On 27 February 1953, at the end of a year of work at the London Conference on German foreign debt, Italy, together with 15 other countries, forgave Germany half of the debts it had contracted between 1919 and 1945. L ‘analysis by Alessandro Fugnoli, strategist of the Kairos funds
On February 27, 1953, at the end of a year of work at the London Conference on German foreign debt, Italy, together with 15 other countries, forgave Germany half of the debts it had contracted between 1919 and 1945. The payment of the other half, equal to 16 billion marks, was deferred over the following thirty years. To use a further courtesy to those who had always caused two world wars, it was established that the annual reimbursements would never exceed 3 percent of German exports and would have been suspended if Germany had found itself in trade deficit. These clauses provided creditors with a strong incentive to buy German products and decisively accelerated the reconstruction of the western part of the country. As for the reparations of the Second World War, it was decided to postpone the payment to German unification, which in February 1953, with Stalin still alive, seemed an impossible event. When the unification took place unexpectedly in 1990, the debt was almost completely written off. There remained 239 million symbolic marks and these too were deferred over twenty years, so much so that Germany ended up paying in 2010. The German historical memory, like that of all, is selective. Remember certain things and try to forget others. Among the things that Germany unwillingly remembers we want to mention two. The first is that the attitude of the Troika of US-Great Britain-France creditors, which oversaw the German economy from 1919 to the first phase of the Cold War (with the exception of the 13 years of Nazism), was always decisive, for better or for worse, in directing the fate of German history. When the Troika was harsh and vindictive, Germany promptly fell into chaos and I exported it to the world. When it was enlightened, however, Germany refused in an instant. Consider the history of the Weimar republic, which is often remembered as a single one and which was instead divided into three completely different phases. The first, from Versailles to hyperinflation (1919-1923), saw a very hard Troika and coincided not by chance with an infinite series of attempts at right-wing and extreme left-wing insurrectionist coups (the latter with the risk of a union with revolutionary Russia that would change the history of Europe).When the Reichsbank, following the Protokeynesian suggestions of Chartalism, I try to alleviate the pains of the exhausted population by printing money without limits, the inflation that followed further reduced Germany’s ability to service its foreign debt. In a leap of intelligence, the Troika acknowledged the situation and drastically reduced its demands for austerity. Together with the instantaneous end of hyperinflation this produced the second phase of Weimar (1924-1929), the luminous Goldene Zwanziger of the frenzied recovery, the extreme political and intellectual liveliness and radical modernism that we still admire today. But the light went out again from 1929 to 1933, when the American banks suddenly turned off the credit taps and the Troika began to hammer Germany again to try to extract what she could.And so, while one at a time everyone began to devalue to get out of the Great Depression , Germany was forced to maintain parity with gold, in order to make it less competitive and steal market share. To remain competitive at a fixed exchange rate, Germany then decided on an internal devaluation of 20 percent, cutting public and private wages, pensions and social services equally. Since no party wanted to take responsibility for these measures, Hindenburg called the engineer Bruning and formed a government of the president who, having zero votes in the Reichstag, governs exclusively by decree. And here we come to the second point that German historical memory tries to forget, inflation is relative evil and deflation is absolute evil.Germany obsessively reminds itself and the world of the hyperinflation of 1923 and with it tries to justify its monetary and fiscal sadomasochism today. It almost suggests that Hitler came to power due to inflation, when the Nazis in the two elections of 1924, with their financial wealth completely destroyed, stopped at 3 percent (while the system parties were largely confirmed) and even went down to 2 percent in 1928. The Nazis exploded under Bruning’s austerity instead and took over the Reichstag in 1933. While inflation had killed creditors but had at least done a huge favor to debtors(whoever had a mortgage gets the house as a gift), deflation had hit rich and poor, industrialists and workers, banks and depositors. We talked about Germany, of course, to talk about Italy. The specters of Greek deflation and Argentine inflation hover in the air, of a Troika ready for a semi-colonial government to assault private wealth or a leap in the dark outside the euro. We could be wrong, but at the moment the liveliness of the spread on the one hand and that of government spending projects on the other seem above all a great flexing of muscles and shaking of clubs to take the measures of the interlocutor. And so the spread rises one day and falls the next day (facilitated in the volatility by the global liquidity that begins to show the first signs of fatigue),Behind the scenes, however, we imagine a very hard negotiation already begun on the three and something deficit on which, if desired, an agreement could be reached quickly if there were no faces to lose or save and voters to lose in Germany and gain in Italy and vice versa. . Nobody, if reasonable, will want to push themselves to a break in the short term. The European elections in March could begin to change the face of the continent and give a robust minority to the anti-system forces. The Italian government might agree to wait for softer counterparts in Europe and the system forces should agree not to run for elections with a collapsing continental project. But even after March 2019 it will be all to see whether to deny 3 percent to Italythe end of the euro will really be worth it (or a euro at 1.50 in time of duties for those who stay in it) and if, on the Italian side, settling for a 2.5 is worse than jumping into the void. After all, there are many other growth-enhancing things that a government that claims to be about change could do, starting with deregulation, which you don’t hear about. Waiting for the results of European negotiations that could go on for years, it is good to see the positive tone of the global stock exchanges. Not all that glitters is gold, however. There is a lot of closing of exaggeratedly short positions in bonds and exaggeratedly long oil positions which creates an optical effect of quiet bonds and again calm inflation. This effect will fade in some time, but in the meantime it is perfectly legitimate to enjoy it. With the more relaxed Treasuries, the bullish push on the dollar fades. In any case, the Italian question will prevent a significant recovery of the euro, which in our hypothesis will not be resolved quickly. Precisely for this reason, the ECB will go ahead with its program of zeroing the Qe, but will be careful not to raise rates for a long time and will not even try to dismantle the Qe as the Fed is doing.
(Extracted from the newsletter Il Red & Black)
