Thomas Piketty: ‘Germany Has Never Repaid its Debts. It Has No Right to Lecture Greece’
In the interview, star economist Thomas Piketty calls for a major conference on debt. Germany, in particular, should not withhold help from Greece.
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.
