These Germans insulting Keynes and the citizens of Europe

These Germans insulting Keynes and the citizens of Europe

June 8, 2021 0 By Michel Santi


On June 2nd Wolfgang Schäuble, President of the German Bundestag and former Minister of Finance of the country decided to pen a piece for the Financial Times where he invokes multiple times the spirit of the great Keynes, quoting him on no less than six occasions!

During Europe’s great crisis of the 2010s, the journalist Wolfgang Münchau very astutely observed that German economists can be split into two groups: “those who haven’t read Keynes, and those who have read him but didn’t understand a thing”. From this last article of Wolfgang Schäuble’s, it is now a necessity to call out these German politicians who have absolutely no understanding of the economic facts and processes and who try to manipulate opinions by quoting John Maynard Keynes (to whom I wish a happy birthday, having been born June 5th). This article in the FT is a terrible embarrassment for the German elites who are stuck at the Adam Smith stage. It only serves to further confirm their economic illiteracy, and of course explains (for those who might have not yet joined the dots) their disastrous management of Europe’s crisis.

This latest production in the FT is typical Schäuble, totally equivalent to what he had published in 2011 in the same paper and whose title was “Why austerity is only cure for the eurozone”. In passing, Schäuble takes a swipe at the person who he probably hates the most in the world, Mario Draghi, as in his article he raises the point of “moral hazard” multiple times with the former president of the ECB that, in his opinion, encouraged speculation by deepening public deficits. Let’s not kid ourselves, because this article of Schäuble’s is at the same time a warning to Mario Draghi who is meant to find out – now that he is Prime Minister of Italy – that he has much less power than when he was head of the ECB, and also a message from the Germans to the Italians, who must start “doing their homework”, to quote Angela Merkel.

So how should Schäuble’s article be read, when he was in fact one of the main agents of Europe’s catastrophe during the 2010s, and how can we not be outraged by his allusions to Keynes, who he just doesn’t understand? How can our democracies tolerate that such people lead our economies without having understood at all their most elementary of mechanisms: like that an economy can work only in the presence of an indebted counterpart, that this debt is the source of corporate profits, that this debt is also the source of household savings, and that this debt must indeed be generated and owed by a credible debtor – the government, that is – via its currency and its central bank??

Citing Keynes from 1919, Schäuble affirms that the master was opposed to debt and inflation. However, Keynes actually warned against using inflation to eliminate debt as a political strategy, and certainly not something to undertake after World War One. Keynes – who was never asking for debts to be paid back in order to avoid inflation – in fact called for the cancellation pure and simple of certain countries’ debts, like Germany’s. But speaking of the Keynes of 1919 allows Schäuble to skip over the Keynes of 1936, whose bases he’s always rejected, despite Keynes being the author of “General Theory” that redefined the whole economic discipline. In doing so, Schäuble uses Keynes as a tale of moral caution in order to exhort the payment Europe’s debts and the introduction of austerity, a course of action that Keynes actually deemed to be very harmful in periods of depression.

Whereas Schäuble asserts that only balanced budgets can avoid social collapse, Keynes pleaded for a deepening of deficits, the only tool able to bring back full employment, reduce inequalities and restore social cohesion. Schäuble has therefore understood absolutely nothing from history, and has been caught red-handed manipulating Keynes’s teachings, just like he intentionally distorts the actions of Alexander Hamilton, the first US Secretary of State for the Treasury, who is also cited in this FT piece. Schäuble basically takes Hamilton as testimony, for having in 1790 (and not in 1792 as is falsely cited in this article) forced the States of the Union to pay back their debts, when Alexander Hamilton’s measures (that were visionary for the time) were to strip different States of the ability to borrow for the sole benefit of the federal government, to in turn gain credibility on the financial markets. Contrary to Schäuble’s allegations, Hamilton only imposed fiscal discipline to reform the US. It gets worse for Schäuble who manages to lose all credibility, as the famous “Hamilton moment” was the starting point for a real and effective mutualisation of debts for the American Union…for the exact kind of union that Schäuble would so loathe in Europe!

But why shouldn’t we play Schäuble’s game, hoping desperately and sincerely that Europe will adopt Keynes’s precepts, who considered that all public policy must have a priority that eclipses all others, centred around full employment? This nonsense from Schäuble is nevertheless precious, because we can now hold it up as a deterrent, a nausea-inducing reminder of what were the tragic errors and intolerable oversights towards the citizens of Europe made through the policies advanced during the 2010s. Let us never again tolerate such things.

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