Off Topic is a new series where I discuss matters not immediately pertaining to philosophy. For the first installment, I want to discuss a particular aspect of the current Greek Debt Crisis.
This week, Greece’s MPs approved another austerity package in order to receive another round of bailout loans. Prior to this vote, however, the IMF said that Greece needs debt relief. In other words, the Troika must recognize that in order to save Greece, the current Eurozone, and be repaid by Greece, they must let Greece off for some of what it owes.
As has been widely covered, the German government have been one of the main sources of demands for more austerity (including higher taxes, more cuts in spending, and pension cuts). Germany has strongly resisted any call for Greek debt relief, in part because they are the ones who’ll lose the most by writing off some of the debt. Greece owes them €56bn. While I understand that they want their money back, the fact that they are so unwilling to offer any debt relief is quite the historical irony.
I recently read Liaquat Ahamed’s The Lords of Finance, a master work of historical economics, well deserving of its Pulitzer.In the book, Ahamed tells the story of 4 central bankers (England, France, Germany, and NY Fed) as they in part caused and then responded to the Great Depression. A common theme is Germany’s war reparation debts, imposed on them by the Allies after WWI. For causing (and losing) WWI, the Treaty of Versailles imposed a crushing reparations on Germany of 132 billion gold marks (#33bn). In fact, Germany only finished paying off that debt in 2010. The Allies condemn Germany’s behavior during the war, which justified (according to the Allies) the massive reparation debt.
In the book, Ahamend tells repeatedly of how Hjalmar Schacht (head of the Reichsbank) went to one international conference after another asking for some of the debt to be written off, since Germany couldn’t possibly pay it. And he was right. The crushing debt in part caused runaway hyperinflation in Germany during the Weimar Republic. (People were paid in the morning with enough marks to fill a wheelbarrow, and they were then given time off from work to spend it all before it was completely worthless by that night.) While Schacht helped stabilize the German economy, the Germans have been fearful of inflation ever since, up to the present.
Coming back to the present, the irony of Germany’s position is striking. Now Germany condemns Greece for its previous economic profligacy, which justifies the debt owed and a refusal to forgive it. While once Germany asked for their some degree of debt relief, they refuse to offer it to Greece.