Friday, July 10, 2015

Piketty: "Germany Has Never Repaid Its Debts; It Has No Standing To Lecture Other Nations"


Thomas Piketty, author of Capital in the Twenty-First Century (source)

by Gaius Publius

This is yet another piece about Greece, much shorter, but long on irony served cold. Thomas Piketty is the author of the ground-breaking study of wealth inequality that came out last year, Capital in the Twenty-First Century. He's also French, and François Hollande, who ran as a critic of austerity, has been off and on in agreement with Merkel's hard stance against Greece, as the interview reveals. (For what it's worth, French banks are involved along with German ones as investors the EU elites have been trying to protect.)

Piketty was interviewed about Greece in a German magazine, Die Zeit, and I suspect the Zeit reporter didn't do his homework. It appears he thought, first, that he was talking with a mainstream economist, perhaps because the book was a number one best seller; and second, that because Piketty is French he'd side with Holland and with the Germans. Wrong on both counts. Piketty is deeply critical of wealth inequality (criticism of that is anathema to European elites), and he thinks Hollande is making a serious mistake. He also thinks Greece and Europe are being destroyed, though there are ways to pull back.

The interview is notable not just because of Piketty's analysis, but because of the (professional) conflict between himself and the interviewer. Note that this is for a German publication, and Piketty wants none of what the Germans are smugly doing to Greece.

Here's Tyler Durden at Zero Hedge with an introduction, followed by some of the interview. Durden (my emphasis throughout):
One year after Tomas [sic] Piketty sold a record number of economic textbook paperweights which virtually nobody read past page 26, once again showing the power of constant media hype, the French economist and wealth redistributor is out and about, this time pouring more gasoline on the fire started by the IMF last week when it released the Greek debt sustainability analysis showing Greece needs a 30% haircut, only to be met with stern resistance by, who else, Germany who know very well that should Greece get a debt haircut it will unleash the European dominoes which not even all the bluster and rhetoric of the ECB can halt.
As magazine interviews with economists go, this turns into a bit of a cage match, catching the Zeit reporter by surprise. The following is from an English translation of the interview. It doesn't even start well:
Since his successful book, Capital in the Twenty-First Century, the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a[n] interview with Georg Blume of Die Zeit, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity? [Note that the French are implicated here.]

Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history. [I think he means they've confronted their Nazi past.]

Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe.

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.
Then the reporter digs in, and gets even more of a history lesson:
ZEIT: Are you trying to depict states that don’t pay back their debts as winners?

Piketty: Germany is just such a state. But wait: history shows us two ways for an indebted state to leave delinquency. One was demonstrated by the British Empire in the 19th century after its expensive wars with Napoleon. It is the slow method that is now being recommended to Greece. The Empire repaid its debts through strict budgetary discipline. This worked, but it took an extremely long time. For over 100 years, the British gave up two to three percent of their economy to repay its debts, which was more than they spent on schools and education. That didn’t have to happen, and it shouldn’t happen today. The second method is much faster. Germany proved it in the 20th century. Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief.

ZEIT: So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?

Piketty: Exactly. 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.
There's an interesting back-and-forth I won't quote (but which you can read). After that, the reporter puts on his reporter hat and asks two good questions to close:
ZEIT: What sort of national egoism do you see in Germany?

Piketty: I think that Germany was greatly shaped by its reunification. It was long feared that it would lead to economic stagnation. But then reunification turned out to be a great success thanks to a functioning social safety net and an intact industrial sector. Meanwhile, Germany has become so proud of its success that it dispenses lectures to all other countries. This is a little infantile. Of course, I understand how important the successful reunification was to the personal history of Chancellor Angela Merkel. But now Germany has to rethink things. Otherwise, its position on the debt crisis will be a grave danger to Europe.

ZEIT: What advice do you have for the Chancellor?

Piketty: Those who want to chase Greece out of the Eurozone today will end up on the trash heap of history. If the Chancellor wants to secure her place in the history books, just like [Helmut] Kohl did during reunification, then she must forge a solution to the Greek question, including a debt conference where we can start with a clean slate. But with renewed, much stronger fiscal discipline.
In the unquoted part, Piketty expands on the idea of a Europe-wide debt conference. He also expands on the idea of democracy, something Joseph Stiglitz also discussed. All in all, fascinating, and brutally honest on Piketty's part.


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