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Friday, 20 June 2014 10:37

Germany was bailed out with Irelands help in 1953.

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Eaten bread is quickly forgotten.

Londoner Schuldenabkommen. London Debt Agreement 1953Londoner Schuldenabkommen. London Debt Agreement 1953Once upon a time, 1953 to be exact (the year I was born), Germany owed 32 Billion Marks from before the second World War (in fact as a result of the First World War) and after it, to governments and private sources. 

Between 27th February and 8th August 1953, there were discussions to try to reduce that debt.  The 26 parties that were involved included Belgium, Canada, Denmark, France, Great Britain, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Spain, Sweden, Switzerland, South Africa, the United States, and Yugoslavia and others. The states of the Eastern Bloc were not involved.

For your information, I have attached eight downloads.  They are at the end of the article above my photo.  Feel free to download them as you wish.

Roughly speaking, 32 billion marks in 1953 is about €500 billion today allowing for exchange rates and inflation.  So in comparison, the €86 billion of Ireland and €110 billion of Greece is chickenfeed.

The United States proposed debt forgiveness but other countries refused. Eventually, the US, Ireland, Greece and Spain agreed forgiveness.  Half the money was due from before the war and half after it. 

The money from before the war was from the 1920’s (after WW1) and Germany defaulted in the 1930’s from the Treaty of Versailles on 28th June 1919.  This was due to the economic crisis of 1929 and 1931.  But then Germany decided to pay the debt in order to restore its reputation under German Chancellor Konrad Adenauer.  The final €80 million was paid in October 2010 – 91 years later.  Germany was also charged 226 Billion Reichsmarks – later reduced to 132 Billion in compensation (mainly to Belgium and France whose towns, villages and cities were ravaged during the war) as compensation and punishment for WW1.

In 1990, Germany had a period of non payment, some may call it a default.  With the exception of compensation paid out to forced labourers, Germany did not pay any war reparations after 1990 - and neither did it pay off the loans and occupation costs it pressured out of the countries it had occupied during World War II. Not to the Greeks, either. 

And the Germans today have a bee in their bonnet about the €110 Billion to Greece and the €86 Billion to Ireland.

Germany was responsible for what were the biggest national bankruptcies in recent history. It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe's headmaster. That fact, unfortunately, often seems to be forgotten.”

The London Debt Agreement of 1953 included the 32 Billion Marks being reduced down to 15 Billion and prolonged over 30 years.  It was agreed that Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year.  This meant that the creditors had an incentive to buy German products.

In contrast to the 3% limit on German debt payments, today the IMF and World Bank regard debt payments of up to 15-25% of export revenues as being "sustainable" for impoverished countries. The Greek government's foreign debt payments are around 30% of exports.  The Irish government promissory note repayment is €47.9 billion (payments between 2011 and 2031) for bank bailout (Anglo/INBS) alone.  This is a whopping 30% of GDP.

The London Agreement significantly contributed to the growth of Germany’s post-war industry and allowed it to enter international economic institutions such as Gatt, the IMF and the World Bank.  For Germany, that was a life-saving gesture, and it was the actual financial basis of the Wirtschaftswunder, or economic miracle that began in the 1950’s. But it also meant that the victims of the German occupation in Europe also had to forgo reparations, including the Greeks.

German economic historian Albrecht Ritschl commented “Germany was responsible for what were the biggest national bankruptcies in recent history. It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe's headmaster. That fact, unfortunately, often seems to be forgotten.”

He goes on “Germany is king when it comes to debt. Calculated based on the amount of losses compared to economic performance, Germany was the biggest debt transgressor of the 20th century.” 

Albrecht Ritschl is unforgiving of Germany saying “In the 20th century, Germany started two world wars, the second of which was conducted as a war of annihilation and extermination, and subsequently its enemies waived its reparations payments completely or to a considerable extent. No one in Greece has forgotten that Germany owes its economic prosperity to the grace of other nations.”

He explained that if other countries raised old claims for repatriation and monies owed and if Germany was forced to honour them, it would be taken to the cleaners.

It could be argued today that Germany has a moral obligation to help.  The systems and structures in every country in the world are not perfect, least of all in Ireland, Greece and Spain.  And in Germany it wasn’t perfect throughout the 20th century, and indeed still isn’t today.  The rest of Western Europe in the 1950’s struggled with debts of about 200% of GDP. West Germany, because of the restructuring, enjoyed a debt of less than 20% of GDP.

In Irelands situation, it could be argued that the two situations are completely different.  The German bailout was as a result of wars.  The Irish was as a result of mismanagement and greed.  Not greed of everyone, but of the few.  But everyone has to pay and suffer.  Reckless politicians, lack of knowledge, even incompetence, is possibly financial treason and people should be brought before the courts.  Heads have to roll.

We have no guidance of how to solve a debt crisis equitably.  Are the policies of Europe's leaders, IMF and World Bank misguided?  We have the positive example of Germany 61 years ago, and the devastating example of the Latin American debt crisis 30 years ago. The actions of Europe's leaders are nothing short of criminal.

I can't say they all lived happily ever after yet. The Story continues. 

Read 41971 times Last modified on Monday, 23 June 2014 22:24
Robert Tallent

Bob is a Management Consultant, Mentor and Trainer. He is also an Entrepreneur from 1983 to the present day. Between 1983 and 1995 he ran four businesses with a turnover in excess of £1m. As well as having an Honours Degree in Business Studies, he is also an Industrial Engineer and managed a large department in a multinational with large budgets and responsibilities.

He studied to become a Management Consultant, Mentor and Trainer and setup The Synergy Group in 1995.

He has a huge range of business and management experience in practically every industry.

Call him privately on +353(0)87 232 6927

or email him on bob@synergy.ie

Main land line is +353(1) 821 5189

Website: www.synergy.ie
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