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Thomas Piketty: ‘Germany Has Never Repaid its Debts. It Has No Right to Lecture Greece’

By Die Zeit on 08/07/2015

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In the interview, star economist Thomas Piketty calls for a major conference on debt. Germany, in particular, should not withhold help from Greece.

File photo of Thomas Piketty. Credit: Universitat Pompeu Fabra, CC 2.0

Since his successful book, Capital in the Twenty-First Century, the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a interview with Georg Blume of Die Zeit, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity?

Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history.

Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe.

ZEIT: But shouldn’t they repay their debts?

Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

ZEIT: But surely we can’t draw the conclusion that we can do no better today?

Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

ZEIT: Are you trying to depict states that don’t pay back their debts as winners?

Piketty: Germany is just such a state. But wait: history shows us two ways for an indebted state to leave delinquency. One was demonstrated by the British Empire in the 19th century after its expensive wars with Napoleon. It is the slow method that is now being recommended to Greece. The Empire repaid its debts through strict budgetary discipline. This worked, but it took an extremely long time. For over 100 years, the British gave up two to three percent of their economy to repay its debts, which was more than they spent on schools and education. That didn’t have to happen, and it shouldn’t happen today. The second method is much faster. Germany proved it in the 20th century. Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief.

ZEIT: So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?

Piketty: Exactly. After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.

ZEIT: That happened because people recognised that the high reparations demanded of Germany after World War I were one of the causes of the Second World War. People wanted to forgive Germany’s sins this time!

Piketty: Nonsense! This had nothing to do with moral clarity; it was a rational political and economic decision. They correctly recognized that, after large crises that created huge debt loads, at some point people need to look toward the future. We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s. We need to look ahead. Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance. We need to remember this.

ZEIT: The end of the Second World War was a breakdown of civilization. Europe was a killing field. Today is different.

Piketty: To deny the historical parallels to the postwar period would be wrong. Let’s think about the financial crisis of 2008/2009. This wasn’t just any crisis. It was the biggest financial crisis since 1929. So the comparison is quite valid. This is equally true for the Greek economy: between 2009 and 2015, its GDP has fallen by 25%. This is comparable to the recessions in Germany and France between 1929 and 1935.

ZEIT: Many Germans believe that the Greeks still have not recognized their mistakes and want to continue their free-spending ways.

Piketty: If we had told you Germans in the 1950s that you have not properly recognized your failures, you would still be repaying your debts. Luckily, we were more intelligent than that.

ZEIT: The German Minister of Finance, on the other hand, seems to believe that a Greek exit from the Eurozone could foster greater unity within Europe.

Piketty: If we start kicking states out, then the crisis of confidence in which the Eurozone finds itself today will only worsen. Financial markets will immediately turn on the next country. This would be the beginning of a long, drawn-out period of agony, in whose grasp we risk sacrificing Europe’s social model, its democracy, indeed its civilization on the altar of a conservative, irrational austerity policy.

ZEIT: Do you believe that we Germans aren’t generous enough?

Piketty: What are you talking about? Generous? Currently, Germany is profiting from Greece as it extends loans at comparatively high interest rates.

ZEIT: What solution would you suggest for this crisis?

Piketty: We need a conference on all of Europe’s debts, just like after World War II. A restructuring of all debt, not just in Greece but in several European countries, is inevitable. Just now, we’ve lost six months in the completely intransparent negotiations with Athens. The Eurogroup’s notion that Greece will reach a budgetary surplus of 4% of GDP and will pay back its debts within 30 to 40 years is still on the table. Allegedly, they will reach one percent surplus in 2015, then two percent in 2016, and three and a half percent in 2017. Completely ridiculous! This will never happen. Yet we keep postponing the necessary debate until the cows come home.

ZEIT: And what would happen after the major debt cuts?

Piketty: A new European institution would be required to determine the maximum allowable budget deficit in order to prevent the regrowth of debt. For example, this could be a commmittee in the European Parliament consisting of legislators from national parliaments. Budgetary decisions should not be off-limits to legislatures. To undermine European democracy, which is what Germany is doing today by insisting that states remain in penury under mechanisms that Berlin itself is muscling through, is a grievous mistake.

ZEIT: Your president, François Hollande, recently failed to criticise the fiscal pact.

Piketty: This does not improve anything. If, in past years, decisions in Europe had been reached in more democratic ways, the current austerity policy in Europe would be less strict.

ZEIT: But no political party in France is participating. National sovereignty is considered holy.

Piketty: Indeed, in Germany many more people are entertaining thoughts of reestablishing European democracy, in contrast to France with its countless believers in sovereignty. What’s more, our president still portrays himself as a prisoner of the failed 2005 referendum on a European Constitution, which failed in France. François Hollande does not understand that a lot has changed because of the financial crisis. We have to overcome our own national egoism.

ZEIT: What sort of national egoism do you see in Germany?

Piketty: I think that Germany was greatly shaped by its reunification. It was long feared that it would lead to economic stagnation. But then reunification turned out to be a great success thanks to a functioning social safety net and an intact industrial sector. Meanwhile, Germany has become so proud of its success that it dispenses lectures to all other countries. This is a little infantile. Of course, I understand how important the successful reunification was to the personal history of Chancellor Angela Merkel. But now Germany has to rethink things. Otherwise, its position on the debt crisis will be a grave danger to Europe.

ZEIT: What advice do you have for the Chancellor?

Piketty: Those who want to chase Greece out of the Eurozone today will end up on the trash heap of history. If the Chancellor wants to secure her place in the history books, just like [Helmut] Kohl did during reunification, then she must forge a solution to the Greek question, including a debt conference where we can start with a clean slate. But with renewed, much stronger fiscal discipline.

This interview originally appeared in Die Zeit. The German original may be read here. English translation by Gavin Schalliol, an amateur rabble-rouser based in Hamburg, Germany.

What Americans Want

Why 2016 Matters

By Nick Paleologos

Is the American media obsessed with polls or what? Everywhere you turn, craven politicians on cable tv are endlessly pontificating about “what Americans believe” and “what the country wants.” Newsflash: America—as a nation—tells us what it wants every four years during presidential elections. This is the only time in our democratic system when the collective will of the country is officially expressed—bestowing upon the winner a mandate to move the country in the direction advocated.

Mid-term elections, on the other hand, exist primarily to determine how expeditiously the president’s voter-approved agenda can be implemented. And most of the time, Americans use mid-terms to slow things down. Nevertheless, setting a course for the country has always been the exclusive prerogative of presidents—and by extension, the people who elected them. That means you and me.

Along those lines, America made a historic decision in 2008. We sent a black guy to the White House for the first time in history. He promised to stop shipping American kids overseas to fight other peoples’ wars; he pledged to create jobs at home and to rebuild our economy. He also vowed to extend affordable healthcare to millions of uninsured Americans. And we elected him by a margin of nearly 10 million votes.

In his first term, he did pretty much all of those things.

“Four” may not be the perfect number of years between national plebiscites. But it’s the best we’ve got. And it certainly gives us enough time to experience the short-term consequences of our choices. In 2012, the choice facing America was clear. Change direction? Or stay the course? The president’s opponent said the country was on the wrong track. He promised a hard turn to the right: spend more money on wars abroad; cut taxes on the wealthy even further; and get rid of the Affordable Care Act.

He lost. In fact, he lost by more than 5 million votes.

What does that tell you? It tells me that the forces of equity and tolerance are on the rise again in our country--and not a moment too soon. Thirty-five years of slavish adherence to a national agenda that routinely sacrificed fundamental fairness to an unfettered free market has left America’s middle class bereft, bankrupt and bewildered. The one place where we’ve been able to register our frustration—indeed our fury--has been in presidential elections. Like the one we’re having next year.

We don’t yet know who the final two candidates for president will be. But we do know that they will have to navigate a riptide of cultural crosscurrents while their Twitter feeds are bursting with hashtags that will include: income inequality; black lives matter; Citizens United; immigration reform; free (and fair) trade; climate change; and rebuilding America for a new millennium—among many others.

At the end of the day, 2016 will be about the following questions:

1)   Is America ready for a woman to be president?

2)   Should our wealthiest citizens and corporations at least pay the same effective tax rates as everybody else?

3)   Should we build upon and improve the Affordable Care Act?

4)   Should debt-free college education be a basic right for every qualified kid in this country?

5)   Is it time to require a background check before anybody can buy a gun in America?

I'm guessing that only one of the final two candidates will answer yes to all five. And by so doing, provide America with a third consecutive opportunity to send a clear and unambiguous message to congress, the chatter class, and beyond. What we “want” is a safe country for our kids--where freedom and fairness are not mutually exclusive; and where healthcare and higher education are rights--not privileges.

Is that too much to ask?

Credit Where Credit Is Due...

Amid health care, gay marriage victories, no one invokes DiMasi

Sal DiMasi (right) watched then Governor Mitt Romney sign the health care bill.

By Jim O’Sullivan Globe Staff  July 02, 2015

It took a federal court to cement Sal DiMasi’s legacy. And, this time, almost no one noticed.

It wasn’t the Moakley Courthouse, the one where DiMasi had to answer for his crimes born of greed and corruption. But rather the big one across the street from the US Capitol, where DiMasi’s lasting impact was, over the course of the past week, writ large. While he rots in a prison cell in Butner, N.C., the two causes that Sal DiMasi went to the wall for — maybe more than anyone else — passed from controversial wayposts to the virtually unshakable law of the land.

President Obama likely wouldn’t have had the chance to pass his 2010 federal health care expansion if DiMasi, the former Massachusetts House speaker, didn’t stick to the left during the 2006 debate here. There are valid arguments that DiMasi was not the prime mover behind the Massachusetts health care bill that provided a model for the national version (former Senate president Robert Travaglini and governor Mitt Romney might quibble), but it wouldn’t have gotten done without him.

A year later, gay marriage was at the gallows on Beacon Hill. It had been law here for three years, but a few votes or a slip of the foot in either direction would have dealt it a blow that might have frozen the whole movement and robbed sanctimonious Democrats in 2015 of the ability to overlook the fact that it was an institution their own president didn’t support until six months before his reelection — and Hillary Rodham Clinton didn’t support until a full year after that.

DiMasi went to the wall for gay marriage, in old-school, arm-twisting fashion, including the successful persuasion of one state rep who said his father-in-law offered him a new car to vote against it. There are valid arguments that others did more — Senate President Therese Murray, for instance, had the fortitude to call for the fateful 2007 vote — but that wouldn’t have gotten done without him, either.

Twice in the past decade Massachusetts has established a far-reaching, long-resonating beachhead in the progressive campaign. There was one constant.

“He was a hero, but too often an unsung hero, a not-acknowledged-enough hero of our community,” Arline Isaacson, a longtime gay rights advocate, said this week. “We would not have made it as far or as fast legislatively towards equality had it not been for him.”

There is a valid argument to be made that no one has done more over the past four decades on the side of liberalism in Massachusetts than Sal DiMasi.

A gay rights bill in 1983 that established rock-bottom civil rights thresholds for gay people. The 2008 Global Warming Solutions Act, requiring an 80 percent reduction in greenhouse gas emissions by 2050. Together with Travaglini, DiMasi helped pass landmark stem cell research legislation that social conservatives opposed, an oft-forgotten legislative battle that marked the first big win of the DiMasi speakership.

“Despite all of the personal issues that Speaker DiMasi faced, he always maintained a very aggressive progressive agenda,” said Aaron Michlewitz, a former DiMasi aide who succeeded him in the House. “A lot of what has taken place on the national level originated from that work that Speaker DiMasi did.”

Governor Deval Patrick shook hands with House Speaker Salvatore DiMasi after signing a bill repealing a law preventing gay couples from other states from marrying in Massachusetts.

There was another echo of DiMasi’s career last week, this one not an enduring success, but a short-lived victory that thrilled the liberals who now won’t speak his name.

Plainridge Park Casino opened June 24, a day long delayed by DiMasi’s opposition to expanded gambling. He fought unions, a sitting governor of his own party, pernicious rumors about his motivations based on his ethnicity — but DiMasi held casinos and slot parlors at bay until after he left office.

Indeed, there is a valid argument to be made that no one — not Ted Kennedy, not Deval Patrick, not Mike Dukakis — has done more over the past four decades on the side of liberalism in Massachusetts, and with sweeping repercussions beyond, than Prisoner 27371-038.

DiMasi’s crimes are embarrassing to honest public officials and almost humiliatingly penny-ante. He went to prison for, essentially, taking $65,000 in bribes to steer several million dollars in contracts. The jury found him crooked, selling his office to enrich himself. He is paying his debt to society.

But, if his family is to be believed, his treatment since he entered the federal penal system has been virtually inhumane — symptoms of cancer ignored and allowed to fester.

And the lack of credit paid DiMasi after historic affirmations of his policy and political work should be almost as galling, except that almost no one noticed. Several prominent Massachusetts Democrats declined to speak on the record for this column.

On the steps of the State House last Friday evening, a raucous crowd celebrated the court’s same-sex marriage decision. Speakers praised the activists and legislators who had defended same-sex marriage in Massachusetts.

The tremendous amount of happiness was rivaled closely by self-congratulation. Speaker Bob DeLeo, who once opposed same-sex marriage while DiMasi was whipping votes in favor, took the stage to Lady Gaga’s “Born This Way.”

And no one mentioned Sal DiMasi.

In his day — and in those since — no one has wielded power on Beacon Hill the way DiMasi did. After a slow start that prompted questions about whether his would be a weak speakership, DiMasi found his footing and brought to fruition the liberal causes that had animated much of his career. He vexed conservatives, but they’re not the ones turning their backs on him now. It’s the liberals who crow about DiMasi’s achievements as if they were their own, as if they ever would have happened without him.

Stewart v Scalia: No Contest