From Confrontation to Cooperation: The London Debt Agreement of 1953 and Later Debt Crises

Abstract

From Confrontation to Cooperation: The London Debt Agreement of 1953 and Later Debt Crises

The London Debt Agreement of 27 February 1953 managed to solve the complex problem of German foreign debt of the pre- and post-war periods. The initiative for an international debt conference came from the Allies. But Germany also had a vested interest in regulating its debt, so as to be granted access to the global capital market once more. Contrary to all prior concerns, the settlement was finalised without a hitch. Most of the obligations were even paid back ahead of time. Since the 1990s public interest in the Agreement has been reignited. It has been repeatedly proposed as a solution to contemporary debt crises. At first, the London settlement was considered as a potential answer to debt crises in the Third World. One-World activists demanded that the countries in question should be relieved of a large part of their debt in the spirit of London 1953. It is frequently overlooked that the London Agreement did not specify a cut in capital for private pre-war debt, but instead a modification of interest and duration periods. Even in the current debt crisis, which originated in 2010, the London Agreement is frequently cited as a possible solution. The German government is often criticised in the foreign press for its uncompromising attitude on debt relief, especially towards weaker members of the Eurozone, and is called on to remember its recent history. When this happens, however, the special historic circumstances of the 1950s are usually not taken into account. Greece and other debtor countries, as part of the Eurozone, no longer have control over a national currency. The crisis of one country always impacts the community of the Eurozone as a whole. In light of this, it is rather misleading to take the London Agreement as a blueprint for the solution of contemporary debt crises. However, the discussion in the international press continues on whether the London Debt Agreement can serve as a model in the present crisis.