Historically speaking, Germany a bigger deadbeat than Greece

Greece and Germany have been at loggerheads all week over whether European lenders should forgive some of Greek's burdensome debt. But as Joe Schlesinger reminds us, Germany's debt defaults after the two world wars dwarf anything Greece has done.

Germany's debt defaults after the two world wars dwarf anything Greece has done, economists say

Talking past each other? Greek Finance Minister Yanis Varoufakis (right) and German Finance Minister Wolfgang Schaeuble meet the press after finance talks in Berlin last week. Having promised an end to five years of austerity, Greek officials are seeking support for a new debt agreement. (Reuters)

In its attempt to bust the austerity shackles that lenders have imposed, Greece's new leftist government is finding a particularly unsympathetic ear in Germany, the European Union's paymaster, which says it is done writing off Greek debt.

That warning from German Chancellor Angela Merkel and others is overwhelmingly backed by a German public outraged by the contrast between Greece's spendthrift ways, with its penchant for treating tax bills as junk mail, and their own obsession with a tight hold on the purse strings, both personal and as a country.

What the Germans are conveniently ignoring is their own record as one of history's biggest deadbeats.

In the 1920s, according to a prominent German economic historian, Germany was "like Greece on steroids." Albrecht Ritschl, a professor at the London School of economics and an adviser to the German ministry of economics, says that Germany's current prosperity was built on borrowed — mostly American — money, much of it written off.

It all started in 1918 when Germany lost the First World War. In the peace settlement that followed, the victors exacted payment of 269 billion marks or 96,000 tonnes of gold.

Mirroring the Greeks' current sentiments regarding debt repayment and forced austerity, Germans after WWI saw the reparations as a national humiliation and rejected the validity of that Versailles Treaty. 

They did pay, though. But they made their payment by printing ever more money, which led to the kind of hyperinflation where money was carried around in suitcases.

By 1923, one U.S. dollar was worth billions of marks. In Berlin, a streetcar ticket cost 15 billion marks.

The collapse of the German economy led to the demise of the country's Weimar Republic democracy and the rise of Adolf Hitler, who promptly stopped the payments once he came to power.

The Marshall Plan 

It is often said that the debacle of the Versailles settlement thus led directly to Second World War.

But once that war was over, with Germany having lost again, the lesson of Versailles was finally heeded.

Instead of punishing the Germans, the victorious Western allies decided to help them get back on their feet again.

Not all German's are wedded to austerity, it seems. Supporters of the Germany's Left party (Die Linke) protest in solidarity with Greece outside the finance ministry in Berlin on Thursday. (Reuters)

Not all Germans, of course, because by that time the country was divided between the Soviet satrapy of Communist East Germany and the budding democracy of West Germany.

The Cold War was on, and the allies wanted to make sure that Western Europe didn't succumb to Joseph Stalin, as it had a decade earlier to Hitler and his collaborators.

The problem, though, was that Western Europe lay in ruins and its people were starving.

There was only one possible rescuer — the U.S.

The Americans had the money to help. They also had a motive: Having been entangled in Europe's wars twice, they were eager not to have their soldiers fight another war across the Atlantic.

The solution was to provide the Europeans with billions in U.S. government credit to rebuild their countries, not an easy political task. 

That it happened was due to a remarkable man: Gen. George C. Marshall, America's top soldier during the war and a secretary of state after it. He persuaded President Harry Truman that all of Europe would turn Communist unless Washington helped.

In 1947, the U.S. Congress voted $13 billion in aid to the Europeans, a massive sum at the time. A British politician of the day called it "a lifeline to sinking men."

Greece is owed, too

The Germans got $1.45 billion of that money. They were also allowed to put off paying, and indeed never did fully repay, the money they already owed to other Europeans as well as the Americans.

Taken alongside the default after WWI, this makes Germany the biggest debt transgressor of the 20th century, says Ritschl.

Of course, for all the Marshall Plan largesse, Germany deserves credit for the skills and discipline its people showed, which enabled it to recover — in what came to be called an economic miracle — faster than its neighbours.

As for the money they owed, in 2010 the Germans made a last payment of 69.9 million euros to settle all their debts from both world wars. That settlement, though, was more symbolic than real as the original debt was repeatedly reduced over the decades.

Just a reminder. Greece's new prime minister, Alexis Tsipras, leaves flowers last month on a monument to resistance fighters executed by Nazi occupation forces during the Second World War. (Reuters)

In addition, and of particular relevance to the political drama surrounding the current crisis, is that, according to the Greeks, Germany never repaid Greece the equivalent of 476 million reichmarks for an interest-free loan that Nazi Germany forced on them during the Second World War.

The Germans argue the loan was covered by the negotiated lump sum they paid the Greeks for the war damage they inflicted on them. But add in the ancient Greek antiquities that the Nazis stole from Greece, and the total tally owed by Germany to Greece comes to a lot more. 

This situation, like so many others like it, symbolizes the murkiness of debt repayment between nations caught up in wars.

What is clear, though, is that by deferring payments and whittling away at them, countries can buy the time that allows them to fulfill their obligations more easily.

It worked for the Germans then. And it would almost surely work for the Greeks if they were given the same chance now.


Joe Schlesinger

Foreign Correspondent Emeritus

Joe Schlesinger was a foreign correspondent for CBC for 28 years, covering natural disasters, political upheavals and conflicts from Vietnam to the Persian Gulf. In 2009, the Canadian Journalism Foundation honoured Schlesinger for his body of work.