Could the "Credit Crunch" be worse for Europe than America?

The circumstances of 1920-1923, when hyperinflation exploded in Germany, are eerily similar to the circumstances that Greece finds itself in today. Then Germany was facing the burden of complying with the terms of reparations imposed under the Treaty of Versailles which drained it of its reserves of gold and cause a huge current account deficit. And guess what? They cheated.

Now Greece is burdened with the onerous terms imposed by the EMU which turned out to be a self inflicted wound (just as the Treaty of Versailles to Germany). On top of that, locked into the Euro it has run an increasingly serious current account deficit, since it is unable to devalue its currency. And guess what? They cheated.

Back-then the government of Germany was weak and frightened of its public sector workers who were disposed to strike, and riot. So it gave into them and paid their unaffordable wages and benefits; ditto Greece today.

Then fiscal discipline collapsed in Germany and foreigners shorted the currency; now the foreigners are shorting Greece’s debt.

Then the option for Germany’s neighbours was to come in and help, and relent on their demands, or if not to stand back and watch the country implode. Either way they were going to be losers, in the event they chose the “implosion” option which helped nudge Germany towards the Second World War.

And for Greece; now what?