German debt cancellation shows equitable way to solve Europe’s crisis
German, Irish, Spanish and British debt campaigners tell Troika: ‘learn from history’
Campaigners have marked the sixtieth anniversary of Germany’s historic post-war debt cancellation by demanding an end to the policies being imposed on indebted countries by the International Monetary Fund and European Central Bank. German, Irish, Spanish and British campaigners have said Germany’s 1953 debt cancellation, agreed by countries including the US, UK, France, Greece, Spain and Pakistan prove that the Troika’s policies in Europe will continue to have a disastrous impact.
The debt cancellation contrasts markedly with how debtor countries such as Greece, Ireland and Spain are being treated today, including by Germany, their largest creditor. While Germany was given deep, comprehensive debt cancellation, peripheral European countries today have been had very late, fragmented and shallow relief. While Germany’s debt repayments were limited to 3% of export earnings, Greece today is spending 30%. While Germany was offered negotiation to deal with further problems, southern Europe has faced harsh and undemocratic sanctions.
Nick Dearden, Director of Jubilee Debt Campaign, said:
“The debt deal made with Germany in 1953 meant western Europe was reconstructed successfully and thrived. Today Europe has been forced into its worst crisis since the Second World War by the actions of Europe’s leaders.
“If we had no evidence of how to solve a debt crisis equitably, we could perhaps regard the policies of Europe’s leaders as misguided. But we have the positive example of Germany 60 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.”
1) Swift debt cancellation
The debt cancellation for Germany was swift, taking place in advance of West Germany struggling to pay its debts. In contrast, when Greece’s huge debts were revealed in 2010, rather than any being cancelled, the IMF and EU gave bailout loans. This paid off some of the reckless lenders, but the debt remained, and rapidly grew as austerity and debt payments crashed the economy.
2) Limited repayments
There was a clause which said West Germany should only pay for debts out of any trade surplus, and limited payments to the equivalent of 3 per cent of exports earnings every year. This meant those countries owed debt had to buy West German exports in order to be paid. And ensured West Germany only paid for debts out of genuine earnings, rather than through taking out new loans, which sustains the crisis for years to come.
The ‘strategy’ in Greece, Ireland, Portugal and Spain today is to put the burden of adjustment solely on the debtor country to make its economy more competitive through mass unemployment and wage cuts. This austerity has shrunk economies and made countries less able to pay debts. And without creditors like Germany willing to buy more of their exports, this masochism is all pain and no gain.
3) Inclusion of all creditors
The German debt reduction applied to all creditors, whether governments or private individuals and companies. In contrast, in 2011, discussions belatedly began on writing-off some of the Greek debt to private creditors. A limited agreement was finally reached in March 2012. But it only covered private creditors; by this stage the bailouts meant much of the debt was now owed to the IMF and EU.
Moreover, holders of Greek debt issued under British and Swiss law have been able to avoid the deal, and are still getting paid in full. Many of these are vulture funds, who bought the debt cheaply when the country was on the verge of defaulting, and are now making huge profits out of the Greek people.
This briefing has been produced with the assistance of the European Union. It is the sole responsibility of Jubilee Debt Campaign and can in no way be taken to reflect the views of the European Union.