By Mike Bird of Business Insider. Excerpts:
"Piketty examines the German situation and sees a big reduction
in national debt. He says: "After the war ended in 1945, Germany's debt
amounted to over 200% of its GDP. Ten years later, little of that
remained: public debt was less than 20% of GDP."
But for starters, Germany's debt was not meaningfully worth
200% of its gross domestic product, because it wasn't servicing it. In
fact, it hadn't been doing so for about two decades. In the early years
of the Nazi government, Germany defaulted on most of its foreign loans.
What's more, a huge event is completely
ignored here. In 1948, Germany reformed its currency in a spectacular
fashion, giving birth to the Deutsche mark. The change wiped out "approximately
90% of Germany's cash holdings and deposits," according to economist H.
J. Dernburg, who was writing in 1954. It was that event, not the 1953
agreement, that provided the most dramatic reduction to German debt
levels — but not without the extreme pain for anyone with any savings.
The equivalent for Greece would be returning to the drachma (or some
other new currency) and enacting colossal haircuts on private deposits,
the very thing the current discussions are aimed at avoiding."
"Yale economic historian Timothy Guinnane noted
in his own paper
that "from the viewpoint of 50 years later it is probably difficult to
imagine that Germany was viewed at the time as an international
deadbeat." One of the reasons a 50% reduction in debts appears so large
is precisely because the government had been in a state of nonpayment
for so long, and the creditors didn't ask for 20 years of
compound-interest payments.
Greece has not been in default for 20 years, and the actions of its
creditors, even when misguided, have been directed toward resuming the
Greek government's access to international capital markets (while
reducing what they are owed as modestly as possible) on much the same
terms as it did before 2010."
"One element of the deal with Germany certainly looks inviting from the
Greek perspective. Repayments were intended to be loosely tied to
Germany’s ability to produce a trade surplus.
So the idea was that Germany would repay debt only so long as it was internationally competitive.
But unlike in Greece, that was a realistic prospect. German exports
by 1953 were already 58% larger by volume than they had been in 1938,
the last prewar year. The country had started to generate surpluses (and
still does), and it kept repaying."
"By contrast, Greece is a deficit monster. That's something that was
undoubtedly exacerbated by the euro (which is too strong for Greece and
encourages the country to import goods from countries with cheaper
currencies). Even after five years of severe depression has slashed the
country's import demand, it is still running a trade deficit — importing more than it exports —because the euro is so strong.
But even when the country had the drachma, its economic history was
plagued by a chronic and constant imbalance that favours imports over
exports. It would be fair to conclude from the perspective of Greece’s
creditors that, with drachma or without drachma, the country will not
turn itself into a trading powerhouse.
West Germany didn't even get a clear guarantee on the fact that it would repay only if it ran a trade surplus."
"Piketty argues that the post-WWII period can be compared with the post-financial-crash period today:
To deny the historical parallels to the
postwar period would be wrong. Let's think about the financial crisis of
2008/2009. This wasn't just any crisis. It was the biggest financial
crisis since 1929. So the comparison is quite valid. This is equally
true for the Greek economy: between 2009 and 2015, its GDP has fallen by
25%. This is comparable to the recessions in Germany and France between
1929 and 1935.
But Guinnane rightly argues there were two unique circumstances in 1953, neither of which are true of Greece today:
- "Increasing tension with the
Soviet Union had led to a strong desire to rebuild a sound, democratic
Germany. Harsh repayment terms would not serve that end."
- "Prior to World War I, the German
economy was central to the European economy as a whole; a healthy Europe
could not exist alongside a sick Germany. The same held true after
World War II."
West Germany would prove to be a useful ally, economically and
politically, against the Soviet Union. Greece's international position
is of no such use — even if its European creditors had significant
geopolitical goals, which they don't seem to. The creditors in 1953 were
reaping a benefit in kind by reducing the debt, because German
economic growth could be funneled into military expenditure. They were
the country's occupiers, and to defend Europe they would otherwise have
to make that spending themselves.
On the second point, though ministers in the current government
believe a Greek exit from the eurozone would be disastrous for the
entire union, that's extremely dubious. Greece is not at all central to
the health of Europe's economy in general."
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