On Saturday 12th October, I was interviewed by Geraldine Dooge for the ABC Radio National’s program ‘Saturday Extra’ on the theme of Greek claims on Germany for wartime reparations and on a strange ‘loan’ that was extracted from the Greek government by the Nazi authorities. You can hear the interview here:
Read on for an analysis of the wartime Greek loan to Germany and for a proposal on how to settle two thorny issues (the settlement of that loan and the inevitable. impending haircut of Greek debt) at once…
There are two separate issues concerning that terrible era. One is the claim for war reparations related to the destruction of life and limb by the Nazi forces and their allies. A second issue, quite independent of war reparations, concerns an enforced ‘loan’ upon the then Quisling Greek government (and which took the form of withdrawals from the Central Bank of Greece), that the Nazi authorities themselves committed, in writing, to repaying to Greece with interest.
Indeed, during the first eighteen months of Occupation, German and Italian occupation forces exacted from Greece a tax to pay for the administration of their own… occupation. So, they decreed unilaterally that the Central Bank of Greece pays the occupying forces 1.5 billion drachmas monthly, which they claimed was the ‘cost’ of ‘administering’ Greece.
In early 1942 the occupying forces decided that these taxes were not sufficient for their war effort. Because the occupiers could not justify these additional sums as ‘administrative fees’ (not even to themselves, it seems), they declared that they additional sums of money would be classified as credits that the Greek state was providing them with. An overdraft facility, in other words, to be paid back by the Axis forces with interest. Indeed, they signed a formal contract with the Bank of Greece a copy of which is in the position of Greek authorities.
As the rate of inflation in Occupied Greece skyrocketed, the Axis occupiers demanded more and more drachmas. So the Bank of Greece printed the money thus fuelling inflation and making the average Greek’s life even nastier, more brutish and shorter.
The extracted sums were increased thrice: Once in December 1942 when the administrative charges were set at 8 billion monthly and determined that sums extracted above this sum would be considered credits (or loans); a second time in May 1943 and then again in October 1943 – when Germany appropriated Italy’s cut as the Italian state, under pressure from the advancing Allies and the partisans, abandoned the Axis.
As the extracted sums increased, the German authorities tried to rename them from Besatzungskosten (occupation costs) to Aufbaukkosten (infrastructure costs), implying that they were used to invest in Greece. But as historian H. Fleischer has shown in 2010, only 1% of these funds stayed in Greece.
From the end of the war to 1990, the German government insisted that this matter, along with many others, could not be settled prior to German re-unification; the argument being that, as there were two Germanies, it was not clear which of the two would bear which part of the burden. In 1990, at the time of the 2+4 (FDR, GDR + USA, Russia, Britain and France) conference that concluded the treaty which allowed Germany’s reunification to be completed, the matter of Greece’s ‘enforced loan’ was given short shrift.
The German government has steadfastly maintained that all these matters have lapsed and that there is nothing to discuss. Bygones are bygones and the treaties of 1953 and 1990 have put to rest all claims on the Federal Republic. Most Greeks, however, counter-argue that, unlike war reparations, the case of this ‘loan’ is unique in Europe: The monies extracted from the Bank of Greece were not formal loans that could be said were written off in 1953 or in 1990. They were extracted under what we might call today an ‘Ongoing Credit Facilitation’ mechanism that was acknowledged as such by the German authorities at the time and, as such, are not subject to any unilateral write-offs.
Fast-forward to today
What is of essence today is to avoid a tit-for-tat match between Germans who accuse the Greeks of being loafers and Greeks accusing Germans for building the fourth Reich. I have consistently campaigned against this slide to stereotyping which, I very much fear, will prove the death knell of the European Union if permitted to proceed unchecked. A prospect that should worry even those who have legitimate reasons to dislike the European Union and, in particular, its institutions.
The current Berlin government, buoyed by the increase in Germany’s political kudos within the stuttering Eurozone, seems to be of the view that bygones are bygones and that today’s Germany has paid its wartime dues to the rest of Europe in general and to Greece in particular. Nonetheless, the average Greek reacts with anger and hurt at Berlin’s refusal to discuss the wartime coercive loan; a refusal that is accompanied by articles and features in the establishment German press pointing accusatory fingers at the ‘lazy’, ‘impossible’, ‘corrupt’ Greeks. Even government ministers in this most pliant of Greek administrations (whose number one priority is to soothe German ears) are livid.
Is it possible to bridge this widening chasm that poses a real and present threat to the foundations of ‘Europe’? I think so. What we need is a little real-politik
We all know that Greece’s debt is unsustainable. Athens knows it, the IMF knows it, the ECB knows it, Berlin knows it. Like all unsustainable debts, it will be haircut. Alas, the German government is tormented by the prospect of admitting to the German people that it had been lying to them for years, when it was promising that not one cent of monies leant to Greece will be lost.
The option that Berlin seems to have decided upon is to mislead the German electorate once more: To continue opposing a haircut of the Greek debt in public while agreeing to a massive real haircut that will take the form of pushing interest rates to almost zero and rescheduling repayments so that the Greek government pays nothing back for years (and repays the whole lot in fifty years time, once inflation has eaten up a large chunk of it).
The problem with this strategy is threefold: First, it is never a good idea to continue to mislead one’s own people. German citizens will quickly grasp the subterfuge and anti-European, anti-Greek feelings will burgeon. Secondly, Greece will remain in a dark cloud of indebtedness for fifty years; a state of being that has toxic repercussions for the psychology of investors and thus depresses any prospect for genuine growth. Thirdly, a noxious atmosphere in Greek-German relations will be perpetuated as a result of the combination between this prolonged debt bondage and Berlin’s rejection of its moral and legal obligation to repay the wartime coercive loan to the Greek government.
Triple equation: A realistic proposal
The wartime coercive loan presents the German government with a great opportunity to avoid misleading the German electorate on the Greek debt’s restructuring. Three numbers can help in this direction: (1) The present value of the wartime loan from Greece to Germany, (2) the amount of loan guarantees put up by Germany as part of the recent Greek ‘bailouts’, and (3) the gains of the German government from the reduction in interest payments on German federal debt due to the flight of capital from Peripheral to German bonds (as measured by the Bundesbank itself). The fact that these three numbers are approximately €40 billion each is a wonderful opportunity to settle this issue.
So, here is the simple proposal: The German government conveys to its constituents, to the German public, that Germany has a responsibility to make amends for the ‘overdraft facility’ that was imposed upon the Central Bank of Greece by German authorities. It offers Greece a cashless agreement according to which the two credit facilities will cancel each other out, thus effecting an immediate reduction in Greek debt of around €40 billion. The German government can add, in its missive to German citizens, that the proposed ‘deal’ will, in the end, have been paid by monies the federal government has earned due to the implosion of the bond markets of countries like Greece.
This way, German citizens will have been told the truth: about the inescapable haircut of Greece’s debts to them, about the gains of the federal government from other people’s troubles, about the responsibility to make amends for a coercive loan extracted from a poor nation at gunpoint. Meanwhile the Greeks will see a gesture of genuine good will from Germany that may help put to rest, once and for all, the memories of the destroyed villages, of the Nazi-induced famine, of the wanton destruction of Greece’s infrastructure as the Wermacht and the SS were withdrawing in 1944 (losses of life, limb and property that Greece was never really compensated for – and which are separate from the coercive loan under discussion here).
In short, a mutual write-off of equivalent debts pressed in the service of restoring German-Greek relations and of avoiding another lie from the German government to the German people regarding Greece’s debt.