How Europe cancelled Germany’s debt in 1953 – Wake Up From Your Slumber !

The 1953 London Debt Accords show that European leaders know how to resolve a debt crisis in the interests of justice and recovery. Here are four key lessons for Greece’s debt crisis today.

On 27 February 1953, an agreement was signed in London which resulted in the cancellation of half of Germany’s (then West Germany’s) debt: 15 billion out of a total of 30 billion Deutschmarks.*

The German delegation signs the London Debt Accords on 27 February 1953. Photo: German Federal Archives

The German delegation signs the London Debt Accords on 27 February 1953. Photo: German Federal Archives

Those cancelling the debt included the United States, the UK and France, along with Greece, Spain and Pakistan – countries which are major debtors today. The agreement also included private individuals and companies. In the years following 1953 other countries signed up to cancel German debts, including Egypt, Argentina, Belgian Congo (today the Democratic Republic of Congo), Cambodia, Cameroon, New Guinea, and the Federation of Rhodesia and Nyasaland (today Malawi, Zambia and Zimbabwe). (1)

The German debt came from two periods: before and after World War II. Roughly half of it was from loans Germany had taken out in the 1920s and early 1930s, before the Nazis came to power, which were used to meet payments ordered by the Treaty of Versailles in 1919. They were a legacy of the huge reparations forced on the country after defeat in World War I. The other half of the debt originated from reconstruction following the end of World War II.

By 1952, Germany’s foreign-owed debt was around 25% of national income. This is relatively low compared to debtor countries today: Spain, Greece, Ireland and Portugal’s debts to foreign lenders are all over 80% of GDP. But West Germany had to undertake huge reconstruction following the war, and foreign currency with which to pay foreign-owed debts was scarce. The German delegation at the conference convincingly argued that its debt payments would rise sharply in the near future, and that this would significantly hinder reconstruction. Following the debt cancellation, West Germany experienced an ‘economic miracle’ with large-scale reconstruction, and high rates of growth in income and exports. This stability contributed to peace and prosperity in western Europe.

via How Europe cancelled Germany’s debt in 1953 – Wake Up From Your Slumber !.

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