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The only way the Franc's Deutsche Mark value could be kept constant was, indeed, for the Bundesbank to keep doing the one thing it detested: incessantly buy francs using freshly printed Deutsche Marks. Were these marks to remain stashed in the vaults of the French central bank--or anywhere else for that matter--the Bundesbank would not have minded much. Only these banknotes did not stay under lock and key, but were steadily repatriated back to Germany, as the French used them to buy more Volkswagens and speculators converted their francs into marks convinced that at some point the Bundesbank would let the franc slide, netting them a substantial windfall. And why would the Bundesbank let the franc slide? Because the repatriated Deutsche Marks were increasing the quantity of money circulating in Germany, pushing prices up and causing inflation in a nation that despised rising prices with all its heart, nation that trusted the Bundesbank to prevent this from happening.
[...] combining high returns to financial capital (requiring high interest rates) with high profit rates for American businesses (requiring low interest rates) was never going to be easy, and Volcker knew this. It was a combination that could only come about if another way of providing that profit could be found. And one way to do that would be to reduce wages. [...]
[...] if 'the weak suffer what they must', their very capacity, let alone willingness, to reproduce the power of the strong declines precipitiously.
on why Volcker would have opted to fix Bretton Woods (if he had the choice)
put another way, by Marquis de Condorcet later on the page, "real power lies not with the oppressors but with the oppressed" (though it's a bit misleading)
[...] unlike in the late 1960s, German inflation was less of at threat with Volcker on the loose. The American vacuum cleaner, powered by Volcker's high interest rates, could now be counted upon to suck the fresh Deutsche Marks in, preventing them from making their way immediately from France back into Germany. [...]
think more about why
[...] The more US deficits grew, the greater the global Minotaur's appetite for Europe and Asia's capital. Its truly global significance was due to its role in recycling national circuits (profits, savings, surplus money) through the international circuits that Wall Street had established. It kept the gleaming German factories busy. It gobbled up everything produced in Japan and later in China. And, to complete the circle, the foreign (or American) owners of these distant factories sent their profits, their cash, to Wall Street--a modern tribute to the global Minotaur.
[...] The gold standard was underpinned by the idea of depoliticizing money by linking its quantity to the amount of gold--a metal that politicians could not conjure up from thin air since it was provided exogenously by nature. Today the same fantasy of apolitical money can be foudn not just in the construction of a European central bank that is answerable to no parliament [...] but also in newfound digital currencies like Bitcoin, whose selling point is the absence of political authority over them. Margaret Thatcher's precious point was that controlling interest rates and the supply of money is a quintessentially political activity which, if removed from the purview of a democratically elected parliament, would occasion a steady descent into authoritarianism.
[...] France's treasury director at the time, a certain Jean-Claude Trichet, expressed the French authorities' hubris admirably. In a bid to refute the plain truth that the Deutsche Mark was the anchor keeping the EMS-ERM system grounded, he denied the dominance of the German currency with the extraordinary statement that 'the anchor of the [EMS] system is the system itself'.
Incapable of grasping the finer aspects of French postmodern sophistry, Bundesbank officials were aghast. [...]
this is actually so funny
John Major, Britain's prime minister [...] committed his government to shunning 'the soft option, the devaluer's option that would be a betrayal of our future and our children's future'. It was the signal speculators needed, with George Soros famously ahead of the pack, to take the British government to the cleaner's: a once-in-a-century opportunity to profit from a commitment to an exchange rate with the Deutsche Mark that the Bundesbank had signalled it would not defend. [...]
I vaguely remember reading a long-form journalistic piece about it several years back, but at the time I didn't know much about the history of the European Union or anything so it's cool to revisit it with that context in mind
The result was that German workers, as their share of their employers' profits fell, could not afford the goods they produced. Deprived of domestic demand, surplus German products thus flowed to places like Ireland, Greece and Spain, where demand for them was supported by the loans Franz and his Frankfurt banker colleagues, dipping into the German corporate profit glut, had shifted to Europe's periphery. The export of German goods and German profits to the rest of the eurozone created debt-fuelled annual growth of 5 per cent in Greece and Ireland [...]
result of the Hartz reforms. German banks were loaning money to consumers in the periphery (interest rate arbitrage basically)
But this was not a bailout. Greece was never bailed out. [...] Greece's bailout, then Ireland's, then Portugal's, then Spain's primarily rescue packages for French and German banks.