Albrecht Ritschl, an economic historian, talked to Spiegel on his view of the Greece problem.
Curiously, he points out that Germany’s default in the 20th Century was probably among the biggest of all. After the First World War, the Treaty of Versailles demanded Germany to pay huge amount of reparation in gold marks (i.e. essentially to repay in gold). In John Maynard Keynes Economic Consequences of the Peace, he clearly opposed the harsh demand, fearing that it would ruin the German economy. Other like Niall Ferguson disagreed, believing that Germany would have been able to repay, but they chose not to.
Anyway, Albrecht Ritschl believe that the default after the WWI was the “king” among default, and it was probably really Lehmanesque (while Greece is nothing). It was the United States which gave Germany a haircut according to Ritschl, which made the German’s economic miracle possible. In his own words, he said:
Germany’s resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims… In the 20th century, Germany started two world wars, the second of which was conducted as a war of annihilation and extermination, and subsequently its enemies waived its reparations payments completely or to a considerable extent. No one in Greece has forgotten that Germany owes its economic prosperity to the grace of other nations.
So quite interestingly, he believes that if it wasn’t countries (probably including Greece) that gives Germany a haircut, Germany today would not have been the Germany as we know it. Thus for him, the right and only solution for Greece is to reduce its debt burden. That is, put it in other words, to allow Greece to default. The big comfort, in his view, is that Greece is insignificant, such that its default might not be a serious trouble, except that there might be a chance of contagion.
I have been advocating the haircut for long, of course, not more bailout, for the very same reason. I noted earlier that even under IMF’s rather optimistic forecast, the chance the Greece can repay its debt is close to impossible. Greece will either have to implement more austerity in return for bailout money, or default. Implementing the first option does not increase the chance of Greece having enough ability to repay, but for Greek general public, it will be a disaster as far as their living standards are concerned. For Greek people, default appears to be a better option.
This article originally appeared here: Economic Historian: Debt Reduction Is The Only Solution For Greece
Also sprach Analyst – World & China Economy, Global Finance, Real Estate
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