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A Short History Of German Debt Forgiveness … By Other Nations. Why Not For Greece?

By   /  June 30, 2015  /  34 Comments

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An entire Nation of people should not be made to suffer simply for the mistakes of a generation of politicians.

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Right now, a sovereign debt crisis is engorging Europe. You’ve all probably read about it, so the precise details don’t bear repeating here. But suffice to say Greece is left going “Join the Eurozone, they said. It’ll be FUN, they said!” while the rest of Europe (particularly Germany) looks on in abject horror at the prospect of a Greek collapse taking a large swathe of one of the world’s largest economies with it.

Into that miasmic malaise, as per usual, rode the horsemen IMF, ECB and E.U.. I believe they’re still waiting on Death to turn up and join them.

Instead of bolstering a struggling economy by transferring funds as a form of charitable “development assistance”, these institutions have made their loans to Greece conditional, for the most part, on the implementation of a far-right and fundamentally damaging economic agenda that is aptly known as “Austerity”.

This hasn’t exactly saved the Greek economy; and fed up with the tides of woebegotten misery inflicted upon them by their richer, more powerful neighbours … the Greeks recently en-masse economically revolted by electing radical left-wing party SYRZA to lead their Government.

Now, SYRZA are a pretty ballsy bunch – and from this commentator’s seat in the balmy neoliberal sub-tropics of the South Pacific, I’ve regularly found myself absolutely and abjectly CHEERING every time they swotted the nose of the Eurozone’s masters. Everything from demanding reparations from Germany for the last time they wrecked the Greek economy through to insisting on seeking a popular mandate for their economic agenda was pretty resoundingly awesome in my (admittedly little and red) book.

But some of the solutions to Greece’s sovereign debt crisis (and it’s multi-headed hydra enough as a problem to call for *solutions* in the definitive plural) need not be NEARLY so novel nor controversial.

For you see, this isn’t the first time Europe has dealt with a sovereign debt crisis in an economy starting with G.

Way back in the 1920s, during the time of much-mythologized hyperinflation and Cabaret-listening Weimar Democracy … it happened to Germany.


It first happened in 1923. Due to the way World War One panned out (with history, as per usual, being decided by the victors), Germany had been required to pay the victorious Allies an enormous sum totalling 132 billion gold marks (the equivalent of hundreds of billions of NZ dollars today). This, obviously, wasn’t entirely feasible for the cash-strapped and broadly ruined post-war German economy – and so they effectively defaulted on their reparations.

One thing lead to another, and Germany’s then-industrial heartland of the Ruhr found itself being jointly occupied by France and Belgium (the latter of which was presumably quite enjoying being an aggressive military power somewhere outside of Africa, for a change).

Predictably, the German economy suffered further as a direct result of the military occupation and the conditions imposed on Germany during same – leading to additional impairment of Germany’s ability to pay the much sought-after reparations.

The result of this ongoing farce was something called the Dawes Plan – a foreign fiscal intervention designed to put Germany back in a position to meet her reparations debt … by loaning money to her and externally imposing conditions on government fiscal and monetary policy.

Is this starting to sound familiar, yet …?

To be fair, softening the conditions of repayment down to a mere *billion* marks a year (and, y’know … de-occupying a large and important swathe of German economic activity) had some positive short-term effects. Getting Germany’s creditors off her back somewhat, and an influx of foreign money certainly staved off the very real prospect of fairly immediate and sharp continued economic decline.

And yet, it wasn’t enough.

By 1929, Germany was once again in danger of defaulting on its international debt obligations, requiring another reduction in the level of repayments and yet another round of international credit financing.

This was called the Young Plan – and despite being agreed immediately before that other great economic event of 1929, the Wall Street Crash – it pretty much never found itself implemented.

Ensuing events from 1933 onward featuring the popular election of a socialist government of a *decidedly* different stripe in Germany seemed to put the matter somewhat to rest.

But that wasn’t the end of it.

Recognizing that ruinously high levels of foreign debt would *not* be conducive to recovery, peace or stability in newly-re-democratized West Germany; in 1953 the victorious Western Allies once again forgave massive levels of German debt.

This resulted in a situation wherein Germany was able to steadily whittle down

The really interesting part of the 1953 Settlement was a clause which limited German debt repayments to a percentage of German trade surpluses. Or, in other words, a slice of what Germany’s creditor nations were buying off her in terms of exports.

Needless to say, this spurred German economic recovery by steadfastly encouraging the rest of the world to buy off the Germans – while also limiting what Germany would have to pay to her foreign benefactors to a reasonable and sustainable figure.


It’s just a pity there apparently isn’t the political will to continue to do this sort of thing today.

An entire Nation of people should not be made to suffer simply for the mistakes of a generation of politicians.

It may have taken quite literally thirty years, but eventually Germany’s creditor nations realized this themselves.

We can but hope that Germany eventually learns to look to the mistakes of her past and take heed of them when dealing with another nation in a similar position.

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"Part Apache; Part Swede. Part Attack Helicopter; Part Kitset Furniture."


  1. CLEANGREEN says:

    Good article Curwen, FJK studied this era also & is coping it here too as an unannounced Austerity on New Zealanders, while borrowing two hundred and fifty Million Dollars a week!

    After the first world war;

    “Germany had been required to pay the victorious Allies an enormous sum totalling 132 billion gold marks (the equivalent of hundreds of billions of NZ dollars today). This, obviously, wasn’t entirely feasible for the cash-strapped and broadly ruined post-war German economy – and so they effectively defaulted on their reparations”

    In Greece’s case; – “What’s Good for the goose is good for the gander to?

  2. As usual, brilliantly analysed, Curwen.

    What should be sobering is that Aotearoa is also in debt – $176 billion (approx) in private debt, and $60 billion (approx) sovereign debt. If there is a credit crisis, and loans are called in, we will be the Greece of the South Pacific.

    We are just better at masking this atrocious debt than our Southern European cuzzies.

  3. Gosman says:

    Who voted for those politicians election after election and who continued to avoid paying the taxes that they should have paid to enable the state to provide the payments that are now having to be cut? It wasn’t the ‘evil’ bankers. It was the Greek people.

    • You are suggesting an alternative to democracy, Gosman?

      By the way, I recall you supported state asset sales here in Aotearoa because people voted for National thereby “endorsing” the policy. Mixed messages much?

      • Gosman says:

        And you argued that they didn’t have a mandate even thought they won the election with that as their main platform.

        However in the Greeks case they are expecting to be able to vote for other nations to give them debt relief. Those other nations are not beholden to Greek voters. They do not have to give them debt relief simply because the Greeks want them to.

        • Andrewo says:

          The mandate that got them elected was to not pay their debt whilst somehow remaining in the Euro. Exactly how they were going to achieve this wasn’t specified…

          The Greek voters have got what they deserved – financial meltdown.

          I think that if they’d gone halfway and at least made an effort to sort out their mess, (like fixing the tax system and selling some assets to meet their short term debt) the other Europeans would have been more forgiving and made some compromises.

          Instead they’ve given the Europeans the Big Finger.

          • Will you be saying the same thing about our country, Andrew, if/when our massive debts send us crashing to the wall? You may not know this, but Aotearoa’s debt is on a par with Greece. Think about that next time you arrogantly suggest that “the Greek voters have got what they deserved – financial meltdown”.

            • Gosman says:

              The Greek debt crisis is about Sovereign debt (that owed by the Srate). NZ’S Sovereign debt is much less than Greece’s in terms of both GDP and size overall. Private sector debt is usually secured against assets so is more manageable. Countries don’t usually go broke as a result of private sector debt issues.

          • CLEANGREEN says:

            NZ is like Greece being spoon feed foreign loans to stay alive!!!

    • Win says:

      Greece shouldn’t have been allowed in the EU.
      Most of the money paid back goes to the banks.
      Greece’s economy is small. The govt wants a way to grow the economy, to pay back, not to destroy the economy through austerity.
      They will never be able to pay back the loans through austerity so the banks can asset strip the country.
      Many of us didn’t vote for National but we still have to live under them. Some people must be doing out of them for people to vote them in again and again. It certainly isn’t the country.
      They should change their name to Ukraine. The IMF is pouring money in there hand over fist.

  4. Mike the Lefty says:

    I can assume that the EU’s attitude is that if they let Greece get away with it, then others might try that path too. Open the floodgates, etc. It is also worth a reminder that the western nations, particularly the United States pumped a lot of money into West Germany to make it wealthy enough so that the Germans wouldn’t be tempted by communism. Can’t use that reason in 2015.

    • Andrewo says:


      Should Greece default, it may take some European banks with it.

      Now before you cheer and say “Down with the evil bankers!”, the bankers themselves will just step off the sinking ship and leave their investors to bear the pain.

      These investors include individuals savings, pension funds and the like.

      So will you be waving your red flag if it’s a French union pension scheme that’s wiped out? Or a European municipal pension?

      • Damn, Andrew, how on Earth did human civilisation ever rise from the caves/jungles, without your beloved bankers?!

        Honestly, my friend, I can’t understand why you are so protective of the 1%. ‘Cos you can bet your last euro that they don’t give a shit about you. (Except as cheap labour and consumer of shoddy products.)

      • ThinkAboutIt says:

        You are correct and that is why the whole affair stinks to high heaven.
        The GFC saw the Bankers and Investors effectively having their losses transferred to the taxpayers. These are the same vested interests who are forever proclaiming the virtues of the free market. From the second world war through to the stagflation of the 70’s the western economies prospered by way of mixed markets. Since that time the neoliberal philosophy has seen a steady erosion of equality, the pauperisation of the middle classes and a illusionary construction of private pensions.

        An addition to this crock of sh** has been the force fed Euro – this was rammed through without a democratic vote and against the advice of many respected economists. It is a strong possibility that tis over ambitious project will bring down the EU.

    • J S Bark J S Bark says:

      They certainly can’t Mike.

      And once again the Roman Empire under Uncle Sam takes its rightful place as world leader and world setter of standards.

      Holy crap these turds never stop do they?

      Considering their nation was built at the expense of indigenous Americans and on the backs of African slaves, as well as being settled by the garbage of Europe, they should be the last nation in the world to be dominating the world stage.

      Meanwhile the moneyed classes of old Europe bend over to make the insertion of American neo-liberal concepts easier.

      Shit, they deserve each other don’t they?

      • ThinkAboutIt says:

        Banking is a worth while and necessary function for a successful mixed economy.
        Banking where bad lending is underwritten by the state is destructive.

    • wild katipo says:

      Hehehehehe…..no , your quite right.

      This time round Greece has the confidence that if the western bankers want to play that game….there’s always ditching that crowd and joining the BRIC nations.

      Something that Gosman just cant see.

      • Gosman says:

        And yet Greece just asked the Euro zone members for another 30 billion Euros. Why didn’t they just get tag from the BRICS if that is what the want to do?

  5. In Vino says:

    All true, but maybe a bit cherry-picked. The 1953 settlement followed the Marshal Plan pattern – in a policy that looked like generosity and magnanimity, the USA was in fact making sure that Communism would be contained by the fostering of two hugely successful economies (Japan and West Germany) right on the strategic frontiers where they would contain the new Red threat.

    Call me cynical, but I somehow suspect that had there not been the dire threat of Soviet and Chinese Communism, neither Japan nor West Germany would have got a dried pea from our powers that be, and that the pattern of reparations etc from the World War 1 settlement could – maybe – have been repeated.

  6. Mike in Auckland says:

    Well, this post is not that objective, I fear.

    You cannot compare apples with pears, as the reparations debt imposed on post WW1 Germany was a different kind of debt, compared to the one Greece faces. Greece did not end up with debt losing a war, and even Germany did only get little help in the 1920s, to get out of the impossible situation it was in then, hence they simply printed money to pay off debt, which though brought in hyper-inflation, that was, with the following Great Depression, part of the reason for the rise of the Nazis.

    And re the debt crisis that Greece is faced with, it has many reasons, and cannot simply be blamed on the Greek people, nor can it simply be blamed on Germany, its government and Angela Merkel. Greece rather became a vulnerable victim of the GFC and dodgy financial instruments that were common up to 2008/09, same as a number of other countries. Go to Wall Street and the City of London, to perhaps find some major culprits behind of what is happening in Greece.

    The European Central Bank in Frankfurt may also have questions to answer, but what we have faced over the last few years, were desperate efforts to rescue the whole of the European financial sector, not only Greece, from collapse. Sadly some “experts” did in 2010 not realise, that Greece needs a decent debt relief package, it certainly needs one now, to have any chance to come right again under the existing system and conditions.

    And that was one of the main stumbling block in negotiations Greece’s government held with Eurozone and IMF representatives last week, the conditions, the finer points of an agreement to continue with financial support, which would only make sense if a significant amount of debt would be written off.

    We must remember also, it was a Greek government, that made great efforts to join the Eurozone, by misrepresenting financial or budget reports that understated certain liabilities. And it was indeed some poor economic and finacial management, that led to a too high debt burden. And it was only due to the GFC that things turned sour, and bail out packages were necessary and introduced and implemented.

    But it has all been blown out of proportions, as Greece’s situation before 2007 was not all that bad, and it even recovered again over the last year or so.

    It has been a high level poker game between the Greek leaders and the other players that has not worked out, and hence now the pull-out of the Greeks and the announcement of a referendum. Both sides are now irreconcilable, it seems, and the blame game is on. Tomorrow another stage is entered, with a de-facto default of IMF debt, and with the referendum next Sunday, it seems the Syriza led government is planning to put final pressure on the EU, to offer a better deal. If it does not work, Syriza will be dog-meat, the government will resign and new elections will follow.

    What the final outcome will be is unpredictable, but this shows, how interconnected the global financial and trade systems are, so changing a government in one country, it means little, as the real power that ultimately wield power, that is found in Wall Street, the City of London, in financial centres in some other powerful economies, and they again work hand in hand with trading banks and the large corporations, who determine what happens, as far as in each of our households, no matter where we live.

    Stuff to read:

    Our media misinforms.

  7. Mike in Auckland says:

    They say 50 percent of “economics” is psychology or emotion. To understand a bit more about what happened and led to all this, the following is worth reading:

    “2010–2015 government debt crisis”


    “In early 2010, it was revealed that through the assistance of Goldman Sachs, JPMorgan Chase and numerous other banks, financial products were developed which enabled the governments of Greece, Italy and many other European countries to hide their borrowing.[93][94] Dozens of similar agreements were concluded across Europe whereby banks supplied cash in advance in exchange for future payments by the governments involved; in turn, the liabilities of the involved countries were “kept off the books”.[94][95][96][97][98][99]

    According to Der Spiegel credits given to European governments were disguised as “swaps” and consequently did not get registered as debt because Eurostat at the time ignored statistics involving financial derivatives. A German derivatives dealer had commented to Der Spiegel that “The Maastricht rules can be circumvented quite legally through swaps,” and “In previous years, Italy used a similar trick to mask its true debt with the help of a different US bank.”[99]

    These conditions had enabled Greek as well as many other European governments to spend beyond their means, while meeting the deficit targets of the European Union and the monetary union guidelines.[94][100] In May 2010, the Greek government deficit was again revised and estimated to be 13.6%[101] which was the second highest in the world relative to GDP with Iceland in first place at 15.7% and Great Britain third with 12.6%.[102] Public debt was forecast, according to some estimates, to hit 120% of GDP during 2010.[103]

    As a consequence, there was a crisis in international confidence in Greece’s ability to repay its sovereign debt, as reflected by the rise of the country’s borrowing rates (although their slow rise – the 10-year government bond yield only exceeded 7% in April 2010 – coinciding with a large number of negative articles, has led to arguments about the role of international news media in the evolution of the crisis).”

    READ the LAST bit, please. Once a CRISIS is detected, ratings agencies tend to downgrade credit ratings, and that makes it more difficult for countries (or businesses) in debt to raise credit, and at the same time forces them to pay higher interest, kind of a “catch 22” situation.

    And with endless negative “media”, the sentiment in local and other populations also turns more negative, creating a reinforced vicious cycle.

    The Greek “crisis” was only really becoming a serious crisis, after it was called a “crisis”.

    And we know where the “swaps”, other finacial instruments and so come from, and where the banks, and the ratings agencies have their offices.

    • Stuart Munro says:

      An economist is a fellow that in the company of philosophers pretends to be a mathematician, and in the company of mathematicians pretends to be a philosopher.

  8. Andrea says:

    If all that ‘owed’ money (plus interest, of course) went flooding back into the EU – what would happen?

    And how many more people have to commit public suicide in Greece before those stern people in high places realise that flogging the slaves isn’t going to work? So many of the young and educated are fleeing to other countries, hoping for at least a start, some work experience. Too many of the older people have little to nothing left apart from whatever kindly neighbours can spare.

    ‘Oh they should pay their taxes! Work harder! Be like virtuous people!’
    Why pay tax for others to enjoy the illusion of power and greatness? Or for stoking up another round of military rule?

    (I have this Thing about the whole taxation guilt trip – most of us see very little that’s of stellar quality for the assorted taxes we are required to pay. To anyone squeaking, ‘should pay! Good citizen!’ – how come schools have to run galas and working bees to raise funds? Hmm? Or hospitals closing wards. Etc.)

    The comment about the French: poor old Napoleon. Barely a hundred years dead and the Monster from Corsica is forgotten. Well done France for trying to recover from a massive loss of manpower and money – even if colonies are infra dig these days.

    And while the big money issue is holding the gaze of anxious people – might we also consider the steady trickle of emigrants and refugees bustling into Greece from further south and east? If we had that unwanted boost to our population the screams would be loud enough to shock the seagulls.


  9. CLEANGREEN says:

    ANDREWO and his sidekick, didn’t see that the BRIC is standing ready to restore Greece.

    Serious stuff needs thought here with the way we are headed too.

    Tell me why Key is still borrowing $250-300Million a week?

    All this while he is selling everything that isn’t screwed down ?

    Why did Key say in his first term (2009) that he didn’t want to see us as just tenants in our own land?

    It’s all becoming so murky here too and if the Creditors turn off the taps for Key we will wind up just like Greece right?

    Maybe that’s why English signed onto with $150 Million to the Asian Development bank? I hear it has China and Russian money inside it to.

    • Gosman says:

      Really??? So how come the Greeks have gone back to the Europeans to ask for almost 30 billion Euro’s more?

      • Mike in Auckland says:

        Hey Gossy, why do you pick on Cleangreen, and shy away from responding to my comments? Do you prefer to bully the ones you perceive as more “easy pickings”?

        • Gosman says:

          Generally I don’t have too many problems with what you have had to state on the subject.

  10. Fern says:

    For a further insight I can wholeheartedly recommend the following article by Nobel prize-winning economist Joseph Stiglitz:

    • GettingOn says:

      Very interesting read. A point I suspected but hadn’t heard mentioned anywhere…

      “We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.”

  11. elle says:

    The EU was a mistake from the beginning,just a con to skim money and control Europe. The people don’t benefit from loans the banks get the money.
    If Greece pays back loan the EU will give them another loan and perpetuate the debt forever,or take Greece over for the benefit of One World Government, this has been planned for decades.

    capcha 3×1 =3 no error

  12. CLEANGREEN says:

    The EU is a corrosive, divisive, draconian, system that lead Greece to bankruptcy and it will fail the EU members in the end also

    Any such draconian order presiding over a country that dictates carving up all essential services and selling them to oligarch’s for personal gain is corrupt so Greece has experienced this so have turned away to save their youth and their futures.

    Go Greece who was the first country as the birthplace of democracy.

    “I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.” = ‘Steglitz.’

    Not even Germany in the prewar days suffered like this but they are happy to make Greece suffer through this and we repatriated Germany after the war as well.?

  13. […] Una actitud ingrata que demuestra poca memoria histórica. En lugar de ayudar a Grecia con transferencias destinadas a estimular la economía del país, el Banco Central Europeo, el Fondo Monetario Internacional y la Comisión Europea obligaron a Atenas a seguir políticas de austeridad basadas en la subida de impuestos y la reducción del gasto público, afirma el analista Curwen Ares Rolinson en The Daily Blog. […]

  14. […] Una actitud ingrata que demuestra poca memoria histórica. En lugar de ayudar a Grecia con transferencias destinadas a estimular la economía del país, el Banco Central Europeo, elFondo Monetario Internacional y la Comisión Europea obligaron a Atenas a seguir políticas de austeridad basadas en la subida de impuestos y la reducción del gasto público, afirma el analista Curwen Ares Rolinson en The Daily Blog. […]

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