Germany has forgotten its own debt relief

Criticism of the Greece government’s hard line on debt is based on the idea that Greece expects other euro-zone countries to underwrite their decades of unrestrained profligacy. This is simplistic.

The EU can’t have it both ways. If its attitude is ‘united we stand’, it would be more honest of them to admit that a sizable proportion of Greek debt is relates to private banking, much of this British, French and German. They won’t admit this, because it would upset the ‘bigger players’. It’s instructive to recall that, 62 years ago this month, creditors of post-World War 2 Germany met in London and agreement to cancel 50% of its debt. Despite what was inflicted upon Greece during the war, Greece it agreed to this deal.

Private as well as public debts were cancelled at that time and the deal covered all creditors. The idea being that with a stronger German economy Europe as a whole stood to gain. In express consideration of this, a somewhat generous clause in the agreement allowed that West Germany only pay for debts out of its trade surplus, and these repayments were limited to a maximum 3% of exports earnings every year. As a result, West Germany’s creditors had to buy West German exports in order to be paid, resulting in West Germany only being required to make recompense from genuine earnings, without recourse to new loans. And it meant Germany’s creditors had an interest in the country growing and its economy thriving.