Piketty: “Germany Has Never Repaid Its Debts…

thomas_piketty_imgsize_M…It Has No Standing To Lecture Other Nations”

In a forceful interview with German newspaper Die Zeit, the star economist Thomas Piketty calls for a major conference on debt. Germany, in particular, should not withhold help from Greece. This interview has been translated from the original German.

Since his successful book, “Capital in the Twenty-First Century,” the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a interview with Georg Blume of DIE ZEIT, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity?

Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history.

Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe.

ZEIT: But shouldn’t they repay their debts?

Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

ZEIT: But surely we can’t draw the conclusion that we can do no better today?

Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

ZEIT: Are you trying to depict states that don’t pay back their debts as winners?

Piketty: Germany is just such a state. But wait: history shows us two ways for an indebted state to leave delinquency. One was demonstrated by the British Empire in the 19th century after its expensive wars with Napoleon. It is the slow method that is now being recommended to Greece. The Empire repaid its debts through strict budgetary discipline. This worked, but it took an extremely long time. For over 100 years, the British gave up two to three percent of their economy to repay its debts, which was more than they spent on schools and education. That didn’t have to happen, and it shouldn’t happen today. The second method is much faster. Germany proved it in the 20th century. Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief.

ZEIT: So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?

Piketty: Exactly. After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.

ZEIT: That happened because people recognized that the high reparations demanded of Germany after World War I were one of the causes of the Second World War. People wanted to forgive Germany’s sins this time!

Piketty: Nonsense! This had nothing to do with moral clarity; it was a rational political and economic decision. They correctly recognized that, after large crises that created huge debt loads, at some point people need to look toward the future. We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s. We need to look ahead. Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance. We need to remember this.

ZEIT: The end of the Second World War was a breakdown of civilization. Europe was a killing field. Today is different.

Piketty: To deny the historical parallels to the postwar period would be wrong. Let’s think about the financial crisis of 2008/2009. This wasn’t just any crisis. It was the biggest financial crisis since 1929. So the comparison is quite valid. This is equally true for the Greek economy: between 2009 and 2015, its GDP has fallen by 25%. This is comparable to the recessions in Germany and France between 1929 and 1935.

ZEIT: Many Germans believe that the Greeks still have not recognized their mistakes and want to continue their free-spending ways.

Piketty: If we had told you Germans in the 1950s that you have not properly recognized your failures, you would still be repaying your debts. Luckily, we were more intelligent than that.

ZEIT: The German Minister of Finance, on the other hand, seems to believe that a Greek exit from the Eurozone could foster greater unity within Europe.

Piketty: If we start kicking states out, then the crisis of confidence in which the Eurozone finds itself today will only worsen. Financial markets will immediately turn on the next country. This would be the beginning of a long, drawn-out period of agony, in whose grasp we risk sacrificing Europe’s social model, its democracy, indeed its civilization on the altar of a conservative, irrational austerity policy.

ZEIT: Do you believe that we Germans aren’t generous enough?

Piketty: What are you talking about? Generous? Currently, Germany is profiting from Greece as it extends loans at comparatively high interest rates.

ZEIT: What solution would you suggest for this crisis?

Piketty: We need a conference on all of Europe’s debts, just like after World War II. A restructuring of all debt, not just in Greece but in several European countries, is inevitable. Just now, we’ve lost six months in the completely intransparent negotiations with Athens. The Eurogroup’s notion that Greece will reach a budgetary surplus of 4% of GDP and will pay back its debts within 30 to 40 years is still on the table. Allegedly, they will reach one percent surplus in 2015, then two percent in 2016, and three and a half percent in 2017. Completely ridiculous! This will never happen. Yet we keep postponing the necessary debate until the cows come home.

ZEIT: And what would happen after the major debt cuts?

Piketty: A new European institution would be required to determine the maximum allowable budget deficit in order to prevent the regrowth of debt. For example, this could be a commmittee in the European Parliament consisting of legislators from national parliaments. Budgetary decisions should not be off-limits to legislatures. To undermine European democracy, which is what Germany is doing today by insisting that states remain in penury under mechanisms that Berlin itself is muscling through, is a grievous mistake.

ZEIT: Your president, François Hollande, recently failed to criticize the fiscal pact.

Piketty: This does not improve anything. If, in past years, decisions in Europe had been reached in more democratic ways, the current austerity policy in Europe would be less strict.

ZEIT: But no political party in France is participating. National sovereignty is considered holy.

Piketty: Indeed, in Germany many more people are entertaining thoughts of reestablishing European democracy, in contrast to France with its countless believers in sovereignty. What’s more, our president still portrays himself as a prisoner of the failed 2005 referendum on a European Constitution, which failed in France. François Hollande does not understand that a lot has changed because of the financial crisis. We have to overcome our own national egoism.

ZEIT: What sort of national egoism do you see in Germany?

Piketty: I think that Germany was greatly shaped by its reunification. It was long feared that it would lead to economic stagnation. But then reunification turned out to be a great success thanks to a functioning social safety net and an intact industrial sector. Meanwhile, Germany has become so proud of its success that it dispenses lectures to all other countries. This is a little infantile. Of course, I understand how important the successful reunification was to the personal history of Chancellor Angela Merkel. But now Germany has to rethink things. Otherwise, its position on the debt crisis will be a grave danger to Europe.

ZEIT: What advice do you have for the Chancellor?

Piketty: Those who want to chase Greece out of the Eurozone today will end up on the trash heap of history. If the Chancellor wants to secure her place in the history books, just like [Helmut] Kohl did during reunification, then she must forge a solution to the Greek question, including a debt conference where we can start with a clean slate. But with renewed, much stronger fiscal discipline.

This interview was translated by Gavin Schalliol.

One year after Tomas Piketty sold a record number of economic textbook paperweights which virtually nobody read past page 26, once again showing the power of constant media hype, the French economist and wealth redistributor is out and about, this time pouring more gasoline on the fire started by the IMF last week when it released the Greek debt sustainability analysis showing Greece needs a 30% haircut, only to be met with stern resistance by, who else, Germany who know very well that should Greece get a debt haircut it will unleash the European dominoes which not even all the bluster and rhetoric of the ECB can halt.

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5 opinions on “Piketty: “Germany Has Never Repaid Its Debts…”

  1. Thomas Piketty’s 700 page update of Marx’s Das Kapital has been much purchased but little read. It is a leftist coffee table conversation piece, a paper weight as much as a book. A fellow traveler with Stiglitz and Krugman, Piketty favours other people’s money, 24/7 printing presses and wildly optimistic means of distribution. Like Stiglitz and Krugman, Piketty’s money envy is embarrassing to read. No fact is too small to distort, omit or gloss over. No debt too large to ignore.

    Piketty aside, let’s talk Greece for a minute. Tsipras boasts a coalition of radicals, Maoists, former Stalinists and some populists, whatever they are. In total, they are anti-European and anti-western by nature. All they want from Europe is money. They give nothing back save a 2 week tourist destination, cement and some olives. Gee, I know where I can find lots of all three and in Europe too!

    Some 2,500 years ago Greece gave us a democracy that was limited to about 10% of the men, none of the women and included slavery. We fixed it. They gave us an alphabet, stolen from the Phoenicians that was 2 letters short. We fixed that too. So thanks a bunch.

    Bring back the drachma! There has been one before. It was adopted by Greece during the Second World War and devalued in 1944 by 50 billion to one. Less than 10 years later, Greece joined Bretton Woods after another devaluation of 1,000 to one. From 1953 to 1973, the drachma was fixed to the U.S. dollar. This was the period known as the Greek Economic Miracle when the economy grew by seven per cent a year on average and the economy boomed. The US dollar rose nearly 60% during this same time. After 1973, the drachma floated downward until, after futzing the books and another devaluation of 400 to one, the country converted to the euro in 2002.

    History tells us that Greece has defaulted on its National Debt 5 times since 1800. For those wondering why I am so skeptical of the Euro as it is presently constituted it is worthy to note that Portugal has defaulted on its national debt five times since 1800 and Spain no less than seven times (13 times in all since 1500). Anglo-Saxon countries rarely, if ever, default. England has never reneged on its debts in nearly 1,000 years. Over a much shorter period, the same applies to the United States, Australia and Canada.

    Many European countries actually seem to be culturally attuned to bankruptcy. Since Greece achieved independence from the Ottoman Empire in 1832 it has spent virtually half of the 183 years since it in a state of default. This has denied them access to international capital markets. Without the backing of the Euro, they are likely to resume this position shortly. At least they are used to it.

    I’ll leave Piketty’s paper weight tome for another time. Hs erroneous interpretations of history and statistical jiggery-pokery become even more glaring in short bursts, like in this interview.

    Piketty misses the fact that a gradual disposal of Greece’s debt has been a part of bailout program since 2010. More of it will no doubt be foolishly discharged in the future. Greece has not, I repeat NOT paid back a single cent on net. The debt is being financed through rollovers whose interest is mostly being paid by the rest of Europe, read taxpayers, while Greece has received several fiscal transfers equivalent to more than 100% of GDP. So Piketty is wrong, as usual, to say that the Greek economy is being squeezed in order to pay back debt. It is being squeezed because its level of spending was not, is not and will NOT be matched by its level of productivity. Greece does not belong in Europe. A country where tax cheating is a National Sport and only 30% of the populace actually pays taxes cannot be called anything but a 3rd world country.

    The bulk of his analysis contains enough untruths and logistical muddles as to render it useless not to mention unproductive. Piketty misunderstands the situation of Germany in the 1950s and the situation of Greece today. Think apple and mushroom. If one debt is forgiven for some reason somewhere in time must all others be forgiven going forward? Of course not. To get a loan a country, like a person, requires good to exceptional credit. Greece needs a co-signer. Greece apparently has no dignity unless they can live however they wish on other people’s money. Greece feels morally justified in repudiating their debts. Piketty presents this logical pretzel as fact.

    Tsipras’s offensive attacks on Germany, defended by Piketty, do not move the German people or the rest of Europe, which was also as damaged by World War II. In the same interview Piketty said: “We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s.” Okay, so all is forgiven for each new generation. Who is going to finance that?

    Germany spent eight years under military occupation that enforced top-to-bottom political and institutional reforms. Yes, Germany got debt relief but it got it in the context of a massive restructuring of their entire political system. East Germany was integrated the same way in the 1990s. Would Greece do the same or better said, would Greece do anything at all?

    The conditions for Germany’s debt forgiveness in 1953 also included an insistence that Germany continue to maintain a trade surplus and primary budget surplus. Would Greece? Could Greece? Germany was also forced to guarantee highly-subsidized exports to a Europe that was still lacking industrial capacity after the war. The Troika has already indicated that if Greece does now what Germany did from 1945-1953 that debt forgiveness would be on the table. This has been the case for the last 5 years. But Greece has chosen to spend their way into a savings followed by a bail-out. How many times does Piketty actually think this can be done and on whose dime? Germany, Iceland and Ireland took the hard path. Spain and Portugal are trying. Greece just shrugs. It is not austerity to spend more than you take in. It is mismanagement or stupidity. Pick one.

    Piketty’s points are illogical and historically incorrect. At best they are misleading. Fact is, like it or lump it, an economically-healthy Greece today is not as important as an economically-healthy Germany was then. Either Greece wants to be adopted or continue as the recipient of on-going charity. Who wants this? This is dignity?

    Piketty also forgets or does not know that Greece’s debt had already been written down several times, including a 75% haircut on private bondholders in 2012. Greece has received more than 100% in direct fiscal aid in the past 5 years and several multiples of that through low-interest financing and emergency liquidity. This despite failing to fully implement any of the terms these programs required. In spite of all this assistance, Greece is still unable to run a primary surplus. Government expenditure is 60% of GDP. Greece continues to accrue debt rather than establishing the conditions necessary for further growth. “Squeezing blood from a stone” is merely rhetoric, fraudulent and unhelpful as the poor Greeks seem to believe it.

    There was no EU when Germany’s debt was forgiven so its debt had no real consequences on other economies. Also, it was related to building a war machine that had been completely destroyed. Simply forgiving Greece’s debt could shatter the basis of the Common Market and Monetary Union. It would also provide clear incentives for Italy, Portugal and Spain, perhaps others, to renegotiate their standing within the EMU. The Union cannot stand on the principle that some members get to borrow and renege while others pay and still others stand by. This was the entire purpose of the rules-based fiscal limits that were put into place at the very origin of the monetary union. Even stronger rules are likely to be necessary in the future to save the project if it can be saved.

    Piketty’s hand wringing and moralizing adds no value. Greece needs a credible plan, underline credible, for putting Greece on a sustainable growth trajectory. Such a commitment must first come from Greece’s political class. As we can see daily, no such plan or commitment is on offer.

    Even such give-away artists as Stiglitz and Krugman acknowledge the many data errors in Piketty’s work. Still, I bet they love his fictionalized interpretations of history and his no-fault redistribution theories.

    Piketty can fudge all he wants. He’s got his. Meanwhile, the current love interest of the left may soon become Russia’s newest Mediterranean port. I guess Tsipras can learn more from Putan and Assad. They deserve each other.

  2. No doubt but they’re already in their own naval facility in the port of the city of Tartus, Syria. It is currently the Russian Navy’s only Mediterranean port which spares Russia’s warships a trip to their Black Sea bases through the Turkish Straits.
    The Russians need a larger port and Greece has several that would do nicely. The question is, does Europe want or need to support 8,000,000 Greeks forever to keep the Russians out?

  3. Yes, that is one reason, maybe the most important, but there are others:

    1. There are over 30,000 Russians in Syria.

    2. Syria buys tons of Russian military exports. Russia needs the customer and the money.

    3. Russia has few military alliances and is covetous of the ones it has.

    4. Putin is a Cold War warrior and intensely dislikes “international intervention” against countries like Syria. He sees this as Western imperialism. In his view this could become a threat to Russia if not sooner then later.

    5. Syria is a foothold for Russia in the Middle East.

    In other words, it is always yesterday in Putin’s Russia.

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