The focus on austerity in the ’30s led to unemployment and the collapse of democracy, and finally to Nazism, the Governor of Bank of Austria, Ewald Nowotny said, warning of the dangers facing Europe today. “Focusing on austerity exclusively in the ’30s led to mass unemployment, the collapse of democratic systems, and finally to the Nazi catastrophe,” said Nowotny. The comment, unusual for a central bank chief, especially one in Austria where Nazis is still a taboo subject, highlights the danger that Europe is in now, according to Wall Street Journal.
Severe austerity imposed on Germany by the victors after the First World War led to massive unemployment and destroyed democracy, paving the way for fascism and triggering the Second World War. Austerity criticism by Nowotny indicate a growing and stronger isolation of Germany in European countries in imposing harsh conditions to the countries that have to seek external financial assistance, such as Greece.
Immediately after World War I, economists have warned that high unemployment and economic distress ensure the perfect conditions for the development of extremism. In 1919, British economist John Maynard Keynes warned that the war reparations imposed on Germany were too high. “But who can say what can be endured or what direction will turn people to get rid of problems?”, wrote Keynes in the book ‘The Economic Consequences of the Peace’ (1919).
For Germany it followed, as forecast by Keynes, pay reparations, hyperinflation, economic depression and an Austrian named Adolf Hitler, who promised people “Arbeit und Brot” (work and bread). Almost a century later, Keynes’s question is still valid in the context of the new Greek record unemployment, the growth rates of suicide and crime, reducing purchasing power and growing health spending.
With unemployment rising in Spain and other euro area countries, a more severe recession than expected, it could become pressing the problem of avoiding an increase in extremism, fueled by social and economic problems.
Heads of central banks have learned from the Great Depression of the ’30s and took steps to limit the financial crisis in recent years, Nowotny said. Austrian Bank chief insists that “there is always an alternative” to austerity, rejecting the claim of the famous British Prime Minister Margaret Thatcher that “there is no alternative” to austerity.
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