With a flurry of exclamation points and curt rebuttals, Thomas Piketty, who rocketed to stardom last year with his treatise on inequality, told a German newspaper that the Germans are being hypocritical in the way they're treating Greece.
A number of prominent economists have raised concerns about Germany's approach to the Greek debt crisis, which Germans say reflects a need to force changes in Greece's economy so that it never again has such a crisis.
But in the interview with Die Zeit, Thomas Piketty went even farther, saying that the Germans are only in the strong economic position they are today because they benefited from the forgiveness of their neighbors after World War II.
It was in the 1950s, he notes, that Germany benefited from a massive — and, in those days, surprisingly common -- round of debt forgiveness that catapulted its rise into a peaceful economic power. Greece was one of the nations forgiving Germany's debts. In other words, Piketty suggested, when it comes to how to handle Greece in 2015, the best argument against Germany might be ... Germany, circa 1953.
“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!” Piketty said in the interview, translated by the site Medium.com (though later taken down due to copyright concerns). “Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”
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.
Piketty works at the Paris School of Economics and last year published the English version of his 700-page book, “Capital in the Twenty-First Century,” which sold millions of copies and documents the growth of wealth inequality in the developed world over many generations. In the interview with Die Zeit, Piketty makes the argument that decisions about whether to forgive or not forgive can have generational implications.
While Greece’s debt has already been trimmed, those relief efforts have been essentially cancelled out by Greece’s shrinking economy — and its shrinking tax revenue. Greece lately has failed to hit budget surplus targets, and the International Monetary Fund last month said that the country’s debt burden appeared unsustainable without further relief measures. And such measures are exactly what Greece is asking for.
In recounting the history of debt forgiveness in the interview, Piketty is referring to the period after World War II when Germany, or more specifically West Germany, was a defeated nation struggling to find its role in the world.
When a new government was created to replace the German Reich, it inherited a mess. The West Germans still owed reparations from World War I. They needed epic loans to fund reconstruction. By 1953, West Germany’s debt was about $7 billion, or $62 billion in today's dollars. Bonn owed money to the U.S. and much of Europe — including Spain, France, and yes, Greece.
Then, those countries gathered in London in 1953 for a debt summit. Archived accounts suggest that the creditor nations seemed to believe they were helping to serve the broader goal of a stable Europe by giving West Germany far easier terms. The formal agreement that came from the summit said debts were being partially forgiven in order to help Germany “make a contribution to the development of a prosperous community of nations.”
The creditor nations waved goodbye to roughly 50 percent of what they were owed.
Here's Greece's finance minister in 1953, canceling 50% of Germany's debt. Because it was the right thing to do. pic.twitter.com/SPsYsVAeBr
— Casper ter Kuile (@caspertk) July 1, 2015
There are, of course, differences between now and then. Then, there was a common enemy; the U.S. and much of Europe were jittery about the nascent Cold War and wanted West Germany, a key bulwark, firmly on their side. And of course now, much of Europe is tied together by a single currency, the euro, that takes away some of the other strategies Greece might employ to deal with its debt, like devaluing its currency.
But Piketty points out that ultimately the handling of Greece in 2015 -= not West Germany, in 1953 -- qualifies as an outlier.
“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,” he said. “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.”