France 1930, Germany 2013

Paul Krugman

Did France cause the Great Depression? It sounds a bit like a joke (Billy Crystal in Moscow, 1989: “I was raised thinking you were the enemy; you were raised thinking I was the enemy. We were both wrong: it’s the French”) But it’s the actual title of a very good paper by Doug Irwin, who points out that France, with its undervalued currency, soaked up a huge proportion of the world’s gold reserves in 1930-31, and suggests that France was responsible for about half the global deflation that took place over that period.

The thing is, France itself didn’t do that badly in the early stages of the Great Depression — again thanks to that undervalued currency. In fact, it was less affected than most other advanced countries (pdf) in 1929-31:

Notice, by the way, that the French weren’t evil or malicious here — they were just adhering to their hard-money ideology in an environment where that had terrible adverse effects on other countries.

Obviously the details are different, but I would argue that Germany is playing a somewhat similar role today — not as drastic, but with less excuse. For Germany is an economic hegemon in a way France never was; it has responsibilities, which it isn’t meeting.

 http://krugman.blogs.nytimes.com/2013/11/02/france-1930-germany-2013/?_r=0