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Karel Vereycken : “The precedent of the 1953 London debt conference”

Karel Vereycken

Journalist, Paris.


The subject of this panel is productive credit and non productive monetary scam, called debt. Of course there was no better introduction than what Jacques already brought up on the history of Hamiltonian credit.

We will see successively the situation in Greece, we have here Dean Andromidas, then we have the friends of the UMOJA who have been working long time on this

As far of what I saw yesterday, over the last weeks every day an imminent compromise between Greece and the Troika – is announced. In fact there is no agreement and there was no agreement yesterday even if the Greek negotiators were on Saturday in Brussels.

We are probably in front of the coming four days which will determine a shift one way or the other. Because on Thursday there will be a Euro group meeting which in principle should adopt a compromise solution. Greece is supposed to pay 1.6 billion euros before June 30. But Greece is also demanding to be paid the 7.2 billion which is the last tranche of the IMF rescue plan, but in exchange the Institutions say we are ready to do this if you cut your pensions, if you increase the vat, and if you create a surplus of your primary budget of more than 1%.

Now, 80 % of this primary budget today is used today to pay the pensions. So the IMF says we want our computers to say that all the 6 000 billion dollars in financial derivatives – based on the 320 billion Greek debt – we want to prove that this is all very good paper, and has full value, so we want Greece to impose policies that will prove our computer models are right, and it’s like the Climate change computers, you first make the model and then you invent the data to make reality correspond to your model.

And this is what’s going on now in Greece. They want to kill people by cutting down the health and the pensions, only to preserve a mathematical equation which the rating agencies are using to sell money that is worthless.

So, Greece correctly is saying that this is unacceptable because there is something called reality, and reality means that even if we want Greece to pay back its debts, you have to first turn Greece into a productive nation, in order to get an income so that it can pay anything.

Since 2012, maybe somebody bought Le Monde of today; they have a big title “Default of Greece is now on the agenda”. It’s being discussed; it’s now authorized to use the word. In reality, since 2012 the banks running the Greek debt are bankrupt, they are defaulting, not Greece. But we have now to act the bankruptcy and transform it into a financial reorganization and, since 2012, the Greek government has been very clear that the only way to solve the problem is to have a debt cancellation, a moratorium, a debt reorganization to allow economic life to return.

There are only four ways to reduce debts: 1) a moratorium for a couple of years, 2) reschedule debts on the long term, 3) cancel partially or entirely the debts and 4) reduce the interest rates.

Are there precedents? Of course. Since the 2nd World war, since 1946, there have been 169 cases of debt cancellations and moratoria, but generally they don’t talk too much about it because it gives bad ideas of things to do.

Four cases in point: one was Argentina in 2001 where the private debt got a 65% haircut, an amount close to 100 billion dollars, the largest haircut ever done. Second was Iraq, because the debt of Saddam Hussein, was called on “odious debt” since it was the legacy of a dictatorship. The US cut out the debt of Iraq, but then added so much austerity that they destroyed the country. Getting rid of the debt alone is not enough; it can be a good step in a whole process but it’s not sufficient.

A more notable case was 2006 Equator where an audit established that 85 % of the debt was illegitimate and illegal. This was an amount of 3.2 billion and then the Equator state bought their own debt and threw it in the garbage can. And the banks agreed because everybody knew this debt was worthless.

The other well known case was Iceland in 2008, where the banks of Iceland were ten times bigger than Iceland’s GDP. And they went bankrupt and they asked the citizens of Iceland to pay for the banks, which was in reality to pay back the people of the Netherlands and of Great Britain who used Iceland to speculate on hedge funds. And the people rose, there was a lot of protest and finally the whole thing was scrapped.

The most notorious case which I want to take up today and which Syriza and Tsipras have been promoting as an example is the 1953 debt conference in London. This was about the German debt, the debt from before the Second World War, the remaining debt of the Versailles Treaty which Germany never succeeded paying because it was completely overblown and which was preventing the reconstruction of Western Europe after Second World War.

Eisenhower was elected in November 1952. Then on February 27, 1953 there was a conference in London organized by the allies which called on Herman Abs, a prominent German banker of Deutsche bank. The German debt was 30 billion marks and 66 % of it was scrapped.

And the principle was very simple, exactly what I said before. There were actually four main principles. The first one was that the reimbursement of the debt should never be more than 5 % of revenues from exports. This meant that the entire world had to help Germany to build up productive capacity and then be able to export goods so they would raise their income and pay their debts. So, it was an international plan, not some sort of punishment on Germany as it is being done to Greece today.

So the countries that gave up their debts to Germany were: the US, England, France, Greece, Spain and Pakistan. Later there were agreements between Germany and other countries like Egypt, Argentina, the Belgian Congo, Cambodia, Cameroun, etc.

The second principle adopted at this conference was the fact that both the private and the public debt had to be reorganized in the same time. Because in 2011 there was a haircut on the private debt of Greece by 50 % for 90 % of the creditors, but 10 % of the Greek private debt is now in the hands also of vulture funds which we know from Argentina and elsewhere, which are going to use the debt to make enormous amounts of profits.

So the conference in 1953 settled both the private and public debt. And this is what we should do. The people in Greece thought that after having elected Tsipras, countries as Italy, France and Portugal would somehow shift the whole European orientation. They had big illusions about François Hollande, that France would even organize a conference in Paris to reorganize the debt situation of the entire euro zone, based on these sound principles which had been proven to be the basis for the German economic miracle of the post war period.

To conclude, Varoufakis, the Greek finance minister, in one of his latest statements of June 5th said what we need is a “speech of hope” and he reminds the world that in September 1944 initially, there was the Morgenthau plan which had decided to take out all the industry of Germany, to make it into a pastoral country, only based on a green economy; no more industry.

For two years this was the original plan of the US and the UK. But in 1946, the secretary of state of the US, James Byrnes, in Stuttgart, made the famous speech called the “Speech of hope”, where he said : we should not do this, we cannot punish entire generations for what happened, we should completely change, rebuild Germany because it is good for the Germans and for the world. And Varoufakis brings this up, and says that’s the model and even invited Angela Merkel to come to Athens, to propose a complete shift of the current European situation.