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Greece-Germany: who owes who? (Part 2) Creditors are protected, the people of Greece sacrificed
by Eric Toussaint
6 November 2012

See the first article in the series: « Greece-Germany: Who Owes Who ? (1) The Abolition of the German Debt in London, 1953 ».

There is a moral obligation to rise up against the blatant lies underlying the feigned solidarity purportedly shown by the leaders of the strongest countries in the Eurozone toward the Greeks and those in other now fragile countries (Ireland, Portugal, Spain…). The basic facts contradict their statements, which have been continuously served up by the dominant media.

Many media sources repeat the same old story, that Greece has been given a substantial amount of aid. For example, Hans-Werner Sinn, [1] one of the most influential economists in Germany, and an advisor to Angela Merkel’s government, did not hesitate to assert in an interview to CNBC television programme that: “Greece has received 115 Marshall Plans” [2]

Le Monde published a long interview with Hans-Werner Sinn where he stated: “Greece has already received 460 billion euros through various mechanisms. The aid already given to Greece represents the equivalent of 214% of its GDP, or nearly ten times more than what Germany received under the Marshall plan. Berlin has provided nearly one fourth of the aid given to Greece, (115 billion euros), which represents at least ten Marshall plans, or two and a half times the London Agreement.” [3]

His calculation is entirely wrong. Greece has received no such financing, and what it has received cannot seriously be considered as aid. Hans-Werner Sinn scandalously equates the Germany at the end of World War II, brought about by the Nazis, and the Greece of the 2000s. In addition, he fails to mention the sums rightly claimed from Germany by Greece in reparation for the damages caused by the Nazi occupation, [4] as well as the loan Nazi Germany forced Greece to give it. So Germany’s debt to Greece after World War II amounted to at least 100 billion euros. As we learn on the website ‘A l’encontre’, on the basis of research by Karl Heinz Roth, a historian of the pillage of Europe when it was occupied by Nazi Germany: [5] “Germany only paid Greece one sixtieth (1.67%) of the reparations owed to make up for the massive destruction caused by the occupation from1941 to 1944.”

A series of solid arguments must be advanced to demonstrate the intellectual dishonesty of the statements made by Hans-Werner Sinn, German leaders, and the media services supporting them. The following arguments are not only true for Greece. A similar argument could be made for certain points concerning the so-called aid provided to the former Eastern Bloc countries, which are now part of the European Union, and to Portugal, Ireland, and Spain among others. But as we shall see in Part Three of this series of articles, relations between Germany and Greece are rooted in history and should be carefully scrutinized.

I. The so-called “aid” plans serve the interests of private banks, not those of the Greek people

The “aid” plans that have been set up since 2010 have first of all served the interests of private banks in the richest countries in the Eurozone, which had considerably increased their loans to both the private sector and public authorities in Greece in the 2000s. The loans granted to Greece by the Troika since 2010 have been used to pay back private Western banks, and have enabled them to minimize their losses as they withdraw from Greece. They were also used to recapitalise some private Greek banks, some of which are subsidiaries of foreign banks, French ones in particular.

The rapid rise in Greek debt over the last decade: the “aid” plans have served to protect the interests of the private banks of the strongest countires in the Eurozone

Greek private sector debt increased considerably between 2000 and 2010. Households, to whom the banks and the whole private commercial sector (mass distribution, the automobile and construction industries) offered very attractive conditions, went massively into debt, as did the non-financial companies and the banks, which could borrow at low cost, i.e. with low interest rates and higher inflation than for the most industrialized countries in the European Union like Germany, France, and the Benelux countries. This private debt was the driving force of the Greek economy. The chart below shows that Greece’s accession to the Eurozone in 2001 boosted the inflow of financial capital, which was in the form of loans or portfolio investments (Non-FDI in the chart, i.e. inflows which do not correspond to long term investments; FDI is Foreign Direct Investment) while long-term investments remained stagnant.

Source: IMF [6]

With the vast amounts of liquidity made available by the central banks in 2007-2009, the Western European banks (above all the German and French banks, but also the Belgian, Dutch, British, Luxembourg and Irish banks) lent extensively to Greece (to the private sector and to the public authorities). One must also take into account that the accession of Greece to the Eurozone bolstered the faith of Western European bankers, who thought that the big European countries would come to their aid if there was a problem. They were not concerned about Greece’s medium term repayment capacity. The bankers considered that they could take very high risks in Greece. So far history had proved them right. The European Commission and, in particular, the French and German governments, have given their unfailing support to the private banks of Western Europe.

In the chart below we see that Western European banks first increased their loans to Greece between December 2005 and March 2007 (during this period, the volume of loans grew by 50%, from less than 80 billion to 120 billion dollars). After the subprime crisis started in the United States, loans increased dramatically once again (+33%), between June 2007 and the summer of 2008 (from 120 to 160 billion dollars). They then continued to run at a very high level (about 120 billion dollars). In fact, the private banks of Western Europe used the vast quantities of low cost loans from the European Central Bank and the US Federal Reserve to increase their own higher interest-rate loans to countries such as Greece, [7] making juicy profits in the process. Private banks are therefore greatly responsible for Greece’s excessive debt.

Trends in Western European banks’ exposure to Greece (in billions of dollars)

Source: BRI - BIS consolidated statistics, ultimate risk basis [8]

As shown in the pie-chart below, in 2008 (and until 2010) Greek debts were overwhelmingly held by European banks, mostly French, German, Italian, Belgian, Dutch, Luxembourg, and British banks.

Foreign holders (almost exclusively foreign banks and other financial companies) of Greek debt securities (end of 2008) [9]

The loans granted by the Eurozone governments (directly or through the European Financial Stability Fund created in 2010) were to assure that Greece would continue to reimburse West European banks (French and German banks being the most exposed). In fact the money lent to Greece goes straight on to the ledgers of French, German, and other banks, which massively purchased Greek government bonds up to 2009, [10] as debt reimbursement. In this way, it returns directly into the coffers of the lending country, the ECB, the IMF and the EFSF (see below).

2. The loans granted to Greece are profitable… beyond the Greek borders!

The loans granted to Greece under the aegis of the Troika are remunerated. The different countries participating in these loans are making money. When the first loan of 110 billion euros was adopted, Christine Lagarde, who was the French finance minister at the time, [11] announced that France was lending to Greece at 5% while at the same time borrowing at a much lower rate.

The situation was so scandalous — a high interest rate was also applied to Ireland from November 2010 and to Portugal from May 2011 — that the lending governments and the European Commission decided in July 2011 that the rate paid by Greece must be reduced [12]. What a confession ! Although this decision has been enacted, the difference between the borrowing rate at which the lending countries find finance and the rate demanded from Greece remains significant.

In the face of Greek government protests and the deep popular discontent expressed by strong social mobilizations in Greece, the lending countries finally agreed to give the country a discount on the income they receive from Athens [13] — on condition that the difference still be used for debt repayments.

The Eurozone crisis reduces the cost of debt for Germany and the other strong countries

That’s not all. The dominant Eurozone countries profit from the miseries of the periphery (Greece, Ireland, Portugal, Spain and those countries of the former Eastern Bloc which are now members of the EU). The aggravation of the Eurozone crisis, due to policies applied by its leaders and not to external phenomena, results in capital movements from the Periphery towards the Centre. France, Germany, Austria, Belgium, Finland, Luxembourg and the Netherlands profit from it in the form of a great reduction in the cost of financing their debts.

On the 1 January 2010 (before the Greek and Eurozone crises) the cost to Germany of emitting ten-year bonds was 3.4%. On the 23 May 2012 the cost had fallen to 1.4%, a reduction of 60% in the cost of financing. [14] According to the French financial daily ’Les Echos’, “a rough calculation shows that the savings on this reduced interest rate amount to 63 billion euros” [15] This is to be compared to the loan of 15 billion euros (of the 110 billion promised by the group of creditors) that were effectively lent (with interest – see above) by Germany to Greece between May 2010 and December 2011, within the framework of the first Troika “aid” plan. The total of German promises to Greece, taking into account the European decisions between 2010 and 2012, amounts to 67 billion euros. Despite the 63 billion euros already saved, as calculated by ‘Les Echos’, the greater part of this amount has not yet been remitted.

We have mentioned the 6- and 10-year rate for German borrowing. If we take the two-year rate, Germany issued bonds for this period on the 23 May 2012 at zero interest. [16] At the beginning of the year Germany borrowed 3.9 billion euros at negative interest rates. The newspaper ’Le Soir’ noted on 23 May 2012: “Investors will receive, in six months time, a slightly reduced repayment on their loan (less 0.0112%)”. [17]

If there happened to be a grain of truth in the flow of lies concerning Greece, Spain or Portugal we should read that Greece enables Germany and other strong Eurozone countries to make considerable savings. To the list of advantages reaped by Germany and the other strong European Union countries should be added the following elements.

4.Privatisation programmes to the advantage of the strong countries’ private enterprises

The austerity policies imposed on Greece contain vast programmes of privatisation. [18] The big groups, particularly French and German, have been able to take advantage of the give-away prices practised on the sale of public property.

‘A l’encontre’ website cites and comments on a long interview given by Costas Mitropoulos, one of the people managing the Greek privatisation programme, to the French language Swiss daily ’Le Temps’ on 7 April 2012: “The offices of the ’Hellenic Republic Asset Development Fund’ in Athens are next door to a museum of Athenian history. This is highly symbolic, as the process of privatisations put into place by a score of experts under the direction of the ex-banker Costas Mitropoulos, is bound to change the face of Greece.” He added: “It is to this fund, created at the demand of the EU, that the Greek State is gradually transferring the properties, concessions and holdings to be released for acquisition. According to initial EU plans, fifty billion euros are to be collected by the end of 2017.” Costas Mitropoulos said in Geneva, “The transfer of properties to our funds by the Greek State has accelerated”. He goes on: “The first message we wish to get across is : we are not the Greek State. We are an independent privatisation fund that now owns 3% of Greek territory. We have a three-year mandate. We are protected from political interference.”

The journalist from ’Le Temps’ insists: “Are you really, though? Privatisations anywhere in the world are always very political and the Greek State, which remains present in the capital of numerous companies, has a very bad reputation..”

The reply is unequivocal: “As a banker I have presided over one of the biggest privatisations in Greece: the purchase of the Greek pharmaceutical group ’Specifica’ by the international group Watson for close to 400 million euros. I know the rules: to interest an investor in the purchase of a Greek group today, he must be able to expect to triple or quadruple his outlay. One euro invested must return three or four.” [19]

5. The sacrifices imposed on the workers enable the containment of protest movements in countries of the Centre

The social defeats inflicted on Greek workers (and also on Irish, Portuguese and Spanish, and more) put the Austrian, Belgian, Dutch, French, German and other workers on the defensive. Union organisers are dubious about confrontation. They wonder how they can argue for pay increases if in a country like Greece, Eurozone member, wages are being reduced by 20% or more. Among the North European unions (notably in Finland), we note with consternation, that some good is seen in the TSCG (Treaty on Stability, Coordination and Governance) and austerity policies as they are seen as reinforcing good state budget management.

More on the 1953 London Agreement on German debt and on the Marshall Plan

As indicated in the article ’Greece-Germany: who owes who? (Part 1) London 1953: cancellation of the German debt’, the terms of this agreement are radically different from the manner in which Greece is treated today. The conditions were united for West Germany to develop rapidly and to reconstruct its industrial apparatus. Not only was Germany’s non war debt reduced by more than 60%, but the payment of war debts and compensation to civilian war victims and States was suspended until a later, unspecified date: in fact, until the reunification of the two German States which came about in 1990 and the peace treaty signed in Moscow the same year with France, the United States, the USSR and the United Kingdom. The burden of war compensation on the German economy was thus, for a long time, deferred. On the other hand Germany has always refused to follow up any requests from Greece for payment of the compensation due.

Contrary to what happened at the end of the World War I, the Western powers preferred to avoid putting too great a burden of unsustainable debt payments on the German economy after World War II, considering this had favoured the ascension to power of the Nazi regime. They also wanted an economically strong (although disarmed and militarily occupied) West Germany in face of the Soviet Union and its allies. This was not a consideration for Greece and the other peripheral countries of the EU.

To achieve this objective, not only was the debt burden alleviated and Germany given economic assistance in the form of donations, but it was also allowed to apply policies totally favourable to its economic expansion. The big private industrial groups were allowed to consolidate — those same companies that had played a key role in the military adventure of the World War I, then in support of the Nazis, in the genocide of the Jews, the Gypsies and other people, in the pillage of occupied and/or annexed countries, in military production and in the gigantic logistical effort of World War II. Germany was able to develop impressive national infrastructures and support its industry so that internal demand could be satisfied and foreign markets conquered. Germany was even allowed to pay a large part of its remaining obligations in its own national currency. To understand this we must consider the situation that resulted from the 1953 London Agreement. Germany reimbursed a part of its debt to Belgium, the UK and France incurred between the wars in deutsche marks. These had no value, at that time, on the currency markets. Belgium and France got rid of them quickly by buying German produce and so contributed to the reconstruction of Germany as a great industrial power.

Now Greece, and also Estonia, Ireland, Portugal, Slovenia, Spain and other peripheral European countries, for their part, must reimburse their debt with euros that they do not have because of their commercial deficits with the strong Eurozone countries. At the same time, the dominant Eurozone powers impose, through the European Commission and the adopted treaties, policies that prevent the satisfaction of internal demand let alone their export demand. If they still want to export, they are subjected to still more pressure on their wages. This compresses domestic demand still further and accentuates the recession. The privatisation projects deal the final blow against their industrial apparatus, their infrastructures and their heritage in general.

To get out of this impasse it is necessary to implement economic and social measures in radical rupture with today’s policies, as much within a national context as at the European level. An emergency crisis programme is therefore required. [20]

Next episode : Greece-Germany: who owes who? (Part 3) considers the refusal by the German leaders to pay compensation to the Greek people for the consequences of Nazi occupation.

Translated by Mike Krolikowski, Charles La Via and Vicki Briault

Eric Toussaint, a Senior Lecturer at the University of Liège, is the president of the CADTM Belgium (Committee for the Abolition of Third World Debt) and a member of the Scientific Council of ATTAC France. He co-authored, with Damien Millet, AAA. Audit Annulation Autre politique, Seuil, Paris, 2012.

Footnotes :

[1For a useful biography, see wikipedia:

[5See biographical note in German:

[6Chart taken from C. Lapavitsas, A. Kaltenbrunner, G. Lambrinidis, D. Lindo, J. Meadway, J. Michell, J.P. Painceira, E. Pires, J. Powell, A. Stenfors, N. Teles : « The eurozone between austerity ans default », September 2010. See also the summary of this study in French (by Stéphanie Jacquemont of the CADTM).

[7Portugal, Spain and the countries of Central and Eastern Europe underwent the same treatment at the same time.

[8Chart taken from C. Lapavitsas, op. cit.

[9The main holders (i.e. the banks of the countries mentioned) of Greek debt paper are, as shown in the pie-chart, France, Germany, Italy, Belgium, the Netherlands, Luxembourg and the United Kingdom. The other holders are grouped under “rest of the world”. The pie-chart was taken from C. Lapavitsas, op. cit. p. 11. According to the BIS in December 2009, French banks held 31 billion dollars’ worth of Greek public debt, and German banks 23 billion dollars’ worth.

[10As of 2010, Western banks ceased or radically reduced the purchase of Greek debt paper and began to offload what they had already bought. They sold the bonds on to the European Central Bank on the secondary market.

[11Christine Lagarde became Director General of the IMF in July 2011.

[12See Council of the European Union, Statement by the Heads of State or Government of the Euro area and EU Institutions, Brussels, 21 July 2011, point 3.

[13See European Commission, Directorate General Economic and Financial Affairs, “The Second Economic Adjustment Programme for Greece”, March 2012, table 18, p. 45: “Interest rates and interest payments charged to Greece” by the Euro Area Member States”.

[14Financial Times, “Investors rush for the safety of German Bunds”, 24 May 2012, p. 29.

[15Les Echos, Isabelle Couet, « L’aide à la Grèce ne coûte rien à l’Allemagne », 21 June 2012. The journalist specifies : « The six-year rates – which corresponds to the average maturity of the German debt – actually went from 2.6% in 2009 to 0.95% in 2012. »

[16Le Soir, Dominique Berns and Pierre Henri Thomas, « L’Allemagne se finance à 0% », 23 May 2012, p. 21.


[18See the documentary film Catastroïka

[19See file previously cited: Regarding the privatization process, see: European Commission, Directorate General Economic and Financial Affairs, “The Second Economic Adjustment Programme for Greece”, March 2012, pp. 31 – 33.

[20See Damien Millet – Eric Toussaint, « Europe : Quel programme d’urgence face à la crise ? ».

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.