1953 London Agreement On German External Debt

In total, 16 billion marks of debts of the Treaty of Versailles were negotiated after the First World War, which had not been paid in the 1930s[4], but which Germany wanted to repay to restore its prestige. This money was owed to public and private banks in the United States, France and the United Kingdom. An additional 16 billion marks represented post-war loans from the United States [4]. According to several commentators, the pre-war debt totalled 16.1 billion marks, while the post-war debt was estimated at 16.2 billion marks. Under the London agreement, the repayable amount was reduced by 50% to around DM 15 billion and was spread over 30 years and had a small impact compared to the rapid growth of the German economy. [4] One of the important provisions of the agreement was that refunds were only due when West Germany had a trade surplus and refunds were limited to 3% of export earnings. The amounts set out in the agreement should be paid by profits from German exports and not by stocks or new loan amounts. [6] This provided a strong incentive for German creditors to import German goods and support reconstruction. [7] After the entry into force of the transaction, Germany had to pay, for the next five years, until 1958, only unpaid interest debts. This is another example of attempts to help the German economy grow before it starts paying the sums due.

In doing so, the Allies also recognized Germany`s willingness to compensate Israel. Here we use a new data set to study the effects of the LDA extracted from the official monthly reports of the Deutsche Bundesbank (Central Bank of the Federal Republic of Germany). These reports are available from August 1948 to the present day and give an accurate picture of German economic activity and public opinion. In addition, from 1953 to the early 1970s, they contain many statistics and special expenses on the LDA, which are the basis of the interest inherent in the situation of German public finances and public opinion on debt cancellation. The rest of the document is as follows: First, we check the context of the LDA and its place in the Marshall Plan and reconstruction (section 2). Next, we examine the potential economic benefits of the LDA and examine three possible mechanisms in which the LDA stimulated economic growth (Section 3) and changed the government`s fiscal restraint versus counterfactual reduction without debt cancellation. Using incremental effects and synthetic monitoring analyses, we examine the extent to which the LDA has released resources for investment and show that, under the LDAL, the budget limitation for social spending, such as social spending and certain other categories, has increased faster than it would otherwise have without debt cancellation. Second, we show, using an SD model with bilateral trade in currency areas, that the LDA may have stabilized German finances and fostered growth by helping to meet the requirement of sufficient reserves in US dollars to restore full and credible convertibility, which in turn resulted in Increased German confidence in international markets. Another great economic benefit of the improvement in the intertemporal fiscal restraint that the LDA has brought about has been the stabilization of inflation, and here again, Germany is performing well against other countries, especially in the years immediately following the LDA compared to other countries.

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