Time to copy 1953 German Debt Write-Off?

golfwallah

There an interesting article in last Saturday’s Irish Times about the International agreements reached following the 1953 London Conference, amongst other things, to write off more than 50% of Germany’s post war debt, in the interest of peace and prosperity in Europe:

The final deal wrote off more than half of Germany’s debts, stretched out repayments on the remainder for 30 years and agreed that, from 1953 to 1958, Germany would only make interest payments. Finally, it was agreed that repayments in any given year should not exceed 5 per cent of Germany’s trade surplus. The agreement was a success – Germany paid off its remaining debts on time and with great ease and its economy rebounded to become the strongest in Europe.

Fear of the rise of extremist political parties is now prompting Greeks proposals for a “European Debt Conference” and similar plan for today’s national debts of EU states.

The IT article points to how this agreement was a success and, although Greece’s debt as a proportion of GDP is higher than was Germany’s in 1953, there is good cause to believe that a similar approach would also work today. Many we should support this Greek plan?

BoJack Horseman

No.

It was generations of feckless, haphazard & corrupt non-tax collection, coupled with similarly short sighted expenditure that got Greece into its mess.

Though they are now back in a primary surplus, the opposition are keen to seize power & let the bad times roll again.

They already received a near 50% write down on private held debts, why give them another deal when they are itching to explode their deficit again?

Germany learned its lesson.
Greece seems desperate to forget theirs.

hmmm

Don't be silly BoJack, if Greece receives yet another round of debt forgiveness they will invest their future national income like the Germans of 1953 only into productive investments, and will maintain spending discipline - including limiting wage increases, controlling the size of their public service and sacrificing short term income for long term social benefits. The Greek people will also elect largely non corrupt politicians, and will not elect politicians who promise them endless amounts of social welfare and state jobs financed by foreign borrowings.

Actually, on second thoughts, you are right. If Greece wants to default, let them - and let them take the consequences rather than asking the rest of us to subsidise their overspending.

golfwallah

Looks like the Germans are leaving the door open to some easing of the Greek debt situation, provided they stick to agreed austerity measures, according to this Bloomberg Businessweek article:

Germany is leaving the door open to discussing debt relief with Greece’s next government, lawmakers in Chancellor Angela Merkel’s coalition said, signaling a more flexible stance than her administration has taken publicly.

While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country’s parliamentary elections on Jan. 25, the lawmakers from Germany’s two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said.

Presumably this to try to keep them in the Eurozone and to avoid default and possible "contagion" to bigger fish like Italy, where the Debt to GDP ratio is around 130%. Another justification for QE, I guess - and, like another poster has said, we all get to pay for it - like it or not!

BoJack Horseman

Its a reasonable position for the German parties to take I think.

Whatever remortgage or stretched terms idea they offer, what must absolutely remain a redline is a pimary budget surplus.

So long as Greece achieves primary surplus or balance, I'd be amenable to them extending the terms of their loans and/or interest rate alleviations.

But the quid pro quo Clarice, must remain fisical discipline.

golfwallah

The Greek situation brings the frailty of the whole Euro project back into the headlines and seems to be prompting the Germans to lighten up a bit on QE and yet more aid to Greece. This is likely to be followed by similar deals to other states that entered into Troika type rescue programmes, such as ourselves!

It's not that long since people were thinking of ways to reduce their exposure by getting their savings out of Euro into perceived less risky non-Euro investments.

On a positive note, it could bring the concept of an effective single supervisory mechanism for banks in the Euro area, back into focus for more progress to be made by Eurozone political leaders.

golfwallah

BoJack Horseman wrote: »

No.

It was generations of feckless, haphazard & corrupt non-tax collection, coupled with similarly short sighted expenditure that got Greece into its mess.

Though they are now back in a primary surplus, the opposition are keen to seize power & let the bad times roll again.

They already received a near 50% write down on private held debts, why give them another deal when they are itching to explode their deficit again?

Germany learned its lesson.
Greece seems desperate to forget theirs.

So, what do we do to get European economies going again?

Is the price of Greece (and others, including ourselves) learning lessons, to be continued economic down-spiral, where the ordinary citizen has no money to spend because of high rates of taxation?

Is the price to be paid to be the emergence into power of extreme parties of either right or left because they appear to be listening to the frustrations of ordinary folk, who are sick and tired of austerity, and offering seemingly better alternatives?

I agree, there that deals which will allow states to continue spending on short-term current spending will not provide long-term solutions. Ordinary citizens have less and less to spend and are postponing spending because of falling prices. Governments can’t spend on capital projects because they are borrowed to the hilt and already spending too much on current account.

But something needs to be done and it will have to be at the highest EU level, as over-borrowed Eurozone states have lost their ability to stimulate their economies – all they seem able to do is implement austerity - indefinitely.

FDR did it in the US in the 1930s, with massive federal capital programmes to promote long term growth and prosperity (Hoover Dam, etc.).

The question is, who can do it in Europe right now? Maybe forthcoming elections will stimulate change? Food for thought in this David McWilliams article.

hmmm

golfwallah wrote: »

as over-borrowed Eurozone states have lost their ability to stimulate their economies – all they seem able to do is implement austerity - indefinitely.

Where do you stop with somewhere like Greece (or even Ireland)? If we give them ever more loans, it will be used to pay civil servants more money, which is spent on imported goods or foreign holidays. This isn't stimulating their economy, it's using borrowed money to buy votes.

Handing money over to the people of countries who frankly are too immature to spend it wisely is a waste. What might not be a waste is to increase the funds available to institutions like the EIB which could invest funds on a Europe-wide basis in infrastructure.

Voltex

Greece took out a whopper payday loan to go on a holiday.
Germany got a whopper fine for acting the bo ll ix!!

Both took the p iss...one took responsibility, manned up and took it on the chin!! The other is still like a deer in the headlights and still taking the p iss.

realitykeeper

golfwallah wrote: »

The IT article points to how this agreement was a success and, although Greece’s debt as a proportion of GDP is higher than was Germany’s in 1953, there is good cause to believe that a similar approach would also work today. Many we should support this Greek plan?

Rather than cherry picking from history to try get debt written off, I think the pigs ought to knuckle down to hard work and a reduction in the welfare state. Also, the only reason Germany had its "debt" in the first place was because it lost the war. Had the Germans won, the allies would have had to pay it.

WWII was Germany`s reaction to the injustices of Versailles so the allies were to blame for WWII.

BoJack Horseman

realitykeeper wrote: »

so the allies were to blame for WWII.

You were nearly there in making sense.

We've had some communist apologists on this forum.
A Hitler apologist is new though.

FreudianSlippers

hmmm wrote: »

Where do you stop with somewhere like Greece (or even Ireland)? If we give them ever more loans, it will be used to pay civil servants more money, which is spent on imported goods or foreign holidays. This isn't stimulating their economy, it's using borrowed money to buy votes.

Handing money over to the people of countries who frankly are too immature to spend it wisely is a waste. What might not be a waste is to increase the funds available to institutions like the EIB which could invest funds on a Europe-wide basis in infrastructure.

In fairness, Ireland is no longer getting loans from the Troika and our bond yields are very good in comparison to Spain, Italy and particularly Greece.

I understand your fundamental question, but you can't have both more sovereignty and less sovereignty at the same time. I'd have welcomed the Troika staying until 2015/2016, but most people were itching to see the backs of them.

Good loser

Heard the German professor on PrimeTime last night.

Seemed to make sense - he opposed QE generally - pointed out the difference between UK, US and EU. His observation on the oil price was reasonable. Perhaps what's needed is for low commodity prices to wash through. Also it's possible EU economies are naturally slow because of high dependency rates?

Another guy on RTE said the US program for QE worked in practice though the theory didn't match!

Could it be that for the US and UK to grow (along with China, India and others) others such as EU must be quiet?

The trio of Irish economists on the PrimeTime panel all disagreed strongly with the German prof. A debate would have helped.

Voltex

Good loser wrote: »

Heard the German professor on PrimeTime last night.

Seemed to make sense - he opposed QE generally

Id say he was Austrian;).

Piliger

Good loser wrote: »

The trio of Irish economists on the PrimeTime panel all disagreed strongly with the German prof. A debate would have helped.

You can find economists to support any theory under the sun. Greece should pay it's debts and get on with it. Parasitic country.

shedweller

Piliger wrote: »

You can find economists to support any theory under the sun. Greece should pay it's debts and get on with it. Parasitic country.

Like where we paid OUR debts?

FreudianSlippers

shedweller wrote: »

Like where we paid OUR debts?

I'm a bit confused; are you suggesting we didn't?

Icepick

FreudianSlippers wrote: »

I'm a bit confused; are you suggesting we didn't?

2009 General Government Debt (€bn) -104.5
2015 (forecast) - 209.9

We've been paying interest .. like Greece.

antoobrien

shedweller wrote: »

Like where we paid OUR debts?

Icepick wrote: »

2009 General Government Debt (€bn) -104.5
2015 (forecast) - 209.9

We've been paying interest .. like Greece.

We've been rolling over bonds as they matured, i.e. the bonds that matured in 2013 & 2014.

Piliger

Icepick wrote: »

2009 General Government Debt (€bn) -104.5
2015 (forecast) - 209.9

We've been paying interest .. like Greece.

Which is our debts. Same as same as. Word games.

shedweller

Piliger wrote: »

Which is our debts. Same as same as. Word games.

Which debts are these? Paying back bondholders? Oh wait, we've already done that havent we. But we borrowed to do that, did we not?
And what is the figure on all the unpaid mortgages? That would be our debt wouldnt it?
Not some private institutions that lost some money on shares.

SpaceTime

To give you a comparison:


Greek 10 year bond : 9.09%
Irish 10 year bond : 1.07% (as at right now)
German 10 year bond : 0.40%
Switzerland 10 year bond -0.24% !!

In terms of investor confidence we aren't even in on the same planet as Greece at the moment.

Piliger

shedweller wrote: »

Which debts are these? Paying back bondholders? Oh wait, we've already done that havent we. But we borrowed to do that, did we not?
And what is the figure on all the unpaid mortgages? That would be our debt wouldnt it?
Not some private institutions that lost some money on shares.

Same as same as yet again. Word games. It is our debt and the OP is correct.

FreudianSlippers

shedweller wrote: »

Which debts are these? Paying back bondholders? Oh wait, we've already done that havent we. But we borrowed to do that, did we not?
And what is the figure on all the unpaid mortgages? That would be our debt wouldnt it?
Not some private institutions that lost some money on shares.

Can you name 5 first world countries for me that are in governmental surplus or aren't borrowing on the markets?

I think there is a general ignorance on boards of the basics of macroeconomics.

Dyr

golfwallah wrote: »

There an interesting article in last Saturday’s Irish Times about the International agreements reached following the 1953 London Conference, amongst other things, to write off more than 50% of Germany’s post war debt, in the interest of peace and prosperity in Europe:


Fear of the rise of extremist political parties is now prompting Greeks proposals for a “European Debt Conference” and similar plan for today’s national debts of EU states.

The IT article points to how this agreement was a success and, although Greece’s debt as a proportion of GDP is higher than was Germany’s in 1953, there is good cause to believe that a similar approach would also work today. Many we should support this Greek plan?

You're not allowed to draw comparisons between germanys debt write off and the current situation. You ask "Why not"? "Shut up that's why" is the answer.

According to our resident neo liberals anyway

shedweller

FreudianSlippers wrote: »

Can you name 5 first world countries for me that are in governmental surplus or aren't borrowing on the markets?

I think there is a general ignorance on boards of the basics of macroeconomics.

We were, until northern rock happened. Then the bondholders lost a lot but we paid them back. Or did that not happen?

View

Bambi wrote: »

You're not allowed to draw comparisons between germanys debt write off and the current situation. You ask "Why not"? "Shut up that's why" is the answer.

According to our resident neo liberals anyway

The debt written off at the 1953 conference was largely the debt imposed on Germany in the Versaille treaty in order to "punish" them for WWI.

Not even the Greeks are claiming their debt is comparable to that.

porsche959

View wrote: »

The debt written off at the 1953 conference was largely the debt imposed on Germany in the Versaille treaty in order to "punish" them for WWI.

Not even the Greeks are claiming their debt is comparable to that.

Germany has had debt written off many times. Its record is poor contrary to what the neo-liberal ECB apologists will tell you.

antoobrien

shedweller wrote: »

We were, until northern rock happened. Then the bondholders lost a lot but we paid them back. Or did that not happen?

The tax take plummeted in 2008, well before we actually put anything into the banks. Even then we didn't borrow money specifically for the banks until Noonan wound up IBRC.

GGD was about 209bn as of 30/12/2014, approx 40bn of that can be attributed to the banks. That leaves about over 150bn to explain.

SpaceTime

The EU is utterly shafting us on the interest rate though relative to Greece. We'll probably have to roll over those debts into bonds soon enough as the EU's giving us far worse rates than the market.

Also, Ireland owns quite a bit of Greek debt btw as oddly enough we actually borrowed as part of one of their EU bailouts i.e. we borrowed money to lend to them!
Default would actually quite possibly impact directly on us too! So, be careful what you wish for, we are bondholders.

We lent €345.7million (and possibly some more later) and Greece has paid us at least €25.96 million (not sure what mix of interest and capital that is.. I hope we didn't give them one of those Buy-to-let tracker mortgages!)

antoobrien

SpaceTime wrote: »

Also, Ireland owns quite a bit of Greek debt btw - default would actually quite possibly impact directly on us too! So, be careful what you wish for, we are bondholders.

Like the people of Wexford that got burned when Anglo was burned - the money behind bonds are backed by private pensions & savings accounts.