How Changed Genrman Economy After Greek Pay Debt
Six decades ago, an agreement to cancel one-half of postwar Federal republic of germany's debt helped foster a prolonged catamenia of prosperity in the war-torn continent. The new government in Athens says Greece – and Europe – now need a similar deal.
When discussing Greece's whopping $310 billion debt, the country's new Prime Minister Alexis Tsipras likes to recall a fourth dimension when Europe'due south keen debt offender was not Greece, but Germany, today'due south paragon of fiscal responsibility. The leader of the radical-left Syriza political party refers in particular to an international conference held in London in 1953, during which West Germany secured a write-off of more than than l% of debt, accumulated after two world wars. Dorsum then, with memories of Nazi atrocities still fresh, many countries were reluctant to offer such generous debt relief. Only the US persuaded its European allies, including Hellenic republic, to relinquish debt repayments and reparations in order to build a stable and prosperous Western Europe that could incorporate the threat from Soviet Russian federation.
"Tsipras is right to remind Germans how well they were treated, with both debt relief and coin from the Marshall Plan," says Professor Stephany Griffith-Jones, an economist at Columbia University, referring to the US programme to assist rebuild European economies afterward Earth War Ii. She believes Greece is justified in demanding a more generous arroyo from its creditors, despite obvious differences between its current plight and that of war-ravaged Germany. "In fact, Greece's situation is perchance more urgent because the pressure from markets and the financial sector is so much stronger than in the 1950s," she says.
West Frg's debt at the time was well below the levels seen in Greece today. But German negotiators successfully argued that information technology would hinder efforts to rebuild the country'southward economy – much equally Greek governments have in recent years, in vain. Under a crucial term of the London Understanding, repayments of the remaining debt were made conditional on Westward Germany running a trade surplus. In other words, the German government would only pay dorsum its creditors when it could beget to – and not by borrowing even more coin. Reimbursements were as well limited to 3% of consign earnings. This gave Deutschland's creditors an incentive to import German goods so they would later get their money dorsum, thereby laying the foundations of the country's powerful export sector and fostering its so-chosen "economic miracle".
Deutschland 'the biggest debt transgressor'
"Germany's resurgence has only been possible through waiving extensive debt payments and stopping reparations to its Globe State of war Ii victims," economic historian Albrecht Ritschl told Der Spiegel in 2011, describing Germany as "the biggest debt transgressor" of the past century. "During the 20th century, Frg was responsible for what were the biggest national bankruptcies in recent history," Ritschl said, pointing to the collapse of the German language economy in the early 1930s, which sent shockwaves through global markets. "It is only thanks to the United States, which sacrificed vast amounts of money afterwards both World War I and World War 2, that Germany is financially stable today and holds the status of Europe's headmaster. That fact, unfortunately, oft seems to be forgotten."
In recent years, Greece has been subjected to a very different treatment, described by some as "shock therapy". In return for two bailouts worth €240 billion, the land was forced to impose brutal spending cuts and tax rises that, critics say, effectively killed off any chance of economic recovery. Only 10% of the bailout money made information technology into public spending, with the residuum going to debt repayment. What fiddling money the land made was used to service the interest on its debt, which has actually grown larger equally a per centum of GDP considering of the shrinking economy. After a 6-year depression, industrial output has fallen by a third and millions have been pushed into poverty, with niggling or no prospect of living standards returning to pre-crisis levels in the near future.
As unemployment skyrocketed in Greece, so did anti-High german sentiment among the population, with anger at Germany's insistence on austerity mingling with residual resentment of its part during the war. Once again, the London Agreement is at the heart of the dispute. Dorsum in 1953, the money Greece gave up included a loan extorted during the gruesome Nazi occupation of the country, when thousands of resistance fighters and civilians were murdered and hundreds of thousands starved to death. Even before Syriza's balloter triumph, Greek newspapers were brimful with calls for Germany to repay the loan, the verbal amount of which is a affair of historical dispute. Estimates range from $24 billion to five times the amount. While few Greeks await Berlin to pay up, many believe that Frg was let off the claw after the war and should now exist more generous in Greece'south hour of need.
Lessons forgotten
Alexis Tsipras'due south determination on Tuesday to lay a wreath at a memorial to Greek communists murdered by the Nazis, in his very first outing equally prime minister, was widely interpreted as a reminder of Germany'southward historical debt towards Greece. But Greece'due south new leader has not built his case for debt relief on the debatable premise that his country "deserves" it. He believes a write-off of at least part of Europe's unsustainable debt is, ultimately, in anybody's interest. A growing number of economists share this view. Syriza and its Spanish marry, Podemos, were recently singled out as the but European parties currently backing "sensible policies such equally debt restructuring" in a widely quoted article by the Financial Times. "The tragedy of today's eurozone is the sense of resignation with which the establishment parties of the heart-left and the centre-correct are allowing Europe to drift into the economic equivalent of a nuclear wintertime," the article read, warning of decades of economic stagnation if Europe insists on using austerity as the sole remedy to its debt crunch.
The dissimilarity between the postwar write-off of German debt and today'southward intransigence is a measure of how much economic thinking has inverse since the London briefing. "The lessons of Keynesian economic science virtually how to respond to economic crisis accept been forgotten," says Professor Griffith-Jones, likening the present treatment of Hellenic republic to the drastic belt-tightening imposed on Latin American countries in the 1980s. "It was only when debt relief kicked in that the state of affairs improved in Latin America," she says, adding that Greece'south new government "likewise needs some breathing space to boost spending and promote economic growth". Indeed leaked minutes of IMF meetings in 2010 have shown that Latin American countries expressed serious misgivings almost putting Hellenic republic through the aforementioned ordeal.
Though crediting the German language government with having helped save the euro, the Columbia professor says European policymakers have lost touch with the "vision of peace and prosperity" that underpinned the European Union and inspired negotiators in 1953. The view at the fourth dimension was that the punishing terms imposed on Federal republic of germany by the 1919 Treaty of Versailles had scuppered the state'due south chances of recovery and favoured the rise of Nazism. Half-dozen decades later, that lesson has been largely forgotten. Warnings that the austerity imposed on fragile economies in the wake of the 2008 financial crunch could lead to similar upheaval take fallen on deaf ears. Mercifully, a new ruling party with a progressive agenda has emerged from the ruins of Hellenic republic's economy. But the third place secured in Sunday'due south snap election by Golden Dawn, a neo-Nazi party, and the ascent of xenophobic parties across Europe offer a reminder that things could have gone – and indeed may yet go – very differently.
Source: https://www.france24.com/en/20150129-london-agreement-1953-debt-write-germany-economic-miracle-greece-austerity
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