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159

Must Debts Always Be Paid Back?

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Piketty, T. (2017). Must Debts Always Be Paid Back?. In Piketty, T. Chronicles: On Our Political and Economic Crisis. Penguin Books, pp. 159-161

160

A particularly interesting case is that of Germany and France, which in 1945 found themselves with public debts of around two years’ worth (200 percent) of GDP, levels even higher than Greece or Italy today. By the early 1950s those debts had fallen to less than 30 percent of GDP. Obviously, such a swift reduction wouldn’t have been possible through accumulating budget surpluses. On the contrary, the two countries used the whole panoply of fast methods. Inflation, which was very high on both sides of the Rhine between 1945 and 1950, played the central role. At the time of the Liberation, France also instituted an exceptional tax on private capital, reaching 25 percent on the largest wealth holdings and even 100 percent on the biggest accumulations that had taken place between 1940 and 1945. Both countries also used various forms of “debt restructuring,” the technical term used by financiers for simply canceling all or part of a debt (the more prosaic term haircut is also used). As, for example, in the famous London Accords of 1953, where the bulk of Germany’s foreign debt was canceled. It was these fast methods of debt reduction—especially inflation—that allowed France and Germany to launch into reconstruction and postwar growth without the burden of debt. That’s also how the two countries were able to invest in public infrastructure, education, and development in the 1950s and ’60s. And it’s those same two countries that are now explaining to southern Europe that public debts must always be repaid, down to the last euro, without inflation and without exceptional measures.

—p.160 by Thomas Piketty 1 year, 11 months ago

A particularly interesting case is that of Germany and France, which in 1945 found themselves with public debts of around two years’ worth (200 percent) of GDP, levels even higher than Greece or Italy today. By the early 1950s those debts had fallen to less than 30 percent of GDP. Obviously, such a swift reduction wouldn’t have been possible through accumulating budget surpluses. On the contrary, the two countries used the whole panoply of fast methods. Inflation, which was very high on both sides of the Rhine between 1945 and 1950, played the central role. At the time of the Liberation, France also instituted an exceptional tax on private capital, reaching 25 percent on the largest wealth holdings and even 100 percent on the biggest accumulations that had taken place between 1940 and 1945. Both countries also used various forms of “debt restructuring,” the technical term used by financiers for simply canceling all or part of a debt (the more prosaic term haircut is also used). As, for example, in the famous London Accords of 1953, where the bulk of Germany’s foreign debt was canceled. It was these fast methods of debt reduction—especially inflation—that allowed France and Germany to launch into reconstruction and postwar growth without the burden of debt. That’s also how the two countries were able to invest in public infrastructure, education, and development in the 1950s and ’60s. And it’s those same two countries that are now explaining to southern Europe that public debts must always be repaid, down to the last euro, without inflation and without exceptional measures.

—p.160 by Thomas Piketty 1 year, 11 months ago