An inconvenient historical truth

Real-World Economics Review Blog

from David Ruccio

Thomas Piketty, in an interview with the German newspaper Die Zeit, is the latest to recognize an inconvenient historical truth: in 1953, Germany was able to negotiate a large (50-60-percent) reduction in its outstanding foreign debt (owed to many countries, including Greece).

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…

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