Thomas Piketty Explains Why the Germans Are Being Massive Hypocrites About Greece’s Debt

Let me explain it to you this way.

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Sure, Thomas Piketty comes up a lot in conversations about income inequality. But the man is good at putting economic issues into world-historical context and has some very strong opinions about the madness currently transpiring in Europe over Greece. In an interview with the German newspaper Die Zeit, translated by Gavin Schalliol, he explains why European Union demands that Greece pay back its debts in full are more than a little hypocritical, especially coming from Germany—the 20th-century poster child for debt forgiveness.


ZEIT: But shouldn’t they repay their debts?

Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.


ZEIT: But surely we can’t draw the conclusion that we can do no better today?


Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

Later in the interview, Piketty explains that there are two ways a country can get out from beneath an unbearable debt load. Either it can take the long, slow, painstaking route of paying back what it owes bit by bit, which Britain did after borrowing to battle Napoleon, or it can use a combination of inflation, taxes on private wealth, and a bit of debt relief, like postwar Germany and France.

Piketty: After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece. Instead, both of our states employed the second method with the three components that I mentioned, including debt relief. Think about the London Debt Agreement of 1953, where 60% of German foreign debt was cancelled and its internal debts were restructured.

The whole interview is worth a read. Piketty argues that all of Europe needs to hold a conference in order to restructure its debts in a sustainable way—not just Greece’s, but the entire region’s. Fanciful? Maybe. But it’d almost certainly be more productive than what it’s doing right now.

Read more Slate coverage of the Greek financial crisis.