The European illusion
The infamous Treaty of Versailles which was imposed on Germany following the First World War forced the nation to pay the astronomical sum of 132 billion Marks. This iniquitous treaty was to provoke the Occupation of the Ruhr in 1923 by France, displeased at the delays in German payments. In 1924 however, the Dawes Plan, concocted by the Allies, restructured and softened somewhat the burden of this debt. Despite this, Germany – which ended up borrowing all the money it had to pay back to the Allies from foreign lenders – still did not manage to honour such a duty which was obviously extremely harmful to its reconstruction and economic development. A new compromise therefore had to be signed in Paris in June 1929 which reduced the debt to 112 billion Marks, the payment of which ran from that time up until…1988. In the absence of trade surpluses allowing Germany to garner new liquid reserves, the only way for it to pay off the debt was to take on new debts from foreign lenders. It is thanks only to the resounding and dramatic failure of Creditanstalt in May 1931 that the Hoover Moratorium (named after the US president of the time) came to suspend these payments, which in the end were written off at the Lausanne Conference of 1932.
After the Treaty of Versailles was signed, Keynes – present at and involved in the negotiations with the British delegation – had deplored the terms of these reparations which he sensed would lead to Germany’s economic ruin. His work – The Economic Consequences of the Peace – written specially for the occasion, was to ride against the grain of the dominant and debilitating thinking of the time, which demanded German blood and tears, so much so that he had to – for want of a daring publisher – publish it himself. In turn, Hjalmar Schacht, the governor of the German central bank, pled his country’s cause in an article published in 1934 in the magazine Foreign Affairs in which he explained that “a debtor country can pay only when it has earned a surplus in its balance of trade”. It is an issue which was to arise again at the end of the Second World War when the victors had to come up with another agreement in London in 1953 in order to restructure Germany’s debt. However, the lesson had been learned because the country’s debt payments were then indexed to its trade surpluses. West Germany was thus made to pay off its debts only if it was running a trade surplus, and at a limit of 3% of it!
There are close similarities with the current period and we are wondering why the European Union isn’t taking heed of these past experiences? Why must the “peripheral” European countries now suffer the punitive coercions of their lending European neighbours? The European criteria – of which contemporary Germany has made itself champion and guarantor by brushing aside all goodwill towards indebted countries who are nevertheless members of the same monetary union – actually prevent all intra-European debt restructuring. The euro has created and maintained the inane illusion that lending members would always, inevitably, be repaid, whereas the burdensome and troubling lessons of the past might in fact necessitate flexibility and the restructuring of intra-European debts. Now, it is crucial to correlate the settling of sovereign debts in the EU to the trade surpluses generated, or to be generated. The two parties – creditors and debtors– members of the same monetary union, owe it to themselves to work in tandem, because the restructuring of intra-European debts is a political obligation, and should even be a natural reflex.
For more than 15 years I have maintained this blog with assiduity and passion. Over the years, you have appreciated my often avant-garde, sometimes provocative, always sincere analyzes and positions. We form a community that has often been right too soon, which can nevertheless pride itself on having often been right. As you know, this work has – and will continue – to remain voluntary, accessible to all. For those who would like to make a one-time or recurring donation, I nevertheless provide this payment platform. I would greatly appreciate your pecuniary contributions and I would like to sincerely thank all those who decide to take the step of making me a donation that I like to describe as “intellectual”.