Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis

[brentspeak]

http://www.nytimes.com/2015/07/08/business/economy/germanys-debt-history-echoed-in-greece.html

Eduardo Porter
July 7, 2015

Germans Forget Postwar History Lesson on Debt Relief in Greece Crisis


In 1953, Hermann Josef Abs, center, signed an agreement that effectively cut West Germany's post-World War II debt in half.

As negotiations between Greece and its creditors stumbled toward breakdown, culminating in a sound rejection on Sunday by Greek voters of the conditions demanded in exchange for a financial lifeline, a vintage photo resurfaced on the Internet: Hermann Josef Abs, head of the Federal Republic of Germany’s delegation in London on Feb. 27, 1953, signing the agreement that effectively cut the country’s debts to its foreign creditors in half.

It is an image that still resonates today. To critics of Germany’s insistence that Athens must agree to more painful austerity before any sort of debt relief can be put on the table, it serves as a blunt retort: The main creditor demanding that Greeks be made to pay for past profligacy benefited not so long ago from more lenient terms than it is now prepared to offer.

(snip)

The recurring, historical pattern? Major debt overhangs are only solved after deep write-downs of the debt’s face value. The longer it takes for the debt to be cut, the bigger the necessary write-down will turn out to be.

Nobody should understand this better than the Germans. It’s not just that they benefited from the deal in 1953, which underpinned Germany’s postwar economic miracle. Twenty years earlier, Germany defaulted on its debts from World War I, after undergoing a bout of hyperinflation and economic depression that helped usher Hitler to power.

[WillyT]

1. HUGE K & R !!! - THANK YOU !!!

[Bad Thoughts]

2. No, Germany defaulted on its debt, causing hyperinflation

The German refused payments to the Allies, not because they couldn't pay, but out of political principle: their were unwilling to accept defeat. France and Belgium occupied the Ruhr. Berlin paid striking workers in the Ruhr with inflated currency.

[meow2u3]

3. That was after World War I

Germany, after WWI, was saddled with hyperinflation due to debt, including reparations, the Weimar Republic couldn't or wouldn't pay. We all know who sprung up because of such instablity.

[Bad Thoughts]

4. I was talking post-WWI, and Germany wouldn't pay

The Dolchstoss pushed each ministerial government to argue that it could not pay, when in fact Germany was better off than other European countries. It was still an industrial powerhouse; no fighting had taken place on its soil; and the government was making trade deals with the new Eastern European republics. Because of the Dolchstoss, Germans refused to acknowledge war guilt, which meant that government pursued policies that resisted the provisions of the Treaty of Versailles. It meant that they used every measure to avoid payment of the indemnity, but also refusal to recognize loss of territory (to Poland, for instance).

The problem of debt post-WWI was that a global chain of debt was created, leading through British banks and focused on French payments. The defense of France was costly, and much of its economy was ruined by the fact that fighting happened largely in France. The French governments could find no relief for their debts, and subsequently the only means of making payments was assuring that Germany continued to pay the indemnity.

Yes, debt relief was warranted. However, debt did not create Nazis, which is what the article is suggesting. The Dolchstoss predated Versailles.