout.” Indeed, the attitude was both irresponsible and ultimately self-defeating, for two reasons. First, there was never a realistic way of compelling the Germans to pay, and second, even if the Germans could have been compelled to pay, the consequence would likely have been damaging to the French economy, because transfer payments on a large scale tend to undermine incentives to produce (the “Dutch disease”). Nevertheless, there was a certain selfish logic underlying the French attitude that is not hard to understand.

However, the current German attitude that the Greeks must pay whatever the cost is, at a very deep level, irrational. Forcing the Greeks into national bankruptcy or to leave the Euro will only guarantee that the Greeks will never pay the Germans back what is owed to them. If the Germans want to be repaid, the only possible way for that to be accomplished is to ease the current debt burden sufficiently to allow a reconstruction of the Greek economy, thereby enabling the Greeks to produce enough to service their debt obligations. As long as Greek nominal GDP is growing less rapidly than their debt obligations, that will never happen. That simple truth seems beyond the power of German comprehension.

What are the Germans even thinking? Who knows what they could possibly be thinking? Maybe Donald Trump could tell us. Or consider the fable of the scorpion and the frog:

A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, “How do I know you won’t sting me?” The scorpion says, “Because if I do, I will die too.”

The frog is satisfied, and they set out, but in midstream, the scorpion stings the frog. The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp “Why?”

Replies the scorpion: “It’s my nature…”


25 Responses to “Le Boche Payera Tout”

  1. 1 Jacques René Giguère July 12, 2015 at 10:00 pm

    “Warum?” “Weil ich Deutschland!”


  2. 2 Lorenzo from Oz July 13, 2015 at 3:54 am

    Deep rationality has not been a notable characteristic of either the ERM or the Monetary Union. Powerful intent, yes: deep rationality, no.


  3. 3 Tom Brown July 13, 2015 at 10:04 am

    Maybe what the Germans really want is a few dozen (larger) Greek Islands, the Acropolis, their territorial waters and their highway system (soon to be 100% toll roads)? (c:


  4. 4 David Glasner July 13, 2015 at 9:02 pm

    Jacques Rene, Sorry, don’t get it.

    Lorenzo, My point is that even within the framework of the monetary union, the German role has been deeply self-destructive. A mildly inflationary policy would have made a huge difference for everyone.

    Tom, Maybe, I can’t figure them out.


  5. 5 Jacques René Giguère July 13, 2015 at 9:26 pm

    Sorry. Should remember not everyone knows german…Frog ask scorpio: “Why? ” “Because I am Germany.”


  6. 6 Nick Zbinden July 14, 2015 at 1:35 am

    I don’t disagree with you on your economic points, but some of the historical points are not completly right.

    > Germany was either unable or unwilling to make the reparations payments

    They were unwilling to make payments, we know that now.

    > having once been victimized by the demands of its European neighbors

    Seems to me its the French and the Belgums who have been victimized. The Germans has been inconvenienced in response.

    > enthusiastically supported by the German nation only 20 years

    We know no that most germans did not enthusiastically support WW2 or even WW1. Support for WW1 was much higher.

    > The war reparations imposed on Germany after World War I may have been excessive, given the economic realities of the situation

    They were not exessiv. When Germany had a government commited to paying these and not willingly destroying its own economy, they were absolutly able to pay. This is not like Greece now.

    > First, there was never a realistic way of compelling the Germans to pay

    The occupation of the Ruhr would like to disagree with you. Before multible years of rearming the Germans could do nothing against this.


  7. 7 David Glasner July 14, 2015 at 7:15 am

    Nick, You are correct to point out that some of my assertions of fact are, at a minimum, debatable, and I am not an expert on the issue of war reparations to engage in that debate in a serious way, so we can just leave it there. That being said, my own view is that the reparations burden placed on Germany was excessive. I might also mention that while France was insisting on reparations the US was insisting that the allies pay their war debts. The French were also counting on German war reparations to pay back the Americans.


  8. 8 Jacques René Giguère July 14, 2015 at 8:07 am

    And then the U.S. lent money to Germany so they could pay France. While everyone, especially the French, showed their total uncomprehension of basic balance-of-payments, practiced protectionnism making any payments impossible.


  9. 9 Jean July 14, 2015 at 6:31 pm

    The Germans do not, in fact, have a clue what they are doing when it comes to economics – German has in fact two separate words for economics!
    No person in Germany has ever heard of the two terrible years of deflation that Germany had prior to the election of the Nazis – everything is always about high inflation.
    They don’t learn from history because they are still using ISLM, instead of the equation of exchange.


  10. 10 Jacques René Giguère July 14, 2015 at 9:15 pm

    Germans do not use IS-LM (God they should…). They are stuck somwhere around 1870. With their french accomplices still mouthing Say 1803 ( see François Hollande a couple of years ago) which he himself disavowed in 1829, what can you expect?


  11. 11 Frank Restly July 15, 2015 at 6:31 am


    In a common currency zone, do import tariffs make sense when the proceeds are used exclusively for the servicing of external debt?


  12. 12 Frank Restly July 15, 2015 at 7:22 am

    Merkel: We don’t trust the Greeks to collect enough tax revenue to service the debt owed to us. So, we are implementing a series of export tariffs on goods sold to Greece. The proceeds of those export tariffs will be used to pay back debt owed by Greece to us. In addition, we will be implementing a tax on interest income earned on Greek bonds. The purpose of this tax will be to dissuade German based banks and other financial enterprises from purchasing Greek debt.

    German exporters: You are killing us here!!! We depend on Greek purchases of our goods.
    Merkel response: Don’t like it, locate your production for the Greek market in Greece.

    German holders of Greek bonds: You are killing us here!!! We depend on Greek tax revenue to pay us an income.
    Merkel response: Don’t like it, move to Greece and become a voter / taxpayer in Greece. That way you can legitimately make demands on the Greek government’s finances.


  13. 13 Fed Up July 15, 2015 at 8:47 pm

    Frank said: “Merkel response: Don’t like it, locate your production for the Greek market in Greece.”

    I doubt if that is merkel’s response. The trade surplus is being used to keep employment higher in the german market.

    Are you being serious or sarcastic with that comment?


  14. 14 Frank Restly July 16, 2015 at 9:44 am

    Fed Up,

    “Are you being serious or sarcastic with that comment?”

    A little of both. Germany is trying to have it’s cake and eat it too. It’s bond holders want to be paid back with Greek tax revenue and it’s exporters want to maintain a trade surplus. That can’t continue indefinitely, and Merkel has to realize this.

    After the U. S. went through it’s own little trade war in the 1980’s with Japan, that is what a lot Japanese companies did – they relocated their production facilities closer to their end buyers ie. U. S. auto purchasers. In addition, the Japanese had a barrier to entry, namely U. S. labor unions concentrated in the northern states. And so they built facilities in the southern United States. I am not sure what barriers to entry German firms would run into when trying to build in Greece.

    Look at the Japanese unemployment rate and tell me that this had any significant long lasting effect on domestic Japanese employment.

    It is in both Greece’s and Germany’s best interest to work towards a solution that rebalances trade and internalizes the Greek government’s finances. If Greece is politically incapable of enacting measures, then Germany (under Merkel) can do most of the heavy lifting themselves.

    Obviously, the other solution would be to allow Greece to depart the Euro, but that sends a bad signal to other countries (Spain, Portugal, Italy) that are also struggling.


  15. 15 sumnerbentley July 16, 2015 at 10:18 am

    Excellent post. Regarding Jean’s comment, I’ve also been told by Germans that they are not taught that deflation led to Hitler. In general the Germans have done better than almost all other countries in facing up to their past, which makes the oversight of the costs of deflation rather puzzling.


  16. 16 Jacques René Giguère July 16, 2015 at 1:06 pm

    ” In general the Germans have done better than almost all other countries in facing up to their past, ” No. We hanged a few buffoons, responsible for the worst aspect of it all, After which, the whole “gutten deutschen” state apparatus that enthusiasticallysupported the buffons all along and was the efficient core of their machine went straight to the CDU. As in Italy where the buffoons went to the MSI while the Very Serious People went to the Christian Democrats, who are neither christians nor democrats. Germany got rid of the Nazis. Not of their Germanness.


  17. 17 Mike Sax July 16, 2015 at 7:12 pm

    Great piece David. I think the problem with Germany and the rest of the EU is there really isn’t any kind of logical economic model. It seems that the EU is mostly just a vehicle to continue the problem that has rocked Europe in the last 2 centuries: the Franco-German rivalry.

    It’s not about economic logic but geopolitical vanity, All the euro members get taken in by it-the Greeks too.

    It”s hard to understand at this point how it could be worse for Greece in leaving the euro but they still aren’t even considering the option.

    Why? Because they feel somehow that to leave the euro robs them of their essential ‘Europeaness.’


  18. 18 Fed Up July 16, 2015 at 7:18 pm

    Frank said: “A little of both. Germany is trying to have it’s cake and eat it too. It’s bond holders want to be paid back with Greek tax revenue and it’s exporters want to maintain a trade surplus. That can’t continue indefinitely, and Merkel has to realize this.”

    I think germany wants greece to run a trade surplus with some entity that is not them and use that for the bondholders.


  19. 19 Jacques René Giguère July 16, 2015 at 8:54 pm

    Then they are even more ignorant than I thought. You can’t be repaid without yourself running a current account deficit. Germany has no understanding of the most basic concept of economics or even basic arithmetic.


  20. 20 Jean July 17, 2015 at 10:12 am

    Not only do the Germans NOT know about the deflationary period, they also think Versailles caused the hyper-inflation under the Weimar government. Very few know about the 6 billion worth of gold coins demanded and paid from the Russians under Brest-Litovsk!


  21. 21 Jacques René Giguère July 17, 2015 at 10:21 am

    By insisting on hyperinflation, the ordo-liberals hide the effects of Brüning’s policies that brung He-who-must-not-be-named to power. It hide how they, as gutten deutschen, did the work of maintaining the german state.
    And then, after the war, pretexting the (real) support of the working classes for the Hitlerian regime, devised a philosophico-political system where the conservative elite power is entrenched, with crumbs for the lower classes and their age-old dream of european domination intact.
    The EU is now for Germany the occasion to wage the war that the Weimar Republic was plannibg for the mid-40’s.


  22. 22 David Glasner July 17, 2015 at 12:11 pm

    Jacques, Good point about the contradiction between demanding reparations payments and imposing barriers to imports

    Jean, I don’t see what IS-LM has to do with it. But you are 100% right about the failure to remember that it was the Great Depression, not hyperinflation, that brought Hitler to power.

    Frank, Import tariffs on goods from outside the zone? I don’t know what “makes sense” is supposed to mean. Whether one is for or against the tariff would depend on too many special circumstances to begin to answer. Interesting conversations that you have provided.

    Scott, Thanks.

    Jacques, I am not a fan of how Germany is acting now, but I wouldn’t condemn the entire post-war German democracy either.

    Mike, Thanks. Unfortunately, Germany has not been able to bring itself to see that as the strongest country in Europe it has a responsibility to make the euro work for everybody not just itself.


  23. 23 Jacques René Giguère July 17, 2015 at 12:38 pm

    The Germans , like the French, don’t understand economics the way Anglo-Saxons do (I am a francophone Québécois and in these matters, we are thouroughly Anglo whatever we think of the Brits on other matters…). Germans, like French are good at micro as it comes from economic calculus devised in early engineering schools. But thyey also have abias. Frequently, economics is taught in Law School, as economic is also the assignation of value to property rights. Well and good but totally prevents you from having a macro understanding.
    If you know Sci-Fi, you must remember the character of The Mule in Asimov Foundation Trilogy. Comes in briefly, perturbs the Seldonian time-line, then die and the whole history goes back to its course. Germany purged the Mule.and then reverted back to the 1870 thinking they share with the French (DeGaulle in the 60’s about gold https://www.youtube.com/watch?v=OHZ76kxjlFo
    Remember Faulkner
    “The past is never dead. It’s not even past.”


  1. 1 Economy News July 15th 2015 | TheFinancial's Weblog Trackback on July 15, 2015 at 12:38 pm
  2. 2 Economy News July 20th 2015 | TheFinancial's Weblog Trackback on July 20, 2015 at 11:12 am

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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey’s unduly neglected contributions to the attention of a wider audience.

My new book Studies in the History of Monetary Theory: Controversies and Clarifications has been published by Palgrave Macmillan

Follow me on Twitter @david_glasner


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