AVELINO DE JESUS
A German rescue
April 19, 2011, 11:42 by Avelino de Jesus
I
We are in 1951. Germany, after political driven crazy, but supported by his people, destructive war, was divided, occupied by foreign powers-and had a huge sovereign debt to pay. The reconstruction of the country and its economic growth were incompatible with the burden of accumulated debt service, before and after the war.
I
We are in 1951. Germany, after political driven crazy, but supported by his people, destructive war, was divided, occupied by foreign powers-and had a huge sovereign debt to pay. The reconstruction of the country and its economic growth were incompatible with the burden of accumulated debt service, before and after the war.
Began tough negotiations--conducted by the German side by the historic President of Deutsche Bank, Hermann Abs-between the German Government and the representatives of the Governments of creditor countries that led to the establishment, in 1953, of a payment agreement that, even today, is an excellent case study of resolving sovereign debts.
II
"The Federal Government understands that, in determining the manner and extent to which the Federal Republic will fulfill this responsibility [German foreign debt, before and after the second world war], shall be taken into account the overall situation of the Federal Republic, including, in particular, the effects of limitations on their territorial jurisdiction and its ability to pay"
Konrad Adenauer: article I of the Charter of March 6, 1951, Appendix A of the agreement of London from 1953 on German debt.
"This plan will not cause undesirable effects on the German economy on the domestic financial situation nor drain, unjustifiably, the capabilities of both the existing Chevron wants potential. The signatory Governments may request expert opinions on all matters resulting from the negotiations for the elaboration of the plan as well as on the ability to pay "
Konrad Adenauer: article III of the Charter of March 6, 1951, Appendix A of the 1953 London agreement on German debt.
"We also have the honour, on behalf of the three Governments, confirm the understanding of the Federal Government set out in the second subparagraph of article I and article III of your letter"
A. François-Poncet (by the Government of the French Republic), Ivone Kirkpatrick (by the Government of the United Kingdom), John j. McCloy (by the Government of the United States of America): letter dated March 6, 1951, Appendix A of the 1953 London agreement on German debt.
IIIThe 1953 London Agreement on German debt was signed on February 27, after tough negotiations with representatives from 26 countries, with special relevance for the USA, the Netherlands, United Kingdom andSwitzerland, where it was concentrated the essential part of the debt.
The total debt was estimated at 32 billion of marcos, and divide into equal parts in debt from before and after World War II.
The US began by proposing the forgiveness of the debt contracted after World War II. But, faced with the refusal of other creditors, a compromise was reached. Was forgiven around 50% of debt and made the re-staggering debt remaining for a period of 30 years. For a part of this debt was further stretched. So, part of the debt payment was conditional upon reunification. Only in October 1990, two days after the reunification, the Government issued bonds to pay the debt in the years 1920.
The idea of conditionality of payment (pay only what you can and when you can) has always been present since the beginning of the negotiations. The agreement aimed at, not the short term, but rather sought to ensure the economic growth of the debtor and its actual capacity to pay.
The agreement adopted three fundamental principles:
1-substantial debt reduction/Forgiveness;
2-term Rescheduling of debt for a long period;
3-Conditioning of benefits to the debtor's ability to pay.
Payment due in each year may not exceed the capacity of the economy. In case of difficulties, was made for the possibility of suspension and renegotiation of payments. The value of the mounts used for the debt service could not be more than 5% of the value of exports. Interest rates were moderate, varying between 0 and 5%.
The major concern was to generate surpluses to make payments without reducing consumption. As a starting point, it was considered unacceptable to reduce consumption to repay debt.
The payment has been escalated between 1953 and 1983. Between 1953 and 1958 was granted the status of a grace period during which only interest paid.
The German negotiating strategy was formulated and conducted with all the rigour and with all political players.Even before the above-mentioned conditions, the Bundestag began to decline.
The agreement was finally signed but under strong protest votes and only after strong pressure from E.U.A.
The fulfillment of the agreement, on the part of Germany, was made possible by the flexibility of its (payment conditioned by the growth) and privatization policy/denazification carried out by politicians, essentially German Ludwig Erhard1 regenerators, in the Ministry of economy, firmly supported by Konrad Adenauer in Chancery.
IV The 1953 London Agreement on German debt is a very interesting case study that has interested scholars of sovereign insolvency for situations in which the subject of the payment condition is inevitable
Even very recently, the Governor of the Central Bank of Ireland has produced, publicly, an interesting reflection on the sovereign debt service irlandesa2.
For the present situation of the study of Portuguese Agreement of London also has a huge importance.
The weighting of our situation leads us to highlight three demands that the German experience shows they are unavoidable:
1. the negotiation of debt reduction, stretching for a suitable period of payments and reduce interest rates to moderate levels (near 3.5%);
2. the entry into political agents action regenerators, free of the responsibilities by the follies that caused excessive indebtedness, with negotiating capacity vis-à-vis creditors high;
3. the formulation and implementation of a policy equivalent to privatization/des nazificação of Germany which represents an effective model to break persistent statist that has led us thus far.
1 Reflections of Erhard, shed in book (Kriegsfinanzierung und Schuldenkonsolidierung: war Finance and debt consolidation), on debt management after a period of political madness, are still of great importance. 2 Earlier this month, the Governor of Ireland's Central Bank, Patrick Honohan, proposed the following: "a simple version [among the various options of financial engineering risk sharing mutually beneficial] Ireland would pay more when the gross national product growth is strong and less when the growth is weaker. The purpose of these obligations linked to the GNP, or similar risk-sharing innovations, should be to restore, through growth, a favourable dynamics of sovereign debt ratio. " (Financial Times, April 7, 2011)
Economist and professor of the ISEG
majesus@iseg.utl.pt
Original Text: http://www.jornaldenegocios.pt/opiniao/detalhe/um_resgate_alematildeo.html
II
"The Federal Government understands that, in determining the manner and extent to which the Federal Republic will fulfill this responsibility [German foreign debt, before and after the second world war], shall be taken into account the overall situation of the Federal Republic, including, in particular, the effects of limitations on their territorial jurisdiction and its ability to pay"
Konrad Adenauer: article I of the Charter of March 6, 1951, Appendix A of the agreement of London from 1953 on German debt.
"This plan will not cause undesirable effects on the German economy on the domestic financial situation nor drain, unjustifiably, the capabilities of both the existing Chevron wants potential. The signatory Governments may request expert opinions on all matters resulting from the negotiations for the elaboration of the plan as well as on the ability to pay "
Konrad Adenauer: article III of the Charter of March 6, 1951, Appendix A of the 1953 London agreement on German debt.
"We also have the honour, on behalf of the three Governments, confirm the understanding of the Federal Government set out in the second subparagraph of article I and article III of your letter"
A. François-Poncet (by the Government of the French Republic), Ivone Kirkpatrick (by the Government of the United Kingdom), John j. McCloy (by the Government of the United States of America): letter dated March 6, 1951, Appendix A of the 1953 London agreement on German debt.
IIIThe 1953 London Agreement on German debt was signed on February 27, after tough negotiations with representatives from 26 countries, with special relevance for the USA, the Netherlands, United Kingdom andSwitzerland, where it was concentrated the essential part of the debt.
The total debt was estimated at 32 billion of marcos, and divide into equal parts in debt from before and after World War II.
The US began by proposing the forgiveness of the debt contracted after World War II. But, faced with the refusal of other creditors, a compromise was reached. Was forgiven around 50% of debt and made the re-staggering debt remaining for a period of 30 years. For a part of this debt was further stretched. So, part of the debt payment was conditional upon reunification. Only in October 1990, two days after the reunification, the Government issued bonds to pay the debt in the years 1920.
The idea of conditionality of payment (pay only what you can and when you can) has always been present since the beginning of the negotiations. The agreement aimed at, not the short term, but rather sought to ensure the economic growth of the debtor and its actual capacity to pay.
The agreement adopted three fundamental principles:
1-substantial debt reduction/Forgiveness;
2-term Rescheduling of debt for a long period;
3-Conditioning of benefits to the debtor's ability to pay.
Payment due in each year may not exceed the capacity of the economy. In case of difficulties, was made for the possibility of suspension and renegotiation of payments. The value of the mounts used for the debt service could not be more than 5% of the value of exports. Interest rates were moderate, varying between 0 and 5%.
The major concern was to generate surpluses to make payments without reducing consumption. As a starting point, it was considered unacceptable to reduce consumption to repay debt.
The payment has been escalated between 1953 and 1983. Between 1953 and 1958 was granted the status of a grace period during which only interest paid.
The German negotiating strategy was formulated and conducted with all the rigour and with all political players.Even before the above-mentioned conditions, the Bundestag began to decline.
The agreement was finally signed but under strong protest votes and only after strong pressure from E.U.A.
The fulfillment of the agreement, on the part of Germany, was made possible by the flexibility of its (payment conditioned by the growth) and privatization policy/denazification carried out by politicians, essentially German Ludwig Erhard1 regenerators, in the Ministry of economy, firmly supported by Konrad Adenauer in Chancery.
IV The 1953 London Agreement on German debt is a very interesting case study that has interested scholars of sovereign insolvency for situations in which the subject of the payment condition is inevitable
Even very recently, the Governor of the Central Bank of Ireland has produced, publicly, an interesting reflection on the sovereign debt service irlandesa2.
For the present situation of the study of Portuguese Agreement of London also has a huge importance.
The weighting of our situation leads us to highlight three demands that the German experience shows they are unavoidable:
1. the negotiation of debt reduction, stretching for a suitable period of payments and reduce interest rates to moderate levels (near 3.5%);
2. the entry into political agents action regenerators, free of the responsibilities by the follies that caused excessive indebtedness, with negotiating capacity vis-à-vis creditors high;
3. the formulation and implementation of a policy equivalent to privatization/des nazificação of Germany which represents an effective model to break persistent statist that has led us thus far.
1 Reflections of Erhard, shed in book (Kriegsfinanzierung und Schuldenkonsolidierung: war Finance and debt consolidation), on debt management after a period of political madness, are still of great importance. 2 Earlier this month, the Governor of Ireland's Central Bank, Patrick Honohan, proposed the following: "a simple version [among the various options of financial engineering risk sharing mutually beneficial] Ireland would pay more when the gross national product growth is strong and less when the growth is weaker. The purpose of these obligations linked to the GNP, or similar risk-sharing innovations, should be to restore, through growth, a favourable dynamics of sovereign debt ratio. " (Financial Times, April 7, 2011)
Economist and professor of the ISEG
majesus@iseg.utl.pt
Original Text: http://www.jornaldenegocios.pt/opiniao/detalhe/um_resgate_alematildeo.html
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