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It is often claimed that German scepticism towards monetary expansion is rooted in the country’s economic history. While there is truth to this, our findings show that what matters for public monetary policy discourse in Germany is not cool-minded analysis of the pros and cons of different policy options, set against a backdrop of appropriate lessons learned from the past. Rather, many Germans have a deeply flawed understanding of economic developments during the Weimar Republic, in which the perils of hyperinflation, and the devastating effects of the Great Depression are seen as two sides of the same coin.
This narrative not only lacks any reference to the negative consequences of deflation, it also means that, based on their account of economic history, many Germans have reason to refute the notion that combating inflation and combating unemployment and low growth can be conflicting goals. Unfortunately for the ECB, this misconception is especially common amongst highly educated and politically interested Germans, affects monetary policy preferences at least amongst conservative voters, and is hard to correct.
From the ECB’s perspective, investing heavily in the way it communicates monetary policy decisions to the German public and media will thus likely not be sufficient. The ECB will also need to sharpen German awareness as to the risks of deflation as opposed to inflation, and both the Bundesbank and the German government could also do their part here. Most importantly, our study shows that German policymakers and the media should try to pay attention to the complexities of economic history when referring to the Weimar Republic. While it can be tempting to quickly jump from mass inflation to mass unemployment, treating these separate issues as one big economic crisis contributes to a harmful misreading of what lessons should be drawn from German history.