In an attempt to explain his position, Weidmann has compared the ECB’s scheme to a story in Faust, where the devil Mephistopheles persuades the Holy Roman Emperor to print paper money in order to solve his country’s debt crisis. Notice any parallels so far?
The paper money is notionally backed by gold that has yet to be mined and so, for a time, the stratagem works. However, as more and more money is printed, the true value of the paper is weakened, and rampant inflation ensues. ‘The state in Faust Part Two is able at first to rid itself of its debts while consumer demand grows strongly and fuels a strong recovery,’ says Weidmann. ‘But this later develops into inflation and the monetary system is destroyed by rapid currency depreciation.’
Not the most soothing bed-time story for eurozone’s leaders, is it?