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In February 1953 the allied powers cancelled part of Germany’s debt. What about Greece?
by Eric Toussaint , Hervé Nathan
24 February 2019

The following interview of Eric Toussaint by the French weekly Marianne was first published in February 2015. It remains just as relevant in 2019 on the anniversary of the London Agreement on German External Debts of 27 February 1953 which enabled Germany to benefit from the cancellation of more than 60% of its debt. Many Greeks still claim that they should receive war reparations from Germany as well as repayment of the debt that the Nazi régime contracted with the Bank of Greece in 1941.

Eric Toussaint interviewed by Herve Nathan, of the French weekly Marianne

Marianne. When it came to power, the SYRIZA party referred to the cancellation of German debts in the context of the London agreement some sixty-two years ago (27 February 1953). We were reminded that the Federal Republic might owe huge amounts to Greece… Can you explain?

Eric Toussaint. Actually there are two different kinds of debt. The first is the result of the war loan bonds that the Nazi occupiers forced on the Greek government between 1941 and 1944, some 476 million Reichmarks (the German money of the time) making Greece pay the cost of its occupation. This loan has never been repaid. With a moderate interest rate of about 3% a year this debt, the repayment of which has been requested by several Greek governments, would amount to €12 to €15 billion today, which may be compared to the €15 billion that Berlin agreed to loan to Greece at an interest rate of 4.5% as part of the first memorandum in 2010. Today the German government is Greece’s creditor for €15 billion [and vice versa]. On the other hand the Federal Republic of Germany did not have to pay for war damages to countries that were occupied by the 3rd Reich. Along with Poland and the USSR, Greece was one of the countries that suffered the most, much more than France, Belgium or the Netherlands. If we add up the 1941 war loan and war damages Germany owes between €100 and €200 billion to Greece, between one or two thirds of Greece’s current public debt…

This is huge indeed, and we may wonder to what extent Greek people are aware of this German debt.

Greece never formally relinquished its right on this debt. During the 1953 London conference on the German debt, compensations for WWII war damages were left to be settled in peace treaties between Germany and the countries that had won the war, and because of the Cold War with the Soviet bloc they never materialized. In 1981, when Greece joined the European Community (now the European Union), the government, led by PASOK didn’t raise the issue, since the country benefited from substantial European structural funding. But the 2010 crisis and the very harsh conditions enforced by lenders including Frau Merkel’s Germany have brought the issue back into the political limelight!

Greece has thus been treated very differently from the Federal Republic of Germany…

Indeed. During the London conference The young Federal Republic’s creditors examined debts accumulated by Germany since the 1920s (including those that were to stand for WWI compensations as enforced by the Versailles treaty) and those contracted between 1945 and 1953. Signatories, i.e. Western allies (the US, France, the UK...) not only reduced West Germany’s debt (interests and capital) by 62.5%, but they also created the conditions that permitted the country to recover as rapidly as possible. Repayments were not to exceed 5% of export revenues, interest rates were between 0.5% and 5%, and the public debt could be partly repaid with German money (deutschemark), which was of little value for international transactions at the time. It meant that creditor countries (Belgium, France, the Netherlands, the US) could only use those revenues to buy German goods. In this way they contributed to the fast recovery of German corporations such as Thyssen, Siemens, IG Farben…, those very corporations who had helped the Nazi war effort in the first place. The German debt served to develop the export market for the country. Finally creditors’ disputes were to be taken to German courts. All the opposite of what the EU, the ECB and the IMF imposed on Greece.

Sure, but the London agreement was part of a wider legal and ideological context, to assure Western Europe’s economic recovery …

Germany had to be reconstructed as fast as possible as a bulwark against the Soviet bloc. The means were found to help allied countries, France, Belgium and the UK also had US debts cancelled and $13 billion were granted as part of the Marshall Plan assistance (worth about $100 billion today), including $1.5 billion for Germany ($10 billion today). This gesture resulted from considerations developed by the Roosevelt administration before Europe was liberated on the advisability of awarding loans or grants. The US had decided for grants so as not to compel European countries to export their goods to the US in order to obtain the dollars they needed to repay their debts. This was a generous decision, but actually a protectionist measure. US companies would not have to compete with European goods in their home markets. Grants on the other hand would make it possible for them to sell their machine tools, assembly lines, or farming equipment to West Europeans, thus maintaining full employment in the US, as had been the case since 1942. The choice proved favourable to all until the mid-1950s. The lesson to be drawn from that era is that prosperity has to be shared.

Is this what is called a virtuous circle?

Exactly. Lessons had been drawn from the terrible mistakes of the Versailles Treaty and of the policies in the 1920s, as shown by John M. Keynes. It was also a time of regulation. In 1944 the IMF was created to supervise the stability of monetary exchanges and control capital flows; the World Bank was to finance economies that had to start anew. This would result in the boom decades after 1945, thirty years of economic growth and full employment in the Western world, while the EU today is caught in a downward spiral because of its restrictive policies, its insistence on fiscal balance, lower and lower wages, the irrevocability of debts, and because it comforts stronger economies at the expense of weaker ones.

But why do the Germans cling to these policies when their failure is so obvious?

Angela Merkel clings to this absurd logic because she considers that Europe, with Germany at its hub, must be more competitive than the US, China or any other emergent country (Russia, Brazil, India). She has one objective: take wages to even lower levels and reduce more workers to poverty, in and outside Germany. Matteo Renzi in Italy and François Hollande in France do not challenge this position. They actually duplicate the Harz reforms that were the undoing of the German social model from 2003-2005. In Italy with the Law on Labour, and in France with the ‘Macron’ law, they just demand less fiscal efforts.

However, is it a good thing for the SYRIZA leaders, who wish to negociate with the EU, to bring up Second World War issues? Isn’t it like telling them: you must pay for your past mistakes?

German people are not responsible for the Nazi regime. There is is no ‘collective debt’ of the Germans’. On the other hand it is unacceptable that Angela Merkel and Wolfgang Schäuble should present their demands on the Greeks as “generous”. With the Greek crisis the cost of Germany’s 10 year government bonds fell from 3.4% in 2010 to 0.4% in 2014. This 75% cut allowed Germany to save €63 billion, because the markets did not want to take any more risks and rushed to buy ‘Bunds’. This is also true for France. The German government, the ECB, or the IMF, whose Managing Director Christine Lagarde claims that debts have to be paid, manipulate public opinion. Michel Sapin has the same discourse. Citizens have to be mobilized so as to keep Greece on its knees. Conservative leaders want to defeat Tsipras so as to prevent the Spanish people from electing Podemos at the end of the year. Economists falsify history when they claim that the euro crisis started because of Greece. Greece was indeed the weaker link but it was the euro zone that had been badly designed in the first place. From the moment the euro was introduced significant money transfers from countries of the North to countries of the South (Portugal, Greece, Italy, Spain) were replaced by loans from major banks in the big countries (Germany, France, Italy…) to countries at the periphery. Banks grabbed mortgages and thus blew up the speculative bubble until it exploded. In 2012 the Greek debt was restructured and bank loans were replaced by loans from governments, i.e. from taxpayers. And this money - €240 billion – was used to repay the financial institutions in the North…

Translated by Mike Krolikowski and Christine Pagnoulle


Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

Hervé Nathan