Seventy years ago this Monday, the London Debt Agreement saw half of Germany’s (then West Germany’s) borrowings, accumulated after two world wars, written off. The debt cancellation, worth more than a fifth of national GDP, was driven by the United States, the UK and France. Eventually, South American, Asian and African nations signed up – including, in a bitter twist of history, colonial precursors of today’s bankrupts.
Germany’s economic miracle was built on debt relief. Unlike today, Germany was allowed to repay a large part of its debts in its national currency. Meanwhile, the cost of servicing the country’s external debt was capped at 5% of export revenues. In 2021, the comparable figure was 16% for poor, indebted nations – money that should be used for schools and hospitals. Creditors in the 1950s were expected to take a haircut if the German economy faltered. The country was allowed to industrialise by replacing imports with home-manufactured goods, while creditor nations agreed to reduce their own exports. Unlike the current International Monetary Fund bailouts, West Germany’s state was allowed to get bigger. Social welfare spending zoomed upwards.
