Right now? Yeh, it is neccesary.
We want ton be tidy and knowing why the ECB chases as only aim the price stability and to do it, we need to know more about these people.
After the II World War Germany was signed as the unique guilty of the struggle and it was forced to pay high war reparations.
Seeing they didn't have money for a Brezel (substitute Brezel for any random funny german word as Bratwurst, kartoffel or Schweinsteiger),the BundesBank of this time said wisely "I got a printing money machine and I owe a lot of money: let's print bills!!"
It sounds rational at first glance, but... let's imagine you are the german state in the early 20's
You have a printing money machine and you owe a lot of money to your friend, what do you do? Printing thousend off millions of euros and you pay off your debt.
But then there's a lot of currency, we're -theoretically- rich!! Although what happens when there s a lot of currency? Prices grow to real-rich-people levels.
If you know your buyer can pay more, you ask more money for your products, your supplier is going to ask you for commodities since for she is more expensive getting goods and also her childs have to eat at a higher price...
Summary? a vicious circle which feed itself and so on. (trans of the headline: 1 dollar equal to 1million marksin 1923. Detail of newspaper price: 2000 marks. In 1998 was established the €/mark parity in 1€=2marks)
Seeing they didn't have money for a Brezel (substitute Brezel for any random funny german word as Bratwurst, kartoffel or Schweinsteiger),the BundesBank of this time said wisely "I got a printing money machine and I owe a lot of money: let's print bills!!"
It sounds rational at first glance, but... let's imagine you are the german state in the early 20's
You have a printing money machine and you owe a lot of money to your friend, what do you do? Printing thousend off millions of euros and you pay off your debt.
But then there's a lot of currency, we're -theoretically- rich!! Although what happens when there s a lot of currency? Prices grow to real-rich-people levels.
If you know your buyer can pay more, you ask more money for your products, your supplier is going to ask you for commodities since for she is more expensive getting goods and also her childs have to eat at a higher price...
Summary? a vicious circle which feed itself and so on. (trans of the headline: 1 dollar equal to 1million marksin 1923. Detail of newspaper price: 2000 marks. In 1998 was established the €/mark parity in 1€=2marks)
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| German childrens playing with mark bills in 1920's decade. |
In Germany in 1921 people got their wages daily in bags of money, which the had to change inmediately for goods in oder to be able to eat something that day. If not their money the next day would not be worth. In the picture is representated the low importance of the money in the Weimar Republic.
This happened in Germany the first years of the twenties due to the print of money to pay the war reparations. it was awful.
This happened in Germany the first years of the twenties due to the print of money to pay the war reparations. it was awful.
Since then the Bundesbank only purchases the price stability. As well as the ECB's main aim is maintain steady the price index. Can you see who rules in Europe? yes, german commands Europe's economy.
After this piece of history, it is only neccesary make relations between a centra bank task (setting of the interest rate) and the central bank main objective: price stability.
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