The International Monetary Fund (IMF) does not believe Greece can survive under its mountain of debt and is insisting on debt relief. But Germany’s Finance Minister Wolfgang Schäuble is resisting any moves to ease Greece’s debt burden by deferring interest payments.
“If we simply forgive Athens’ debt, we will change nothing of the country’s problems,” Mr. Schäuble said.
International economists like France’s Thomas Piketty and U.S. economist Jeffrey Sachs like to point to the London Debt Agreement of 1953, which cancelled nearly half of the Federal Republic of Germany’s foreign debt. Ironically, Greece was one of the nations that signed the agreement. Greek Prime Minister Alexis Tsipras has been calling for a similar cancellation of debt for his country since 2012.
The London Debt Agreement restructured Germany’s debt from both before and after the war. The original debt sum of 30 billion D-Mark ($16.34 billion) was reduced to 14 billion D-Mark ($7.6 billion) during negotiations and the annual debt service limited to three percent of Germany’s export revenues.
“By settling our debts, the Federal Republic not only became credit-worthy again, the world also began to trust this nation once again,” said the Head of Germany’s delegation in 1953, Hermann Josef Abs.
Is the situation in Greece similar? Most Anglo-American economists agree with the IMF that Greece is insolvent. “Anyone who does the arithmetic of Greek’s debt knows that the country cannot pay back its foreign debt, which is currently 170 percent of its gross domestic product (GDP),” said Jeffrey Sachs, for whom the current situation is similar to Germany’s after the war.