Agreement On German External Debts
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The London Agreement on German External Debts, also known as the London Debt Agreement (German: ''Londoner Schuldenabkommen''), was a
debt relief Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. From antiquity through the 19th century, it refers to domestic debts, in particu ...
treaty between the
Federal Republic of Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated between ...
and creditor nations. The Agreement was signed in London on February 27, 1953, and came into force on September 16, 1953.


Overview

On May 24, 1951, the US and UK Departments of Foreign Affairs respectively, informed the Allied Countries involved in the settlement, about a new arrangement regarding Germany's External Debts. The content of the dispatch made the main points of discussion clear from the start. The dispatch contained the following texts. In response to the Allies,
Adenauer Konrad Hermann Joseph Adenauer (; 5 January 1876 – 19 April 1967) was a German statesman who served as the first chancellor of the Federal Republic of Germany from 1949 to 1963. From 1946 to 1966, he was the first leader of the Christian Demo ...
informed them about Germany’s desire to repay its debts. The Conference on German External Debts (also known as the London Debt Conference) was held between February 28, 1952 and August 28, 1952. The Agreement reached at the Conference was signed in London on February 27, 1953. The Agreement was ratified by the United States, France and United Kingdom on September 16, 1953, at which point the agreement came into force. The Agreement was firstly turned down by the
Bundestag The Bundestag (, "Federal Diet") is the German federal parliament. It is the only federal representative body that is directly elected by the German people. It is comparable to the United States House of Representatives or the House of Commons ...
and then approved on a following vote.


Debts covered by the Agreement

The parties that were involved besides
West Germany West Germany is the colloquial term used to indicate the Federal Republic of Germany (FRG; german: Bundesrepublik Deutschland , BRD) between its formation on 23 May 1949 and the German reunification through the accession of East Germany on 3 O ...
included
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,
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Ceylon Sri Lanka (, ; si, ශ්‍රී ලංකා, Śrī Laṅkā, translit-std=ISO (); ta, இலங்கை, Ilaṅkai, translit-std=ISO ()), formerly known as Ceylon and officially the Democratic Socialist Republic of Sri Lanka, is an ...
,
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,
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, the
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,
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, the
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, the
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, the
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, and
Yugoslavia Yugoslavia (; sh-Latn-Cyrl, separator=" / ", Jugoslavija, Југославија ; sl, Jugoslavija ; mk, Југославија ;; rup, Iugoslavia; hu, Jugoszlávia; rue, label=Pannonian Rusyn, Югославия, translit=Juhoslavija ...
. The states of the
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were not involved. Some amounts owed by Germany arose from its efforts to pay war reparations, and others were associated with large scale loans by the United States. In total, 80 percent of Germany’s external obligations were owed to the United States, the
Netherlands ) , anthem = ( en, "William of Nassau") , image_map = , map_caption = , subdivision_type = Sovereign state , subdivision_name = Kingdom of the Netherlands , established_title = Before independence , established_date = Spanish Netherl ...
, the United Kingdom and Switzerland. The Agreement covered loans arising from external investments due to the
Dawes Plan The Dawes Plan (as proposed by the Dawes Committee, chaired by Charles G. Dawes) was a plan in 1924 that successfully resolved the issue of World War I reparations that Germany had to pay. It ended a crisis in European diplomacy following Wor ...
, and loans from economic aid to Germany. The support was provided by two major programs, the
GARIOA Government Aid and Relief in Occupied Areas (GARIOA) was a program under which the United States after the 1945 end of World War II from 1946 onwards provided emergency aid to the occupied nations of Japan, Germany, and Austria. The aid was predomi ...
and the
Marshall Plan The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred over $13 billion (equivalent of about $ in ) in economic re ...
. Debts that would be settled by different arrangements were excluded from the London Agreement. Claims arising by countries damaged by Germany during World War II were not included. The debts to be settled by the London Agreement included; The Agreement was based on three important conditions. Firstly, the total amount that Germany was obligated to pay would be greatly reduced. The repayments’ timeframe should be stretched long enough in order to help Germany’s economy grow. Last but not least, the total that was supposed to be paid per year was associated with Germany’s “ability to make transfers”. It can be described as a broad based Agreement as it settled just about every kind of German debt arising from the period before and after the Second World War.Jürgen Kaiser (2013). "One Made it Out of the Debt Trap: Lessons from the London Debt Agreement of 1953 for Current Debt Crises" The total under negotiation was 16 billion
marks Marks may refer to: Business * Mark's, a Canadian retail chain * Marks & Spencer, a British retail chain * Collective trade marks, trademarks owned by an organisation for the benefit of its members * Marks & Co, the inspiration for the novel '' ...
of debt resulting from the
Treaty of Versailles The Treaty of Versailles (french: Traité de Versailles; german: Versailler Vertrag, ) was the most important of the peace treaties of World War I. It ended the state of war between Germany and the Allied Powers. It was signed on 28 June ...
after World War I which had not been paid in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. According to several commentators, the total of debts arising before World War II were 16.1 billion marks, while debts after the War were calculated to be 16.2 billion marks. Under the London Agreement, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact. An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. The amounts set by the Agreement were meant to be paid by the profit resulting from German exports, not from stockpile or new loaned amounts. This gave Germany's creditors a powerful incentive to import German goods, assisting reconstruction. After the settlement came into force, for the next five years, until 1958, Germany had to pay only debts arising from unpaid
interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...
. This is another example of attempts made to help Germany’s economy grow before starting to pay the owed amounts. This way, the Allies also acknowledged the willingness of Germany to compensate Israel. After the five-year mark, Germany was under obligation to pay a fixed amount of 765 million Marks per year. As time went by Germany’s exports increased significantly, making fulfilment of payments a lot easier and reducing their negative effects on the economy. Debts covered by the Agreement were almost paid off during the 1970s. Germany continued to pay the fixed amount until the last payment was settled in 1983. Part of the agreement concerned debts to be paid after the
reunification of Germany German reunification (german: link=no, Deutsche Wiedervereinigung) was the process of re-establishing Germany as a united and fully sovereign state, which took place between 2 May 1989 and 15 March 1991. The day of 3 October 1990 when the Ge ...
. For many decades this seemed unlikely to transpire, but in 1990
Deutsche Mark The Deutsche Mark (; English: ''German mark''), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it was ...
239.4 million in deferred interest became due. These claims were repaid by means of "Fundierungsschuldverschreibungen" (Funding Debt Securities) with a maturity of 20 years. On 3 October 2010 the final payment of €69.9 million was made on these bonds, the last payment by Germany on known debts from both world wars.


Negotiations

The negotiations started with the
Allies An alliance is a relationship among people, groups, or states that have joined together for mutual benefit or to achieve some common purpose, whether or not explicit agreement has been worked out among them. Members of an alliance are called ...
creating a Commission. The Commission's key role was to determine the types of debts that would be addressed by the London Agreement. During the process, the two sides negotiated the terms of the Agreement “as equals”. The first conference was held in Bonn, in June 1951. The next conference was held in London in July 1951. In February 1952 another conference occurred. This was the most essential moment of the entire negotiation process. The total amounts of debts and the compensations’ deadlines were the main topic of conversation. Germany’s negotiating skills played a huge role in the settlements’ outcome. In the last parts of negotiations, some “intergovernmental debts” were settled and “detailed technical reports” were produced that were included in the London Agreement.


Impact

The agreement significantly contributed to the growth of the post-war
German economy The economy of Germany is a Developed country, highly developed social market economy. It has the largest national economy in Europe, the List of countries by GDP (nominal), fourth-largest by nominal GDP in the world, and List of countries by ...
and re-emergence of Germany as a world economic power. A 2018 study in the ''
European Review of Economic History The ''European Review of Economic History'' is an international peer-reviewed academic journal published three times per year. It was formerly edited by Cambridge University Press and is currently edited by Oxford University Press. It is edited i ...
'' showed that the London Agreement "spurred economic growth in three main ways: creating fiscal space for public investment; lowering costs of borrowing; and stabilising inflation." It allowed Germany to enter international economic institutions such as the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
and the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
. Another study has shown that the London Agreement can be associated with a "rise in real per capita social expenditure in health, education, housing, and economic development". The stabilization of inflation was a major benefit for the
German economy The economy of Germany is a Developed country, highly developed social market economy. It has the largest national economy in Europe, the List of countries by GDP (nominal), fourth-largest by nominal GDP in the world, and List of countries by ...
. West Germany's new currency, the
Deutsche Mark The Deutsche Mark (; English: ''German mark''), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it was ...
was highly unstable until 1953. After the signing of the Agreement, it stabilized due to the German Debt relief. The transition of West Germany from a debtor to a creditor by the middle of the 1950s, had an impact on Germany's economic growth as well. The Agreement's outcome can be described as a German economic miracle. Germany achieved all of the above, despite being obligated to pay the total amount of war reparations (with interest) prior to the London Conference and despite the presence of an
Arbitral tribunal An arbitral tribunal or arbitration tribunal, also arbitration commission, arbitration committee or arbitration council is a panel of unbiased adjudicators which is convened and sits to resolve a dispute by way of arbitration. The tribunal may co ...
.Άρης Ραδιόπουλος (2019). ''Η διεκδίκηση των γερμανικών οφειλών προς την Ελλάδα''


See also

*
German reparations for World War II After World War II both West Germany and East Germany were obliged to pay war reparations to the Allied governments, according to the Potsdam Conference. Other Axis nations were obliged to pay war reparations according to the Paris Peace Treati ...
*
Marshall Plan The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred over $13 billion (equivalent of about $ in ) in economic re ...
*
World War I reparations Following the ratification of article 231 of the Treaty of Versailles at the conclusion of World War I, the Central Powers were made to give war reparations to the Allied Powers. Each of the defeated powers was required to make payments in eith ...
*
Dawes Plan The Dawes Plan (as proposed by the Dawes Committee, chaired by Charles G. Dawes) was a plan in 1924 that successfully resolved the issue of World War I reparations that Germany had to pay. It ended a crisis in European diplomacy following Wor ...
, 1924–29 *
Young Plan The Young Plan was a program for settling Germany's World War I reparations. It was written in August 1929 and formally adopted in 1930. It was presented by the committee headed (1929–30) by American industrialist Owen D. Young, founder and for ...
, 1930–32 *
Hoover Moratorium The Hoover Moratorium was a public statement issued by United States President Herbert Hoover on June 20, 1931, who hoped to ease the ongoing international financial crisis and provide time for recovery by instituting a one-year moratorium on paym ...
stopped payments in 1931


References


Further reading

* * * * Timothy W. Guinnane, "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement" (Economic Growth Center, Yale University, 2004
online


External links


Text of the treaty
* Éric Toussaint
The Marshall Plan and the Debt Agreement on German debt
* Timothy W. Guinnane
Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement
{{Authority control 1953 in Germany Economy of West Germany History of government debt Reparations Treaties concluded in 1953 Treaties of West Germany Treaties of Australia Treaties of Belgium Treaties of Canada Treaties of Sri Lanka Treaties of Denmark Treaties of France Treaties of Greece Treaties of Iran Treaties of Ireland Treaties of Italy Treaties of Liechtenstein Treaties of Luxembourg Treaties of Norway Treaties of Pakistan Treaties of Spain Treaties of Sweden Treaties of Switzerland Treaties of South Africa Treaties of the United Kingdom Treaties of the United States Treaties of Yugoslavia Debt