Ursula Rombeck-Jaschinski. Das Londoner Schuldenabkommen: Die Regelung der deutschen Auslandsschulden nach dem Zweiten Weltkrieg. München: Oldenbourg Wissenschaftsverlag, 2005. 484 S. EUR 54.80 (cloth), ISBN 978-3-486-57580-4.

Reviewed by Alfred C. Mierzejewski (Department of History, University of North Texas)
Published on H-German (July, 2006)

Walther Rathenau: "Die Wirtschaft ist das Schicksal"

Writing economic history without recourse to economics has a strong tradition. Ursula Rombeck-Jaschinski perpetuates that tradition. She intentionally discusses an important (though neglected) event, the 1951-53 London agreement on West Germany's international debts, without considering its economic aspects (pp. 18, 20). The author employs documentary sources located at the Bundesarchiv Koblenz, the Political Archive of the Foreign Office (Auswärtiges Amt) in Bonn, the Konrad-Adenauer-Stiftung in Sankt Augustin, the Public Record Office in London and the U.S. National Archives in College Park, Maryland. Regrettably, Rombeck-Jaschinski was only allowed to view a portion of the relevant materials held by the Historisches Archiv of the Deutsche Bank in Frankfurt/Main. Most importantly, she was not permitted to examine the very valuable papers of the chief West German debt negotiator, Hermann Josef Abs. She ignores large segments of the secondary literature, particularly concerning post-World War I reparations and post-World War II West German economic history. She presents her findings in a straightforward, chronological manner. She raises questions in her introduction concerning the relevance of the London Debt Agreement to the current issues of debt relief for poor countries and reparations for victims of the Holocaust and Nazi forced labor policies. However, she does not answer them. Indeed, she offers no conclusions at all.

Rombeck-Jaschinski begins with a description of the historical background of German international debts up to 1945. She outlines how Germany accumulated debts after World War I, thereby entering the tangled subject of reparations. She provides a misleading picture of this issue, both as a problem on its own terms and in relation to the question of debt cancellation. In this regard, the reader would be far better served by consulting Stephen A. Schuker's short American Reparations to Germany (1988). In the course of this discussion, Rombeck-Jaschinski states that John Maynard Keynes received a Nobel Prize (p. 25), which he most certainly did not.[1] She continues by asserting that reparations were part of the cause of the depression in Europe (p. 44), a view that lacks substance.[2] Finally, she erroneously implies that the sixty-year term of the Young Plan obligations was harmful to the German economy (p. 50).

The author then describes the preparations for the debt negotiations. Remarkably, the British Labour government favored a market arrangement under which it (along with France, the United States and West Germany) would simply establish a legal framework within which creditors and debtors would resolve the matter on their own (pp. 108, 146, 151). The Adenauer government quickly recognized that it should acknowledge its obligation to settle Germany's international debts. It did so for two reasons. First, both business circles and politicians realized that repayment of West Germany's debts was the single most important step they could take toward restoring their country's access to international credit markets. West Germany sorely needed capital to rebuild its war-ravaged economy. Historically, the German capital market had been comparatively shallow, due to the reliance of German firms on bank credit and internal financing to fund investment. Since the German banking system had been seriously weakened by the war and most German companies had exhausted their reserves, they both badly needed foreign loans. Second, Adenauer, his economics minister Ludwig Erhard and the majority of German business leaders recognized the need to accept West Germany's moral responsibilities. Acknowledging these obligations would contribute to West Germany's rehabilitation on the world political stage. The relative importance of the economic and moral components of West Germany's motivations is difficult to gauge. What is clear is that lacking material means, the moral commitment would not count for very much. Against this background, Adenauer signed a declaration acknowledging West Germany's international debt obligations on March 6, 1951. This action cleared the way for negotiations between the two sides.

To coordinate their position and to guide the subsequent talks, the Allies formed the Tripartite Commission on German Debts in May 1951. Shortly after, Adenauer appointed Herman Josef Abs as chief of the West German delegation to those negotiations. Abs was highly qualified for this position. During the 1920s, he gained wide experience in international finance as an employee of Delbrück Schickler and Co., a German private bank, and later as one of the leaders of the Deutsche Bank. Most importantly, he had been intimately involved in managing the Standstill Agreement during the 1930s. This arrangement regulated the repayment of debts contracted by German private enterprises from foreign banks. Abs probably knew more about these instruments than anyone alive. Moreover, he had a pleasant disposition and spoke excellent English, which ingratiated him with his British and American interlocutors. Unfortunately, Rombeck-Jaschinski was unable to consult Lothar Gall's excellent new biography of Abs.[3] Gall provides an insightful analysis of this important German banker's career and personality as well as a concise account of his role in the London debt negotiations.

Three major issues shaped the London international debt talks: first, determining the size of the German debt; second, determining Germany's ability to pay; third, determining Germany's ability to transfer its payments to its creditors in appropriate currencies. Calculating the extent of Germany's foreign obligations, particularly for the period before 1939, was accomplished by the West German finance ministry. Complicating this issue was the matter of competing claims, most notably from victims of Nazi persecution, particularly Jews. Determining West Germany's ability to pay was also difficult. Critical factors here included losses of territory and foreign assets, international trade conditions and the effects of the liberalization of the West German economy. The transfer problem turned on the ability of West Germany to earn sufficient quantities of necessary foreign currencies through exports. Particularly troublesome was the task of accumulating enough dollars, due to tariffs and import restrictions imposed by the U.S. Congress.

The negotiations proceeded through four stages. In June 1951, meetings took place among the creditors intended to coordinate their positions and formulate a basic approach toward the Germans. At this early stage, the United States made clear that it was prepared to cancel most of West Germany's postwar obligations to it. Then, in the fall of 1951, a preliminary conference with the West German delegation took place during which procedures were agreed and initial feelers on substantive issues were extended. Simultaneously, Israel and Jews living outside of that state raised preliminary claims for compensation to Holocaust victims and their survivors. As early as January 1951, Israel demanded that West Germany pay it $1.5 billion (6.5 billion DM) in five years. Abs was concerned that acceptance of this demand would imply West Germany's ability to repay its international debts was greater than he estimated, thus weakening his position in the London talks. Abs's stance was based on his pessimistic assessment of the prospects of the Federal Republic's economy (pp. 270, 275). Adenauer, however, was convinced that, for moral and political reasons, West Germany was obliged to accept the Israelis' demands. He was supported by Ludwig Erhard, who was certain that the West German economy would respond to his market-oriented reforms with strong growth that would yield the necessary sums.[4] It is noteworthy, and not mentioned by Rombeck-Jaschinski, that the leader of the West German delegation that negotiated with the Israelis, Franz Böhm, was a friend of Erhard and a strong supporter of his liberal economic policies. The final result was the Luxemburg Agreement of September 1952, under which the Federal Republic agreed to pay Israel and the Jewish Claims Conference 3.5 billion DM ($830 million) over twelve to fourteen years.

The third phase of the London debt conference paralleled these talks with the Israelis from February to August 1952. After the Allies rejected the initial West German offer, agreement was reached on a package that provided for West Germany to acknowledge a debt of 14.3 billion DM to be retired over thirty-seven years. It would pay annuities rising to 750 million DM after five years. Overall, this arrangement resulted in a 46 percent reduction in West Germany's foreign debt. Rombeck-Jaschinski correctly points out that Abs was not so concerned with the overall amount (the principal) as with the interest rate and the term, that is, the duration of the obligation (pp. 295, 308, 357-358). Abs knew that a prolongation of the term worked to the advantage of the debtor, since payments would be made in money that was worth less than the money borrowed. In general, even with a low rate of inflation, a longer term favors the debtor.

The final round of talks took place between the governments of the Allied powers and West Germany from September 1952 through February 1953. All parties readily accepted the financial provisions formulated by the experts. Abs then won the significant concession of the insertion of Article 5, Paragraph 2 into the agreement. It provided that claims stemming from the war itself, that is reparations for the Holocaust, military occupation and forced labor, could not be raised until Germany signed a peace treaty with its former enemies. Abs and the West German government sought this provision to protect the German economy from incalculable claims that could jeopardize its future growth. Put differently, it would provide both West German enterprises and the government with some certainty about their future expenses. Effectively, it meant that most reparations claims had been postponed indefinitely. Rombeck-Jaschinski comments that "[g]anz pragmatisch wurden Fragen der Moral den materiellen Interessen untergeordnet--und zwar von (fast) allen Beteiligten!" (p. 414). No one should be surprised by this. Consciousness of the Holocaust was much lower in the 1950s than it is today. More generally, to quote Bertolt Brecht, "Erst kommt das Fressen, dann kommt die Moral."[5]

Implementation of the London Debt Agreement went smoothly. There were no problems transferring the necessary sums in the various currencies. The standstill debts were retired in 1954. The prewar governmental debts were repaid in an orderly manner and on schedule. All of the postwar debts were retired by the mid-1960s. Rombeck-Jaschinski does not explain why repayment was so smooth. The reason was that the West German economy boomed during the 1950s and continued to grow briskly into the mid-1960s. Erhard's opening of the West German economy to the world market enabled it to earn the foreign exchange surpluses necessary to pay off the debt without difficulty. Growth and exports solved the West German international debt problem.

The political approach adopted by Rombeck-Jaschinski is inadequate. The international debt problem was fundamentally an economic issue. If the debts had not existed, the negotiations would not have been necessary. Even with an agreement, lack of foreign exchange would have prevented repayment. Given the vital importance of credit, a discussion of the financial side of the issue should have been included in her book. It would have been useful to have learned how the agreement influenced interest rates and foreign direct investment in West Germany. The matter of West Germany's ability to pay also should have been addressed. Here an examination of the record shows that from 1952, West Germany earned increasingly large foreign trade surpluses. Indeed, these surpluses exceeded five billion DM in 1959 and again in 1960. By 1960, West Germany had accumulated 23.4 billion DM in foreign currency reserves.[6] No wonder it retired its foreign debts so easily. Rombeck-Jaschinski makes no mention of these figures. She does use the federal budget as a parameter for measuring West Germany's ability to pay. However, this standard is of limited utility, since the Bund was responsible for only part of the obligation stemming from the London Debt Agreement and because, in the final reckoning, the government's ability to pay is determined by the health of the economy. The economic boom made possible tax receipts that were more than sufficient to meet federal obligations under the London Debt Agreement, while simultaneously supporting both the largest social welfare system in Europe and the creation of the Bundeswehr.

Since Rombeck-Jaschinski does not answer the questions that she raises in her introduction, a brief comment on them here might be in order. Concerning the problem of indebtedness among poor countries today, the example of the Federal Republic of Germany after World War II provides no support for calls for cancellation. West Germany's debts were not cancelled. They were rescheduled, scaled back and repaid. Moreover, unlike many debtor countries today, the West German government and West German business were anxious to meet their obligations. They understood the importance of paying their debts for restoring their credit. In contrast, as Stephen Schuker has shown, many contemporary debtor nations do not regard loans as obligating them to repay the amounts borrowed. In addition, West Germany in the 1950s enjoyed a vibrant, growing economy. Abs underestimated its ability to pay, but Erhard did not and Adenauer trusted Erhard on this issue. In contrast, the economies of most current debtor countries are stagnant. Again, unlike many of the indebted countries today, West Germany enjoyed a comparatively free economy, assured property rights through a viable judicial system and circulated a stable currency protected by an independent central bank. In short, West Germany was a good risk because its economic institutions were sound.

The issue of reparations stemming from the Holocaust and forced labor is also clear. By 1995, Germany had paid 96 billion DM in reparations to Israel and individual Jews throughout the world. Reparations to victims of Nazi slave labor policies were delayed, preventing many people from receiving what was justly due them. This problem was finally addressed in the late 1990s. Article 5, Paragraph 2 of the London Debt Agreement was a normal device used by West German businesses to protect themselves from potentially unlimited claims and costly litigation. As Rombeck-Jaschinski points out, creditors in Allied countries in the 1950s also had no compunction about elbowing their way ahead of former slave laborers, to say nothing of Holocaust survivors, in seeking precedence for their claims. This matter demonstrates once again that legal and moral claims mean little without political and economic power behind them.

In sum, Ursula Rombeck-Jaschinski provides a detailed account of the London debt negotiations. Her book should serve as a useful foundation for subsequent discussions of this topic. However, for all of its length, the book is incomplete. The author offers no interpretation of her story and excludes the underlying financial and economic issues. Given these weaknesses, those who do not need to know all of the details of the talks may instead wish to read Gall's forty-two page chapter on the subject in his Abs biography. Those seeking a reliable explanation of the economic and financial aspects of the issue will be well-served by reading Timothy W. Guinnane's "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement."[7]

Economic history without economics presents an incomplete picture. West Germany was fully capable of meeting its international debt obligations in the 1950s. Rombeck-Jaschinski does not tell us why this was so. Answering this question requires an examination of the performance of the West German economy and the market-oriented policies that shaped it.

Notes

[1]. On Keynes, see Robert Skidelsky, John Maynard Keynes, 3 vols. (London: Macmillan, 1983, 1992, 2000). In German, see Gerhard Willke, John Maynard Keynes (Frankfurt/Main: Campus, 2002). In the same vein, the author identifies Owen D. Young as a banker (p. 48). In fact, Young was chairman of the board of directors of General Electric. He had a law degree and was never employed by a bank. See <http://www.ge.com/en/company/companyinfo/executivebios/printable/printable_young.htm >, accessed June 1, 2006.

[2]. On the relationship between the Depression and reparations see Gene Smiley, Rethinking the Great Depression (Chicago: Ivan R. Dee, 2002); Peter Temin, "The Beginning of the Depression in Germany," Economic History Review, 2nd ser., 24 (1971): pp. 240-248; Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W.W. Norton, 1976); Barry Eichengreen, "The Origins and Nature of the Great Slump Revisited," Economic History Review 2 (1992): pp. 213-239; Barry Eichengreen, Golden Fetters. The Gold Standard and the Great Depression, 1919-1939 (New York: Oxford University Press, 1992); Patricia Clavin, The Great Depression in Europe, 1929-1939 (New York: St. Martin's, 2000); Ben S. Bernanke, Essays on the Great Depression (Princeton: Princeton University Press, 2000).

[3]. Lothar Gall, Der Bankier Hermann Josef Abs. Eine Biographie (Munich: C.H. Beck, 2004).

[4]. See Erhard's memoranda to Adenauer concerning compensation to Israel, Bundesarchiv Koblenz N1351/11 and B136/1128. These are reprinted in Reinhard Neebe, Weichenstellung für die Globalisierung. Deutsche Weltmarktpolitik, Europa und Amerika in der Ära Ludwig Erhard (Cologne: Böhlau, 2004), pp. 530-535, Documents 2 and 3. They are also available in Wolfgang Hölscher and Daniel Kosthorst, eds., Akten zur Auswärtigen Politik der Bundesrepublik Deutschland 1964, Bd. 2. (Munich: R. Oldenbourg, 1995), pp. 292-296, Doc. 108.

[5]. Bertolt Brecht, Dreigroschenoper, Act II, scene iii, "Second Threepenny Finale."

[6]. Statistisches Bundesamt, Bevölkerung und Wirtschaft 1872-1972 (Stuttgart: Kohlhammer, 1972), p. 191 for the West German trade balance, p. 211 for West German foreign exchange reserves, and p. 229 for the federal budget; Timothy W. Guinnane, "German Debt in the Twentieth Century," in The Origins of Value: The Financial Innovations that Created Modern Capital Markets, ed. William N. Goetzmann and K. Geert Rouwenhorst (New York: Oxford University Press, 2005), pp. 327-342.

[7]. Timothy W. Guinnane, "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement," available at <http://ssrn.com/abstract=493802 > or < http://www.econ.yale.edu/growthpdf/cdp880.pdf. A modified version of this article appears in Goetzmann and Rouwenhorst, eds., The Origins of Value_, pp. 327-341.

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Citation: Alfred C. Mierzejewski. Review of Rombeck-Jaschinski, Ursula, Das Londoner Schuldenabkommen: Die Regelung der deutschen Auslandsschulden nach dem Zweiten Weltkrieg. H-German, H-Net Reviews. July, 2006.
URL: http://www.h-net.org/reviews/showrev.php?id=12013

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