Timing of the signing of the 1953 London Treaty Archive

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Tratado de Londres de 1953


If West Germany was able to rebuild its economy quickly after the Second World War it was thanks to the political will of its creditors. At the beginning of the 50s, the United States, Great Britain and France developed a project in which the German federal government recognized their debts incurred before and during the war.

This project was negotiated in London between February 27 and August 8, 1953. The final agreement contained a withdrawal on the German private debts contracted before and after the Second World War. The previous ones amounted to 22,600 million marks. Those of the postwar period were estimated at 16.2 billion.

The countries agreed to the cancellation of Germany’s debt by 62.6% The creditors were many. Those who owned more debt were the United States, the United Kingdom and France. The least, Belgium, Canada, Ceylon, Denmark, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan, Spain, Sweden, Switzerland, the Union of South Africa and Yugoslavia, mainly. All agreed to cancel the debt by 62.6%, leaving 14,500 million marks (7.5 billion of the private debts contracted before the war and 7,000 million corresponding to the postwar period).

The allied creditors granted the German authorities and indebted companies important concessions. The starting point was that Germany had to be able to pay while maintaining a high level of growth and improving the living standards of its population. That is, they had to pay without impoverishing themselves. To achieve this, the creditors accepted, first, that Germany pay in its national currency, the framework. Second, to reduce imports (that is, they could manufacture goods that previously mattered). Third, to sell the manufactured goods abroad, to achieve a positive trade balance.

Another important aspect was that the debt service would depend on what the German economy could afford to pay . The ratio between revenues from debt services and exports should not exceed 5%. This meant that West Germany would not use more than one twentieth of its export earnings to pay its debt. In fact, except once in 1959, he never used more than 4.2%. In addition, interest rates were considerably reduced (between 0 and 5%).

USA helped Germany with the Marshall Plan


Finally, it must also be taken into account that the United States gave West Germany 1,173.7 million through the Marshall Plan (1948-1952), and at least another 200 million (1954-1961) through USAID (United States Agency for International Development, United States Agency for International Development).

Thanks to these exceptional conditions, Germany had finished paying its debt for World War II in 1960 , a record time. He even paid it before the debt for the First World War (Treaty of Versailles), which was not paid until September 2010.

It is revealing to compare how West Germany was treated in 1953 and how other countries have been (and are) treated at present. And that considering that, although hit by the war, Germany was economically stronger than most of the developing countries today. However, he received in 1953 what is currently denied to developing countries.

No other country in the world has been allowed to pay its debt in the national currency. The interest rates that developing countries must pay do not go from 0 to 5%, as was done with Germany. Between 1980 and 2000 the average interest of the countries that received IMF loans in Latin America and the Caribbean fluctuated between 5.7 and 11.4% (including between 6.6 and 11.9% for Brazil between 1980 and 2004).

No other country in the world has been allowed to pay its debt in the national currency. All indebted countries must use hard currencies (dollars, euros, yen, Swiss francs, sterling …).

The agreements with the countries currently in debt also do not include the possibility of suspending payments and renegotiating the conditions in the event that a substantial change limits the available resources, as is currently the case with Greece. The IMF even forbids these countries to manufacture anything they can import.

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