(we also dispelled the notion of the Devil-may-care German in "Study Finds Germans Incapable of Enjoying Life" but that's a different story)
Here's more on Germany and it's creditors, from Bloomberg's Echoes blog:
Germans Taking the Wrong Lessons From History of Default
A poster declares Germany's intention to honor the interest on its war bonds, ca. 1919.Source: Library of Congress Prints and Photographs DivisionGermans complaining about how Greeks, Italians and Spaniards aren’t paying their debts is a recurring feature of Europe’s debt crisis.
In May, German Finance Minister Wolfgang Schaeuble declared in a radio interview that “We Germans show that it’s possible to have solid fiscal policy and generate growth at the same time. We have the lowest unemployment. Those recipes that work for us must be applied in other countries and not the opposite.” A month later, he complained that Greece’s crisis was due to “decades of economic mismanagement.” And this week, he said U.S. President Barack Obama “should, above all, deal with the reduction of the American deficit.”
An earlier generation of investors would be shaking their heads. Germany in the 1920s was synonymous with default. After suffering serious hyperinflation following World War I, Germans received the kinds of loans and debt- restructuring plans from the U.S. that Schaeuble and the German parliament are furious about offering to Greece and others today. Germans were considered the unhealthiest borrowers in the world, though that didn’t stop American companies such as National City Bank and Dillon, Read & Co from lending in what historians call “the great bond boom” of the 1920s.
German Recipes
Herbert Hoover, then the U.S. secretary of commerce, was troubled by what seemed like reckless lending to German municipalities. But, perhaps believing in German “recipes” for sound fiscal policy, he gave official consent to more than $1 billion a year in foreign, high-yield, dollar- denominated loans from 1924 to 1928. Hoover’s office even issued a covering letter for these risky loans, asserting that since they didn’t affect government policy, the U.S. government had no objection to them.
Most of these loans went to fund construction projects throughout Germany. They ended the hyperinflation, and U.S. savings banks quickly snatched up the high-yield bonds, confident that thrifty Germans would repay their debts. Repayment plans were left sketchy at best.
Meanwhile, the German government still resented the costly reparations imposed on it for World War I. In October 1927, Seymour Parker Gilbert, the U.S. official charged with extracting reparations, complained to the German government that in taking on billions of dollars in municipal loans while still owing so much money, Germany was “living beyond its means.” Gilbert criticized Germany’s system of tax payouts to its states, and warned that the loans might never be repaid.
German political parties quickly dismissed Gilbert as ignorant and disrespectful, and then used his report to attack one another. The burghers of 1920s Germany would be shocked today at Schaeuble’s demand for Italy to install a technocratic government or for Greece to postpone its elections.
But Gilbert was right; the Germans couldn’t repay their loans. By late March 1928, German Finance Minister Heinrich Koehler publicly confirmed what Gilbert had guessed the year before....MORE
