The Hoover (Merkel/Sarkozy) Moratorium

The global stock markets are strongly up today on the latest news from the EU on the deal on Greek debt (and little bit less…). There is no reason to spend a lot of time describing the deal here, but I nonetheless feel it might be a good day to tell a bit about something else – the so-called Hoover Moratorium of 1931.

80 years ago it was not Greece, which was at the centre of attention, but rather Germany. Germany was struggling to pay back war debt and reparations for World War I and Germany was effectively on the brink of default and the Germany economy was in serious trouble – not much unlike today’s Greek situation.

On June 20 1931 US President Hoover issued a statement in which he suggested a moratorium on payments of World War I debts, postponing the initial payments, as well as interest. Hoover’s hope was the moratorium would ease the strains on especially the German economy and thereby in general help the global economy, which of course at that time was deep in depression.

Hoover’s idea was certainly not popular with many US citizens (like today’s German taxpayers who are not to happy to see their taxes being spending in “saving” Greece). However, the plan got most opposition from the French government, which insisted that the German government had to pay it’s debts on time as scheduled.

Despite the negative reception of Hoover’s proposal it went on to gain support from fifteen nations including France by July 6 1931.

An interesting side story on the Hoover Moratorium is why Hoover came up with the idea in the first place. Barry Eichengreen askes this question in his great book on the gold standard and the Great Depression, “Golden Fetters”: “It is unclear whether Hoover was motivated by the need for action to stabilize the international economy or by a desire to protect U.S. banks that had invested heavily in Germany”. Try replace “Hoover” with “Merkel/Sarkozy”, “U.S. banks” with “German/French banks” and “Germany” with “Greece”.

So how did the Hoover Moratorium play out? The initial market reaction July 1931 was very favourable. German stock jumped 25% on the Monday announce the initial announcement of the Hoover Moratorium. Here is how the New York Times described the global market reaction “the swiftest advance during any corresponding period in a generation” (quoted from Clark Johnson’s “Gold, France and the Great Depression”).

However, the party did not last and soon the international market turned down and the Depression continued. Many countries didn’t emerge from the Depression before the end of World War II. Lets hope we are more lucky this time around.

Gold, France and book recommendations

Can you recommend a book that you haven’t read yet? I am not sure, but I will do it anyway. I believe we can learn a lot from the Great Depression and I am especially preoccupied with the international monetary consequences and causes of the Great Depression.

An issue that especially have come to my attention is the hoarding of gold by central bank prior and during the Great Depression and here especially France’s hoarding of gold is interesting and have already blogged about Douglas Irwin’s excellent paper “Did France Cause the Great Depression?”

However, both Scott Sumner and Douglas Irwin have recommend to me that I should read H. Clark Johnson’s book “Gold, France and the Great Depression”. I don’t want to disappoint Scott and Doug – after all they are both big heroes of mine so I better start reading, but I haven’t been able to find the time yet – especially since taking up blogging. Between the day-job and an active family life reading is something I do at very odd hours. That said, I know I will have to read this book. The parts of it I have already read is very interesting and well-written so it is only time that have kept me from reading the book.

Anyway, what I really what to ask my readers is the following: What books have had the biggest influence on your thinking about monetary theory and monetary history? I would love to be able to make a top ten list of monetary must-read books for the readers of this blog. So please give me your input. I will keep asking this question until I got at least 10 books. If you don’t want to put your name out here in the comment section drop me a mail instead:

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