Greek Debt: Let’s Not Repeat History


History is a dangerous teacher, with endless misleading circumstances where parallels tend to obscure critical differences. History’s tutelage, though, is nonetheless vital and always fascinating. Consider Germany, the European Union and Greece.

Alexis Tsipras

Alexis Tsipras, Greece’s new prime minister, heading an odd coalition of his own, left-wing Syriza Party and the right-wing Independent Greeks Party, chooses to remind the European Union of a fact of recent history. Greece was forced to give the Nazis a “loan” during the Second World War. It never was repaid. Now Germany, as the only country in Europe that has much money, is pretty much calling the tune for EU policy. The EU is forcing starvation-level austerity on Greece, Portugal and Ireland, its weakest members, forcing full and timely repayment of loans from Bonn through the EU.

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Paraphrasing with abandon, Tsipras says, Oh yeah? How about Germany’s debt to Greece? With interest and penalties, maybe we could just call this a wash. Not just Tsipras, but some leading economic voices around the world believe the austerity is counterproductive and that Germany needs to let up for its own sake and that of the entire Eurozone, as well as Greece.

He has a point. Angela Merkel, the German chancellor, has one, too, of course. You can’t go around forgiving debt willy-nilly (unless maybe you’re the U.S. government letting up on the richest people and biggest financial institutions in America). Goodness, you’d destroy the putative foundations of capitalism, like honor, trust and enforceable rules of commerce. Anyway, it was Greece’s profligate ways that put them in this mess, right? So the Greek people have to pay up, right?

Sure. But let’s examine a bit of earlier history.

Angela Merkel
Angela Merkel

Germany messed up a couple of times in the 20th century. After the first of these missteps, the world powers held a conference in Versailles. In something of a vengeful mood about the most devastating war in human history, they called on Germany to pay its debts, plus some damages, to the victors of World War I. They called the payments reparations. The terms were frightfully difficult for Germany. Impossible, in fact, and eventually some of the creditors eased up on some of the terms. In 1929 the debt was reduced quite substantially. But the pressure on Germany was intense from 1918 all the way through 1938, and most historians believe a couple of regrettable events — the Great Depression and World War II — were either caused or considerably aggravated by the plight of Germany in those years.

After Germany’s second major disruption of world peace, the Germans were treated rather more kindly. Reparations for the first war were forgotten, and rather than the imposition of more penalties after the second, they got the benefits of the Marshall Plan. With it, the former Axis Powers became the growth centers of industry, operating with new plants and equipment bought with American dollars, while the industrial megalith that had been America began its long slide into oblivion.

Memory, though, is short, selective and conveniently myopic. The shoe is on the other foot, and now Germany is twirling its long moustaches and demanding just payment.

If Greece is granted relief, then Portugal and Ireland are likely to follow with similar demands. Then others. If, on the other hand, Greece leaves the EU, dissolution of the entire organization may follow. The problems Europe has now will be dwarfed by what happens when each nation-state again goes it alone in world markets increasingly dominated by players far larger than any of them. The question will be, whose fault was this? Merkel’s or Tsipras’s?

Either way, when you think about it, the proximate fault lies with Germany, which is a delicious thing to contemplate. Gloating about Germany? Yes, of course. Not for Germany’s past misdeeds, however, but for its current misjudgments.