Adonis Diaries

Archive for July 3rd, 2015

Post-war Germany recovery? Any roles to Greece, Spain, and Turkey…?

Sixty years ago today, an agreement was reached in London to cancel half of postwar Germany’s debt.

That cancellation, and the way it was done, was vital to the reconstruction of Europe from war.

It stands in marked contrast to the suffering being inflicted on European people today in the name of debt.

Germany emerged from the WWII still owing debt that originated with the first world war: the reparations imposed on the country following the Versailles peace conference in 1919.

Many, including John Maynard Keynes, argued that these unpayable debts and the economic policies they entailed led to the rise of the Nazis and the second world war.

By 1953, Germany also had debts based on reconstruction loans made immediately after the end of the second world war. Germany’s creditors included Greece and Spain, Pakistan and Egypt, as well as the US, UK and France.

German debts were well below the levels seen in Greece, Ireland, Portugal and Spain today, making up around a quarter of national income.

But even at this level, there was serious concern that debt payments would use up precious foreign currency earnings and endanger reconstruction.

Needing a strong West Germany as a bulwark against communism, the country’s creditors came together in London and showed that they understood how you help a country that you want to recover from devastation.

It showed they also understood that debt can never be seen as the responsibility of the debtor alone. Countries such as Greece willingly took part in a deal to help create a stable and prosperous western Europe, despite the war crimes that German occupiers had inflicted just a few years before.

The debt cancellation for Germany was swift, taking place in advance of an actual crisis.

Germany was given large cancellation of 50% of its debt. The deal covered all debts, including those owed by the private sector and even individuals. It also covered all creditors.

No one was allowed to “hold out” and extract greater profits than anyone else. Any problems would be dealt with by negotiations between equals rather than through sanctions or the imposition of undemocratic policies.

Perhaps the most innovative feature of the London agreement was a clause that said West Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year.

This meant those countries that were owed debt had to buy West German exports in order to be paid.

It meant West Germany would only pay from genuine earnings, without recourse to new loans.

And it meant Germany’s creditors had an interest in the country growing and its economy thriving.

Following the London deal, West Germany experienced an “economic miracle”, with the debt problem resolved and years of economic growth.

The medicine doled out to heavily indebted countries over the last 30 years could not be more different.

Instead, the practice since the early 1980s has been to bail out reckless lenders through giving new loans, while forcing governments to implement austerity and free-market liberalisation to become “more competitive”.

As a result of this, from Latin America and Africa in the 80s and 90s to Greece, Ireland and Spain today, poverty has increased and inequality soared.

In Africa in the 80s and 90s, the number of people living in extreme poverty increased by 125 million, while economies shrank.

In Greece today, the economy has shrunk by more than 20%, while one in two young people are unemployed. In both cases, debt ballooned.

The priority of an indebted government today is to repay its debts, whatever the amount of the budget these repayments consume.

In contrast to the 3% limit on German debt payments, today the IMF and World Bank regard debt payments of up to 15-25% of export revenues as being “sustainable” for impoverished countries. The Greek government’s foreign debt payments are around 30% of exports.

When debts have been “restructured”, they are only a portion of the total debts owed, with only willing creditors participating.

In 2012, only Greece’s private creditors had debt reduced. Creditors that held British or Swiss law debt were also able to “hold out” against the restructuring, and will doubtless pursue Greece for many 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.

But without creditors like Germany willing to buy more of their exports, this will not happen, bringing pain without end.

The German debt deal was a key element of recovering from the devastation of the second world war. In Europe today, debt is tearing up the social fabric.

Outside Europe, heavily indebted countries are still treated to a package of austerity and “restructuring” measures.

Pakistan, the Philippines, El Salvador and Jamaica are all spending between 10 and 20% of export revenues on government foreign debt payments, and this doesn’t include debt payments by the private sector.

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.

Note 1: While Greece, Spain and Turkey were bailing out Germany, their citizens were flocking to Germany to work under the recovery program.

Note 2: I guess the creditors were convinced that the hard working and law abiding Germans, under institutions still functioning, and an industrial know how… will generate the necessary profit to pay back the loans. I guess France and Germany do not believe that the other EU States, crumbling under their debts, are good enough people with sane institutions to generate any profit.

Najat Rizk shared a link.
Nick Dearden: Sixty years ago, half of German war debts were cancelled to build its economy. Yet today, debt is destroying those creditors

 

Parent’s Corner:

The Letter Your Teenager Can’t Write You

Dear Parent:

This is the letter that I wish I could write.

This fight we are in right now. I need it. I need this fight.

I can’t tell you this because I don’t have the language for it and it wouldn’t make sense anyway. But I need this fight. Badly.

I need to hate you right now and I need you to survive it. I need you to survive my hating you and you hating me.

I need this fight even though I hate it too. It doesn’t matter what this fight is even about: curfew, homework, laundry, my messy room, going out, staying in, leaving, not leaving, boyfriend, girlfriend, no friends, bad friends. It doesn’t matter.

I need to fight you on it and I need you to fight me back.

I desperately need you to hold the other end of the rope.

To hang on tightly while I thrash on the other end—while I find the handholds and footholds in this new world I feel like I am in.

I used to know who I was, who you were, who we were. But right now I don’t.

Right now I am looking for my edges and I can sometimes only find them when I am pulling on you.

When I push everything I used to know to its edge. Then I feel like I exist and for a minute I can breathe.

I know you long for the sweeter kid that I was. I know this because I long for that kid too, and some of that longing is what is so painful for me right now.

I need this fight and I need to see that no matter how bad or big my feelings are—they won’t destroy you or me.

I need you to love me even at my worst, even when it looks like I don’t love you.

I need you to love yourself and me for the both of us right now. I know it sucks to be disliked and labeled the bad guy.

I feel the same way on the inside, but I need you to tolerate it and get other grownups to help you. Because I can’t right now.

If you want to get all of your grown up friends together and have a ‘surviving-your-teenager-support-group-rage-fest’ that’s fine with me. Or talk about me behind my back–I don’t care.

Just don’t give up on me. Don’t give up on this fight. I need it.

This is the fight that will teach me that my shadow is not bigger than my light.

This is the fight that will teach me that bad feelings don’t mean the end of a relationship.

This is the fight that will teach me how to listen to myself, even when it might disappoint others.

And this particular fight will end. Like any storm, it will blow over.

And I will forget and you will forget. And then it will come back. And I will need you to hang on to the rope again.

I will need this over and over for years.

I know there is nothing inherently satisfying in this job for you.

I know I will likely never thank you for it or even acknowledge your side of it. In fact I will probably criticize you for all this hard work.

It will seem like nothing you do will be enough. And yet, I am relying entirely on your ability to stay in this fight.

No matter how much I argue. No matter how much I sulk. No matter how silent I get.

Please hang on to the other end of the rope. And know that you are doing the most important job that anyone could possibly be doing for me right now.

Love, Your Teenager


adonis49

adonis49

adonis49

July 2015
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