Why Monetarism Is a Disease

Here is an excerpt from a Der Spiegel interview with historian Hans -Joachim Voth. While the description of the social ills that result from the arbitrary imposition of austerity on a population by the financier oligarchy is correct, the piece also points to the inability of Europeans to break from the assumption that this is just the way things must be. To emphasize, this is why the only take down and replacement of the whole rotting carcass of the derivative securities can only originate from the United States.

SPIEGEL: Why do you think the euro was a dumb idea?

Voth: Because, at its core, it is a bad solution for a nonexistent problem -- a political object of prestige with massive economic disadvantages. Everyone thought the common currency would cause all of the structural differences in the euro-zone countries to automatically disappear. But, after 2000, the low interest rates in the euro zone artificially fuelled growth in the weaker countries and caused real estate prices to skyrocket. This kind of speculative bubble is fun while it lasts. But every party comes to an end eventually. And then comes the rude awakening: Growth slows down, and unemployment rises. Since the banks have given out too many loans, they become a brake on growth. This causes an increase in the structural divergences that were actually supposed to decrease. The euro can't survive for long without having much more redistribution between richer and poorer member countries or much more flexible economies. And neither of those things is politically feasible.

SPIEGEL: Attempts to tackle the crisis with austerity measures have met with social rejection and have triggered political crises. Is that the price that has to be paid for instituting reforms?

Voth: Over the next five years, as long as German taxpayers don't write the bond markets a golden check, there's going to be one cost-cutting program after the other in many European countries. This could be accompanied by increasing social unrest. Austerity and anarchy are closely linked. We've been able to unambiguously establish that with a minor study looking at the period between 1919 and 2009.

SPIEGEL: Are you thinking perhaps of Heinrich Brüning, Germany's chancellor between 1930 and 1932, whose rigid belt-tightening policies drove the country into recession?

Voth: Brüning's cost-cutting programs didn't trigger the global economic crisis, but they did make the effects in Germany massively worse. What we're interested in is the impact on social harmony. Jacopo Ponticelli and I didn't just focus on German history; instead, we looked at the histories of 28 European countries over the last 90 years. It is a fact that savings amounting to just one percentage point of GDP are accompanied by social unrest. And when they reach two or three percentage points, it massively increases.

SPIEGEL: And these kinds of social explosions just exacerbate the economic situation even more.

Voth: Any time a country becomes politically instable as a result of growing economic insecurity, you'll see a sudden drop in growth. This creates a snowballing effect: Pressure from the bond markets causes a reduction in government-provided social services, which leads to street demonstrations. This causes mounting insecurity, and the economy contracts -- and because the economic situation gets more dramatic, the state has to make even more cuts.