The London Agreement on German External Debts, also known as the London Debt Agreement (German: Londoner Schuldenabkommen), was a debt relief treaty between the Federal Republic of Germany and creditor nations. The Agreement was signed in London on 27 February 1953, and came into force on 16 September 1953. [1]
On 24 May 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.
"4. The three Governments, in order to make an overall settlement of German debts possible, are prepared to modify the priority of their claims in respect of the post-war economic assistance which they furnished to Germany, on condition that the settlement plan is acceptable to them." [2]
"5. The arrangements contemplated relate to Germany's pre-war public and private indebtedness and to the German debt arising out of post-war economic assistance; they do not relate to claims arising out of the war which can only be dealt with in connexion with a peace treaty." [2]
In response to the Allies, Adenauer 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 28 February and 28 August 1952. [1] The Agreement reached at the Conference was signed in London on 27 February 1953. [1] The Agreement was ratified by the United States, France, and United Kingdom on 16 September 1953, at which point the agreement came into force. The Agreement was firstly turned down by the Bundestag and then approved on a following vote. [1]
The parties that were involved besides West Germany included Belgium, Canada, Ceylon, Denmark, France, Greece, Iran, the Republic of Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan, Spain, Sweden, Switzerland, the Union of South Africa, the United Kingdom of Great Britain and Northern Ireland, the United States of America, and Yugoslavia. [3] The states of the Eastern Bloc 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, the United Kingdom, and Switzerland. [4]
The Agreement covered loans arising from external investments due to the Dawes Plan, and loans from economic aid to Germany. The support was provided by two major programs, the GARIOA and the Marshall Plan. [4]
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; [5]
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”. [4] 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. [6]
The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s, [4] 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. [4] 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. [4] 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. [6] This gave Germany's creditors a powerful incentive to import German goods, assisting reconstruction. [7] After the settlement came into force, for the next five years, until 1958, Germany had to pay only debts arising from unpaid interest. 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. For many decades this seemed unlikely to transpire, but in 1990 Deutsche Mark 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. [8]
The negotiations started with the Allies 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”. [6] The first conference was held in Bonn, in June 1951. The next conference was held in London in July 1951. [4]
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. [4]
In the last parts of negotiations, some “intergovernmental debts” were settled and “detailed technical reports” were produced that were included in the London Agreement. [9]
The agreement significantly contributed to the growth of the post-war German economy and re-emergence of Germany as a world economic power. A 2018 study in the European Review of Economic History 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." [10] It allowed Germany to enter international economic institutions such as the World Bank and the International Monetary Fund. 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. West Germany's new currency, the Deutsche Mark, was highly unstable until 1953. After the signing of the agreement, it stabilized due to the 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. [11] 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. [9]
The Marshall Plan was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred $13.3 billion in economic recovery programs to Western European economies after the end of World War II. Replacing an earlier proposal for a Morgenthau Plan, it operated for four years beginning on April 3, 1948, though in 1951, the Marshall Plan was largely replaced by the Mutual Security Act. The goals of the United States were to rebuild war-torn regions, remove trade barriers, modernize industry, improve European prosperity and prevent the spread of communism. The Marshall Plan proposed the reduction of interstate barriers and the economic integration of the European Continent while also encouraging an increase in productivity as well as the adoption of modern business procedures.
Following their defeat in World War I, the Central Powers agreed to pay war reparations to the Allied Powers. Each defeated power was required to make payments in either cash or kind. Because of the financial situation in Austria, Hungary, and Turkey after the war, few to no reparations were paid and the requirements for reparations were cancelled. Bulgaria, having paid only a fraction of what was required, saw its reparation figure reduced and then cancelled. Historians have recognized the German requirement to pay reparations as the "chief battleground of the post-war era" and "the focus of the power struggle between France and Germany over whether the Versailles Treaty was to be enforced or revised."
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.
War reparations are compensation payments made after a war by one side to the other. They are intended to cover damage or injury inflicted during a war. War reparations can take the form of hard currency, precious metals, natural resources, industrial assets, or intellectual properties. Loss of territory in a peace settlement is usually considered to be distinct from war reparations.
Events in the year 1921 in Germany.
Events in the year 1922 in Germany.
The Dawes Plan temporarily resolved the issue of the reparations that Germany owed to the Allies of World War I. Enacted in 1924, it ended the crisis in European diplomacy that occurred after French and Belgian troops occupied the Ruhr in response to Germany's failure to meet its reparations obligations.
The Young Plan was a 1929 attempt to settle issues surrounding the World War I reparations obligations that Germany owed under the terms of Treaty of Versailles. Developed to replace the 1924 Dawes Plan, the Young Plan was negotiated in Paris from February to June 1929 by a committee of international financial experts under the leadership of American businessman and economist Owen D. Young. Representatives of the affected governments then finalised and approved the plan at The Hague conference of 1929/30. Reparations were set at 36 billion Reichsmarks payable through 1988. Including interest, the total came to 112 billion Reichsmarks. The average annual payment was approximately two billion Reichsmarks. The plan came into effect on 17 May 1930, retroactive to 1 September 1929.
A country's gross external debt is the liabilities that are owed to nonresidents by residents. The debtors can be governments, corporations or citizens. External debt may be denominated in domestic or foreign currency. It includes amounts owed to private commercial banks, foreign governments, or international financial institutions such as the International Monetary Fund (IMF) and the World Bank.
A country's gross government debt is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occurs when a government's expenditures exceed revenues. Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's external debt.
The Reparations Agreement between Israel and the Federal Republic of Germany was signed on September 10, 1952, and entered in force on March 27, 1953. According to the Agreement, West Germany was to pay Israel for the costs of "resettling so great a number of uprooted and destitute Jewish refugees" after the war, and to compensate individual Jews, via the Conference on Jewish Material Claims Against Germany, for losses in Jewish livelihood and property resulting from Nazi persecution.
The occupation of the Ruhr was the period from 11 January 1923 to 25 August 1925 when French and Belgian troops occupied the Ruhr region of Weimar Republic Germany.
The Economic Consequences of the Peace (1919) is a book written and published by the British economist John Maynard Keynes. After the First World War, Keynes attended the Paris Peace Conference of 1919 as a delegate of the British Treasury. At the conference as a representative of the British Treasury and deputy to the Chancellor of the Exchequer on the Supreme Economic Council, but became ill and on his return found that there was 'no hope' of an economically sustainable settlement, and so resigned. In this book, he presents his arguments for a much less onerous treaty for a wider readership, not just for the sake of German civilians but for the sake of the economic well-being of all of Europe and beyond, including the Allied Powers, which in his view the Treaty of Versailles and its associated treaties endangered.
The Economic and Financial Conference was a formal conclave of representatives from 34 European countries held in the ancient Palazzo San Giorgio of Genoa, Italy, from 10 April to 19 May 1922.
The reconstruction of Germany was a long process of rebuilding Germany after the destruction endured during World War II. Germany suffered heavy losses during the war, both in lives and industrial power. 6.9 to 7.5 million Germans died, roughly 8.5 percent of the population. The country's cities were severely damaged from heavy bombing in the closing chapters of the war and agricultural production was only 35 percent of what it was before the war.
The Lausanne Conference of 1932, held from 16 June to 9 July 1932 in Lausanne, Switzerland, was a meeting of representatives from the United Kingdom, France, Italy, Belgium, Japan and Germany that resulted in an agreement to lower Germany's World War I reparations obligations as imposed by the Treaty of Versailles and the 1929 Young Plan. The reduction of approximately 90 per cent was made as a result of the difficult economic circumstances during the Great Depression. The Lausanne Treaty never came into effect because it was dependent on an agreement with the United States on the repayment of the loans it had made to the Allied powers during World War I, and that agreement was never reached. The Lausanne Conference marked the de facto end of Germany's reparations payments until after World War II.
Hyperinflation affected the German Papiermark, the currency of the Weimar Republic, between 1921 and 1923, primarily in 1923. The German currency had seen significant inflation during the First World War due to the way in which the German government funded its war effort through borrowing, with debts of 156 billion marks by 1918. This national debt was substantially increased by 50 billion marks of reparations payable in cash and in-kind under the May 1921 London Schedule of Payments agreed after the Versailles treaty.
Reparations were paid to Yugoslavia in the aftermath of World War II. The State Reparations Commission of the Yugoslav Government estimated the total war damages inflicted upon Yugoslavia in World War II at approximately US$47 billion.
After World War II, both the Federal Republic and Democratic Republic of 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 Treaties, 1947. Austria was not included in any of these treaties.
The Hague conference on reparations of 1929-30 was an international conference on World War I reparations that reviewed and adopted the Young Plan, the final attempt during the Weimar Republic to settle the reparations issue. The conference was held in The Hague, Netherlands in two parts, from 6 to 31 August 1929 and from 3 to 31 January 1930.
{{cite book}}: CS1 maint: multiple names: authors list (link)Originally presented as the author's habilitation (Düsseldorf) under the title: Der Weg zum Londoner Schuldenabkommen. Die Regelung der deutschen Auslandsschulden nach dem Zweiten Weltkrieg.
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