2023-11-21 20:22:25
It has now been a hundred years since hyperinflation raged in Germany and could only be ended through a drastic currency reform. A time when people transported banknotes in laundry baskets and after a short time their wages were no longer enough to cover food. Federal Finance Minister Christian Lindner and Christine Lagarde, President of the European Central Bank (ECB), recalled this on Tuesday evening at an event in Berlin – and described parallels but also differences to the current situation.
Grandparents talk about hyperinflation
“Inflation kills democracy” was the pointed title of the event, which was part of a series organized by the Federal Ministry of Finance and yet was much more. “The history of Germany in the years after the First World War is an impressive reminder of how price stability and democracy go hand in hand,” emphasized the ECB President – and left no doubt that, in her view, the current situation gives reason to to look again at the developments from back then.
After all, this old period of inflation is part of the collective memory of Germans and may explain part of their particular caution in financial matters and widespread fears of inflation, especially among older people. Lindner reported that his grandparents also told him a lot about those years in which money lost value at lightning speed, hyperinflation depleted savings and survival became a real struggle for people.
The reason for the event was the hundredth anniversary of the currency reform in Germany in 1923. At that time, the Rentenmark replaced the inflation-hit Mark: the exchange rate in November 1923 was one trillion marks to one Rentenmark. In addition to scientists such as the economic historian Albrecht Ritschl, central bankers and politicians, members of Gustav Stresemann’s family, who had implemented the currency reform in the Weimar Republic, were also present at the evening in Berlin.
Economically endangered democracy
Lindner recalled the courage it took from politicians in those years to take the right steps, often at the risk of their lives: Democracy was anything but a given.
The Federal Minister of Finance emphasized that the inflation that we are now having to contend with again is not hyperinflation like it was back then. The situation is not comparable. Nevertheless, the loss of monetary value could still have “disastrous effects” today. One lesson that Germany learned from the bad years back then was that it had to pursue a sound financial policy, said the Federal Finance Minister – and referred to the debt brake, which has just come back into discussion.
The ECB President quoted the historian Gerald Feldman, who called the turbulent times of those years “the great disorder”. Lagarde suggested that the “relative contributions” of the hyperinflation of the 1920s, the period of extremely rising prices, and the deflation of the 1930s, the economic crisis with falling prices, to the decline of democracy and the rise of Adolf Hitler are still controversial be.
Nevertheless, there is little doubt that “wild price fluctuations” have undermined the economic foundations of democracy in Germany, said Lagarde. “This happens, among other things, because price instability triggers major distributional effects that often hit the poorest in society the most.”
A current analysis by the ECB shows that the rise in inflation has once again hit low-income households disproportionately hard – as they have to spend a larger part of their income on essential goods such as energy and food, the prices of which have risen sharply.
“We will reduce inflation”
These are the main reasons why central banks in most liberal democracies are entrusted with the mandate to ensure price stability, said Lagarde: “And we at the ECB will never compromise on our mandate.” That is why the ECB responded The increased inflation raised interest rates faster than ever before in their history, by 450 basis points in just over a year: “And we will bring inflation back to our medium-term goal in good time,” promised the ECB President.
The central banker nevertheless warned against prematurely declaring the battle against inflation won. “We need to keep an eye on the various forces influencing inflation: the fading of past energy shocks, the strength of monetary policy transmission, the dynamics of wages and the evolution of inflation expectations,” Lagarde said. “And we must remain focused on bringing inflation back to our target and not jump to conclusions based on short-term developments.” There is still a long way to go.
The ECB left its deposit interest rate at 4 percent in October. The inflation rate in the euro area recently fell to 2.9 percent – but a rise again cannot be ruled out.
Christian Siedenbiedel Published/Updated: Recommendations: 12 Christian Siedenbiedel Published/Updated: , Recommendations: 33 Christian Siedenbiedel Published/Updated: Recommendations: 14
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