Germany got a debt writedown: Why not Greece?

After World War One, the Allies were saddled with war debts to the United States that were beyond their ability to pay.

Herman Josef Abs, center, representing Federal Republic of Germany, signs a 1953 agreement cutting Germany's debts to foreign creditors in half.

Herman Josef Abs, center, representing Federal Republic of Germany, signs a 1953 agreement cutting Germany’s debts to foreign creditors in half.

They hoped to get the money out of Germany, which was obligated to make reparations payments beyond that nation’s ability to pay.

Eventually Germany defaulted on its obligations to the Allies, and the Allies defaulted on their obligations to the USA and its bankers—but not in time to prevent the onset of the Great Depression and the rise of Adolf Hitler.

After World War Two, the Allies learned their lesson.  They allowed the German government [1] to write off half its debts.

If this hadn’t been done, the postwar German economic miracle might not have taken place, and the recovery of Europe as a whole would have been delayed.

Today Greece has more debt than it can repay.  Eventually there is going to have to be a write-down of this debt.

The question is whether the Greek population will have to be reduced to poverty and Greek national assets sold off at bargain prices before this happens.

The same question will arise soon in regard to Ukraine, which also owes more to the International Monetary Fund and Central European Bank than it can ever repay.

If the U.S. government wanted to befriend Ukraine or, for that matter, Greece, it would do better to help the new government get some debt relief than by sending it weapons and advisers for waging war against its rebels.

The reasons Greece got into trouble are many, and I don’t know enough to say which are the most important.

One of the causes is that a previous Greek government cooked the books to make the Greek government appear more solvent than it was.

The individuals who did this should face criminal charges.  Instead the punishment is being meted out to the Greek population as a whole.

Then there is the question of German reparations to Greece.  During World War Two, when the German Army occupied Greece, the Greek Central Bank was forced to lend the Germans 476 million reichsmarks at zero percent interest.

In 1960, Germany [1] paid Greece 115 million marks as compensation for Nazi crimes.  The Greeks said this was only a down payment, but the German government since then has said the case is closed.

In short:  There is a long history of government default on debts that can’t be paid.   Governments like individuals have a responsibility to make a good-faith effort to pay their debts, but this is not an obligation that overrides their responsibility to serve the best interests of their people.  Bankers, too, have an obligation to consider risk before they lend money.   They should not expect to be bailed out no matter what.


‘Germany Has Never Repaid Its Debts.  It Has No Right to Lecture Greece’ an interview with Thomas Piketty by Die Zeit  (translation via The Wire)

Piketty’s argument about Greece’s debt has 3 massive holes in it by Max Bird for Business Insider.

An inconvenient historical truth by David Ruccio for occasional links and commentary.  Reply to Max Bird.

Germans Forget Postwar History Lesson on Debt Relief in Greek Crisis by Eduardo Porter for the New York Times.

The Financial Attack on Greece by Michael Hudson.

 [1]  The German Federal Republic, which governed West Germany, assumed the obligations of Germany as a whole.

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