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....Amazing, isn't it: 20th-century history gives us such a completely worked out experiment in the economics of moral hazard. Step 1 (1919): Punish the Germans for starting the worst war ever by putting them in permanent debt. Result, a new worst war ever. Step 2 (1953): Don't punish the Germans for attempting to establish themselves as the Master Race and enslave the rest of the world; instead, give them a chance to make some serious money. Result, serious money. For everybody.
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.
And now Germany wants to punish Greece and Spain (who incidentally contributed to Germany's debt relief 60 years ago), not for starting wars, but for taking out loans they couldn't quite afford. It's as if the financial Powers were saying to themselves, "I say, Greece and Spain haven't gone Fascist for a good long while, have they? Shall we give them a little nudge?"