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 February 27, 1953, and came into force on September 16, 1953. [1]
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.
"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 February 28, 1952 and August 28, 1952. [1] The Agreement reached at the Conference was signed in London on February 27, 1953. [1] 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 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 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. [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 over $13 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. 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 required a reduction of interstate barriers and the dissolution of many regulations while also encouraging an increase in productivity as well as the adoption of modern business procedures.
Following the ratification of article 231 of the Treaty of Versailles at the conclusion of World War I, the Central Powers were compelled to give war reparations to the Allied Powers. Each of the defeated powers were 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.
The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, United States, to regulate the international monetary and financial order after the conclusion of World War II.
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. Generally, the term refers to money or goods changing hands, but not to the annexation of land.
Events in the year 1921 in Germany.
Events in the year 1922 in Germany.
The Dawes Plan 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 World War I and the Treaty of Versailles.
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 former chairman of Radio Corporation of America (RCA), who, at the time, was a member of the board of trustees of the Rockefeller Foundation. Young also had been one of the representatives involved in a previous war-reparations restructuring arrangement—the Dawes Plan of 1924. The Inter-Allied Reparations Commission established the German reparation sum at a theoretical total of 132 billion, but a practical total of 50 billion gold marks. After the Dawes Plan was put into operation in 1924, it became apparent that Germany would not willingly meet the annual payments over an indefinite period. The Young Plan reduced further payments by about 20 percent. Although the theoretical total was 112 billion Gold Marks, equivalent to US ca. $27 billion in 1929 over a period of 58 years, which would end in 1988, few expected the plan to last for much more than a decade. In addition, the Young Plan divided the annual payment, set at two billion Gold Marks, US$473 million, into two components: one unconditional part, equal to one third of the sum, and a postponable part, equal to the remaining two-thirds, which would incur interest and be financed by a consortium of American investment banks coordinated by J.P. Morgan & Co.
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.
Article 231, often known as the War Guilt Clause, was the opening article of the reparations section of the Treaty of Versailles, which ended the First World War between the German Empire and the Allied and Associated Powers. The article did not use the word "guilt" but it served as a legal basis to compel Germany to pay reparations for the war.
The Occupation of the Ruhr was a period of military occupation of the Ruhr region of Germany by France and Belgium between 11 January 1923 and 25 August 1925.
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. In his book, he argued for a much more generous peace, not out of a desire for justice or fairness – these are aspects of the peace that Keynes does not deal with – but for the sake of the economic well-being of all of Europe, including the Allied Powers, which the Treaty of Versailles and its associated treaties would prevent.
The Genoa Economic and Financial Conference was a formal conclave of 34 nations held in Genoa, Italy, from 10 April to 19 May 1922 that was planned by British Prime Minister David Lloyd George to resolve the major economic and political issues facing Europe and to deal with the pariah states of Germany and Russia, both of which had been excluded from the Paris Peace Conference of 1919. The conference was particularly interested in developing a strategy to rebuild a defeated Germany, as well as Central and Eastern European states, and to negotiate a relationship between European capitalist economies and the new Bolshevik regime in Soviet Russia. However, Russia and Germany signed the separate Treaty of Rapallo (1922), and the result at Genoa was a fiasco with few positive results. However, the conference came up with a proposal for resuming the gold standard that was largely put in place by major countries.
The Hoover Moratorium was a public statement issued by United States President Herbert Hoover on June 20, 1931, who hoped to ease the coming international economic crisis and provide time for recovery by instituting a one-year moratorium on payments of German and inter-Allied war debt stemming from World War I. The proposal would postpone the repayment of both capital and interest. Many, both in the United States and abroad, were outraged by this idea.
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 West Germany and East Germany were obliged to pay war reparations to the Allied governments, according to the Potsdam Conference. First provisionally but later finally, Germany ceded a quarter of its territory as defined by its 1937 borders to Poland and the Soviet Union. 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 Mellon-Berenger Agreement was an agreement on the amount and rate of repayment of France's debt to the United States arising from loans and payments in kind made during World War I (1914-1918), both before and after the armistice with Germany. The agreement greatly reduced the amount owing by France, with relatively easy payment terms. However, it was deeply unpopular in France, whose people felt that the United States should waive the debt in light of the huge losses of life and material damage that France had suffered, or at least link payments to reparations from Germany. Ratification by the French parliament was delayed until July 1929. The Great Depression began soon after. In the end, little of the debt was repaid.
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.
