The argument over Germany's 'colossal' WW2 debt to Greece

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Greece has been summoned by its international creditors to present a package of spending reforms by Monday evening that must be approved before a final decision is taken on whether to give Athens a crucial four-month extension of debt bailout loans. Despite the new Greek government’s earlier concessions towards austerity measures which it initially rejected, the country’s lenders, and above all Germany, appear intent on squeezing more political blood from the radical-left administration. But beyond the struggle to obtain the immediate financial lifeline, Greek Prime Minister Alexis Tsipras is in for a long haul of future negotiations. Key to these is his demand that Germany recognise its massive debt to Greece in reparations of its wartime occupation of the country, and the repayment of a loan the Nazis imposed on Greece. The potential sums of these are staggering, and have been estimated, at the least, as represnting more than 160 billion euros - before interest. The issue is not only a financial one, but also embarrasses Berlin and Brussels by raking over the generous debt-forgiveness deal offered to Germany in 1953 in the name of European reconstruction. Mediapart Brussels correspondent Ludovic Lamant and former Athens correspondent Amélie Poinssot examine the legal arguments, and the evidence, behind the Greek claim.     

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The question was openly raised by the newly-elected Greek Prime Minister Alexis Tsipras during his policy speech before parliament on February 8th, and it is one that could well poison even further the already strained relations between Athens and Berlin.

Greece is now seeking reparations for the destruction caused by the German occupation of Greece during World War II, along with the refund of a loan to Germany that the Nazis forced upon Greece and which together total, according to one, possibly modest, estimation more than 160 billion euros, excluding interest payments. 

The broad demands appeared on the agenda of talks held in Berlin on February 11th between Greek foreign minister Nikos Kotzias and his German counterpart Frank-Walter Steinmeier, although that first salvo from Athens met with a predictable and firm negative response.

The issue was already given serious consideration by the conservative Greek government of Antonis Samaras, which set up a commission to study the amounts Germany owed Greece although no approach was made to Berlin. But now the new radical-left Syriza government has gone on the offensive, and the spectre of raking over Germany’s wartime past is causing unease both in Berlin and in Brussels. But what are the legal and historic grounds for the Greek claim?

To find out, Mediapart sought out the differing opinions of specialists on the subject, and reviews the evidence point by point.

THE 1953 LONDON 'AGREEMENT ON GERMAN EXTERNAL DEBTS'

In an interview in November last year with the US news and political analysis website Truthout, Albrecht Ritschl, a German professor of economic history with the London School of Economics (LSE) said post-war Germany’s default and the forgiveness of its debt amounted to a sum that was “probably unrivalled” in the history of the 20th century. He notably cites the 1953 London Agreement of German External Debt (also known as ‘the London Debt Agreement) as having made possible the so-called economic miracle witnessed on post-war West Germany over several decades.

Those who took part in the conference that settled the London agreement were keen to avoid the mistakes of the harsh economic punishment imposed upon Germany in the June 1919 Treaty of Versailles that followed World War I, the consequences of which British economist John Maynard Keynes had warned of in his book The Economic Consequences of the Peace published that same summer.

Timothy W. Guinnane, a professor of economic history at Yale University, argues that the 1953 London agreement “reflects a subtle and responsible understanding of the problems associated with the reparations and debt crises of the 1920s and 1930s.” The conference negotiations ended with the agreement to slash external German debt by 50%, and also to extend the date for repayment of the remaining 50% to when West and East Germany would be reunited.

The generosity of the deal is above all explained by US concerns that West Germany, its new ally in the Cold War, was not weakened further, and Washington offered west European nations access to the Marshall Plan in exchange for aligning themselves to its position on the German debt.

Rencontre à Bonn en 1958 entre le premier ministre grec Konstantin Karamanlis et le chancelier Konrad Adenauer © Kathimérini Rencontre à Bonn en 1958 entre le premier ministre grec Konstantin Karamanlis et le chancelier Konrad Adenauer © Kathimérini

But 37 years later, after the fall of the Berlin Wall and in the preparations for the formal reunification of Germany, the then German Chancellor Helmut Kohl finally got rid of the issue, and to Germany’s considerable advantage. The September 1990 Treaty on the Final Settlement With Respect to Germany (also known as the Two Plus Four Agreement) was an agreement settled in Moscow and signed between representatives from West and East Germany and the four powers which had occupied Germany since the end of the World war II – the US, Britain, France and the USSR. The deal paved the establishment of the new sovereign Germany, and in the process wrote off most of the debt Germany was due to repay under the terms of the 1953 London Debt Agreement. “The only demand made was that a small remaining sum be paid, but we're talking about minimal sums here,” underlined the LSE’s Albrecht Ritschl in an interview with German weekly Der Spiegel in 2011. “With the exception of compensation paid out to forced labourers, Germany did not pay any reparations after 1990 - and neither did it pay off the loans and occupation costs it pressed out of the countries it had occupied during World War II. Not to the Greeks, either.”

Kohl’s move to escape repayment of the debt met with a consensus of agreement among West European nations. The exact total of Germany’s initial post-war debt to other countries – and which was halved under the 1953 London agreement – is estimated by Ritschl to total about 2 trillion euros.

What is the lesson that can be drawn from all of this regarding Greece’s situation today? “The only conclusions that can be made from this comparison are very wide, such are the contexts so different,” said Éric Monnet, a teacher at the Paris School of Economics (PSE), specialised in Economic history and monetary macroeconomics. “It reminds us that the political Europe was built on the rejection of Nazism and that Europe would not exist today if it had not been decided, at one point, to not demand reparations for the material and financial damage caused by certain countries including Germany.”

Following World War II, the German debt was far greater than that of Greece today. But, stressed Monnet, Germany, divided into four occupied zones, did not have political autonomy, and was therefore territorially and legally different to the country that contracted the debts in the first place.

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