Germany used to be viewed as the paymaster of the eurozone. However, Angela Merkel not long ago suggested that investors in weaker Euroland states should be prepared to take a ‘haircut’ and is now stipulating increasingly stiff terms for help. This German hard line led initially to the crisis in Ireland. Now Portugal is in crisis too and owing to a foolish pledge by Britain’s former Chancellor, Alistair Darling, Britain may have to contribute a sizeable sum to bail out Portugal as well. Many worry whether Germany’s end game is a take-over of Britain’s banking industry, which was heavily involved in lending to Ireland and elsewhere. But Frankfurt has few attractions; surely it is inconceivable that the City of London could go there?

Frankfurt may be soulless but Berlin has reinvented itself as a tourist destination. It has three opera companies, numerous museums, a zoo and many historic sites. The German people have been irate for years at its profligacy. But maybe there is a reason for the expenditure. If Frankfurt does not appeal as a banking centre, historic Berlin might.

Naturally Germany covets the City. Her industry has to compete with China so it cannot pay large wages. Grabbing London’s banking sector would be attractive, not only because it would solve Berlin’s debt problems but also because of all the high-salaried opportunities it could create. Yet how could Germany manage to move City bankers from Canary Wharf to Berlin’s boulevard Unter den Linden? The only way would be by undermining the structure of the City itself!

The British economy is recovering after the crash, yet as a global banking centre it has naturally lent money to many nations. Everyone applauded when George Osborne decided to be a good neighbour and offer Ireland a loan. Yet Osborne should be wary of making too many ‘good neighbour’ loans. History reveals that ‘good neighbour’ loans can lead countries to ruin.

Not many know that in the autumn of 1929 German newspaper magnate and prominent politician Alfred Hugenberg put Hitler on the committee of his successful petition for the government to hold a national referendum against Germany paying any war reparations. Although the referendum failed it gave Hitler a blast of publicity. In the summer of 1930 Germany put up taxes and transferred the payment of reparations from industry to the man in the street. This naturally caused unemployment. When elections were held in September 1930 voters remembered Hitler’s fight against payments a year earlier and flocked to him at the polls. Horrified at his success, the international community decided to be ‘good neighbours’ and offer the German government loans in the hope of keeping the country democratic.

In October 1930 Germany received a £25 million loan from the US. Then in February 1931 the US, Great Britain, Holland Sweden France and Switzerland stumped up a further £6.5 million.

However the money was spent in vain. In March 1931 Germany and Austria declared that they had formed a customs union in direct contravention of the terms of the Versailles Treaty. Austria’s principal bank, the Credit Anstalt, then declared itself to be in difficulties. Britain’s Montague Norman, alarmed that the banking system of the whole of South East Europe might fail, stepped in with yet another ‘good neighbour’ loan. However, his help for Austria merely hastened an economic crisis in England; by August 1931 there was a run on the pound.

Germany then also declared that her banking sector was in difficulties. On 5 June President Hindenburg decreed a drastic cut in salaries and increases in taxation and then asked for and eventually received a moratorium from America’s President Hoover on Germany’s war reparations and a ‘standstill’ on most of the country’s ‘banking credits expressed in foreign currencies.’ Hoover made his ‘good neighbour’ gesture because of his wish to preserve German democracy. Yet reparations payments were never resumed and the Americans were also short-changed on their loans.

No one has made an accurate assessment of Germany’s strength in 1931. It is a good negotiating stance to say that you are poor. Indeed the German people were poor but the country appears to have been sitting on a treasure chest. Weimar Statistical Office figures show that, despite German banks and businesses going bust in 1931, the Reichsbank held gold and foreign reserves to cover an astonishing 40% of the notes in circulation. In 1931, Germany became the world’s greatest exporter. The country’s rush to full employment under Hitler could easily have been because it had a powerful economy and had reneged on its debts, rather than the use of Keynesian economics.

Germany protested her poverty in the Great Depression and people believed her. However what Hoover did not know was that Germany actually used deflation on purpose between 1929 and 1933. Her objectives were to gain sympathy for reneging on war reparations, and to re-arm and return the country to dictatorship, which the leadership euphemistically termed a ‘Presidential regime.’

Today Germany is taking her responsibilities seriously as Europe’s most powerful state. She is bent on eliminating debt from her own economy and exhorts other Euroland countries to do the same. Yet Germany’s focus on savings impacts doubly on her weaker neighbours through lower export opportunities to Germany and a strengthening euro, to which they are all tied. And when they get into difficulties Germany demands draconian terms if they ask for help. First the crisis was in Ireland. Now it has spread to Portugal as the government has fallen over endorsing the swingeing spending cuts and tax hikes it was called upon to make.

In the 1920s the great question was, ‘Can we trust Germany?’ The international community decided that it could but statistics show that it was cruelly deceived. Yet Germany’s economic policy today bears similarities with that in 1930, although this time it is causing unemployment in Southern Europe rather than in Germany itself. Meanwhile Professor Wilhelm Hankel of Frankfurt University has protested that ‘Germany cannot keep paying for bail-outs without going bankrupt itself ’ while German Finance MinisterWolfgang Schäuble has complained ‘we’re drowning in debts.’ Could it be that Germany might precipitate another banking crisis as she did in the 1930s, while at the same time building up an industrial base capable of taking over stricken assets in Europe and the City of London?

No one has speculated on Germany’s future ambitions. Worries that she might want to grab or control The City may be fanciful but history teaches us that George Osborne should exercise care over being a modern economic Sir Galahad and spending our precious national treasure on European bailouts, until we are quite certain that Europe is not going to be plunged into yet another new crisis by remarks by the German establishment in a month or two’s time.