Too Much Austerity Leads to Nazism.

“Imag­ine for a moment that two decades ago, a newly uni­fied Ger­many set out to take over the Euro­pean Con­ti­nent, as the pre­vi­ous uni­fied Ger­many had tried and failed to do half a cen­tury ear­lier. This time it would use money, not guns, to accom­plish the goal. . . ” (“As Europe’s Cur­rency Union Frays, Con­spir­acy The­o­ries Fly” by Floyd Nor­ris; The New York Times; 06/15/2011.)

Austria's central bank head has issued a severe warning about too much austerity, amid the eurozone's debt crisis. He said such an approach contributed to the rise of Nazism in the 1930s.

"The single-minded concentration on austerity policy (in the 1920s and 3Os) led to mass unemployment, a breakdown of democratic systems and, at the end, to the catastrophe of Nazism," Ewald Nowotny said in comments confirmed by his office on Wednesday.

Moreover, it's Germany, in particular, which is promoting such painful spending cuts as the principle way to end the bloc's sovereign debt crisis.

U.S. economist Nouriel Roubini and Niall Ferguson drew a similar historical parallel  in their joint opinion piece in the Financial Times on June 8, attacking Germany's "wait and see" approach to the eurozone crisis.

"Is it one minute to midnight in Europe?

"We fear that the German government’s policy of doing ‘too little too late’ risks a repeat of precisely the crisis of the mid-20th century that European integration was designed to avoid.

"We find it extraordinary that it should be Germany, of all countries, that is failing to learn from history. Fixated on the nonthreat of inflation, today’s Germans appear to attach more importance to 1923 (the year of hyperinflation) than to 1933 (the year democracy died). They would do well to remember how a European banking crisis two years before 1933 contributed directly to the breakdown of democracy not just in their own country but right across the European continent….

"But now the public is finally losing faith and the silent run may spread to smaller insured deposits. Indeed, if Greece were to leave the eurozone, a deposit freeze would occur and euro deposits would be converted into new drachmas: so a euro in a Greek bank really is not equivalent to a euro in a German bank. Greeks have withdrawn more than€700m from their banks in the past month.

"More worryingly, there was also a surge in withdrawals from some Spanish banks last month. The government’s bungled bailout of Bankia has only heightened public anxiety. On a recent visit to Barcelona, one of us was repeatedly asked if it was safe to leave money in a Spanish bank. This kind of process is potentially explosive….

"Until recently, the German position has been relentlessly negative on all such proposals. We understand German concerns about moral hazard. Putting German taxpayers’ money on the line will be hard to justify if meaningful reforms do not materialise on the periphery. But such reforms are bound to take time. Structural reform of the German labour market was hardly an overnight success. By contrast, the European banking crisis is a real hazard that could escalate in days.

"Germans must understand that bank recapitalisation, European deposit insurance and debt mutualisation are not optional; they are essential to avoid an irreversible disintegration of Europe’s monetary union. If they are still not convinced, they must understand that the costs of a eurozone breakup would be astronomically high – for themselves as much as anyone.

"After all, Germany’s prosperity is in large measure a consequence of monetary union. The euro has given German exporters a far more competitive exchange rate than the old Deutschmark would have. And the rest of the eurozone remains the destination for 42 percent of German exports. Plunging half of that market into a new Depression can hardly be good for Germany.

"Ultimately, as Angela Merkel, the German chancellor, herself acknowledged last week, monetary union always implied further integration into a fiscal and political union. But before Europe gets anywhere near taking this historical step, it must first of all show it has learnt the lessons of the past. The EU was created to avoid repeating the disasters of the 1930s. It is time Europe’s leaders – and especially Germany’s – understood how perilously close they are to doing just that."