Thomas Piketty: “Germany has never repaid.”

At the risk of being a moralizing bore, may I remind everybody that "Germany", "Greece" etc. are not people, and that people are not countries? I am surprised by the national coloring, however faint, of some comments here and there https://news.ycombinator.com/item?id=9834721. "I am a German" or "Greek here" should have no relevance to the ideas put forth. "Your money" and "your banks" are not really "my money" and "my banks" once I have paid the tax and don't own the bank!

The theory of complex systems reminds us that aggregates can have properties that are not traceable to any individuals themselves. Game theory tells us that incentives and constraints can get so messed up that developments take on an eigendynamic which was nobody's intent nor interest.

Please, be civilized and don't let yourselves be infected by nationalistic passions.

Your moralizing nanny...

(No seriously, I am starting to get concerned.)

This makes me lose respect for Piketty. There's a very clear difference between a country that comes out of two world wars, with everything all but destroyed, including millions dead. I'm sorry, no matter how bad 2008 was, it was no World War. His inability to grasp this just boggles the mind.

There's a very big difference between war caused debt and economic caused debt (note that I'm basically making these two "debts" up, and things are more nuanced obviously, but I'm going to ignore the nuances for now, these are very broad strokes.) When you come out of war, you're either the loser or the victor (one way or another, there are very few true "ties" in war.) And while capital may be destroyed in both cases, an economic crises doesn't necessarily leave your physical infrastructure and entire social system completely unrecognizable.

Further, Piketty seemingly completely ignores the Marshall Plan and all that it included in rebuilding Europe. And yes the Marshall plan was a form of debt forgiveness, but as a huge portion of the European continent was a smoking crater, things were different in 1945 than Greece in 2015.

Further, some historians/economists will argue that the "German miracle" (and "Japanese miracle" as well) were in part because of the destruction cased by the wars. With all the manufacturing capabilities destroyed, they were able to rebuild with the latest and greatest technology of the time. (and if you take this further, as the US was able to rest on it's un-destroyed capital equipment and make huge profits during the rest of the 1940's, 50's and early 60's, and never re-invested as Germany and Japan were forced too, this eventually lead to the downfall of the US Industrial might, in part.)

Personally, I think this has more to do with his French nationalism than anything else, at least as it appears to me in the interview.

It actually reads to me that he is saying something quite similar to what I have been thinking recently: countries go bankrupt, we need a bankruptcy court/procedure for governments.

The US needs it for its bankrupt local governments. The EU needs it for member states.

The rationale behind bankruptcy is this: if a borrower cannot repay their debts in full, the lender cannot receive them in full. This isn't negotiable. It's an artefact of reality. Given that the lender will not receive their payment in full, it makes sense we may as well have a process that acknowledges this fact and moves things forward. There is no point to debtors prisons. Debt means risk and if bankruptcy happens, that risk plays out.

The current Greek situation is exactly that. The troika cannot receive its repayments in full. Greece simply cannot repay them. It's not marginal. It's not possible if only Greece would... It's not going to happen. They owe too much and their economy is in collapse. It is game over for these loans.

This all reminds me of what we've learned about forest management. You see, for a long time we thought that all forest fires were bad, and set out to extinguish fires whenever even a small one broke out in a forest. After a few decades of almost no fire, a huge amount of burnable debris collected in the forests, and now, when fires break out, they're gigantic and far, far more damaging than normal forest fires.

Likewise, central banks have been working very hard to keep interest rates near zero. Any interest is perceived to be a bad thing (the big piles of money held by the large private interests become relatively smaller under inflation), and has thus been held in check. Normally, when things go somewhat badly for a country, they can issue a bunch of bonds and inflate their currency a bit to take up the flack. But with the Euro, there's no opportunity for member countries to inflate their own currencies to smooth out the bumps, and strong pressure from the overall Eurozone to keep interest rates low. The normal control mechanisms are suppressed, leading to bigger explosions when things go really wrong...

Everyone here seems to be criticizing Piketty for weird reasons. He is not saying post-war Germany's debt is the exact same thing as the current Greek crisis. Pointing out parallels isn't same thing as saying two situations are equivalent.

His point is that this isn't a "moral" decision between two peoples. It's an economic decision between nations.

This is just stupid. The German regime that racked up the WWII debts was destroyed and its leaders suicided or executed. The entire country was split in half by the war. The regime in power when those debts were rescheduled was a completely different entity. And Greece enjoyed similar, if not proportionately greater, economic support at exactly the same time. The Marshall Plan started in Greece, after all.

And there are enormous differences in the uses of the new debt capacity. Germany used the capacity to rebuild its economic capacity. Greece would use its new capacity to fund further welfare transfers and tax dodgers. Germany did not use the new capacity to repeat the same mistakes that created the old debt (and the vastly more important war). Greece would continue the exact same policies, and arrive at the same point of demanding debt concessions.

There's one way in which Picketty is right: it's impossible to force a country to repay their debt.

After WW1 France tried first through international (England) enforcement bodies, and then ultimately by occupation of the Ruhr valley (Germany's most productive region then).

Both approaches failed. Eventually the Weimar inflated their currency until the French debt was worth nothing, workers in the Ruhr valley striked, and extremist political parties promising a return of German dignity flourished.

Once the Greeks decide to refuse to pay, there isn't a good way to force them, short of enslavement.

That argument gets thrown around a lot, but it is quite a terrible one.

After WW2, the only Germany which acknowledged war and pre-war debts was the FDR. This was a state in ruins under foreign military occupation, with about half the territory and population of the former German state that had incurred those debts.

If post-war Germany is your standard for debt relief, then Greece is still very, very far away from qualifying.

This can't be upvoted enough.

It's also ironic that Greece was one of the creditors that forgave a large amount of German debt.

Lecturing Germany on its own history is just about the most useless contribution to this debate possible.

Germany and everyone else who foolishly loaned Greece money in 2010--and before--wants to get paid. There is nothing wrong with that. Dredging up the irrelevant past? Not so much.

Or: if I owe someone money, it doesn't matter if they are a nice person or not. I still owe them money, and must suffer the legal consequences if I fail to pay. This is what the rule of law is all about. It protects everyone, even people who are not nice. Even people who are hyopcrites. Even people who are Germans.

This moralization is childish. By all means dismiss the German government's moralization as silly and irrelevant. But don't engage in far more silly and far less relevant moral hectoring of your own.

It's incredibly disingenuous to compare defaults on war reparations, like the Treaty of Versailles, with loans willfully entered into by democratic governance.

"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."

Actually I remember an article posted a while ago right here on HN about the last payments for WW1. It is possible that Mr. Piketty may not have updated information, but it is also possible that he deliberately ignores some facts in order to stir a bigger debate.

Help me understand something.

Piketty seems like he is in favor of repaying this debt by "inflation, a special tax on private wealth, and debt relief."

But, he is against Greece leaving the Eurozone. So, how can they inflate their currency?

Instead of inflation, which is impossible if Greece shares the Euro currency, is he suggesting that some percentage of Greece's debts just get knocked off? That would achieve the same result, I think.

So I've been vaguely following the Greece and Puerto Rico situations (the Greece situation is causing me to put some trading strategies on hold), but there is something I don't understand about it. How come so many left wing advocates (Piketty, Krugman, etc) are coming out advocating for Greek bailouts?

24 In the process, one of his debtors was brought in who owed him millions of dollars.[c] 25 He couldn’t pay, so his master ordered that he be sold—along with his wife, his children, and everything he owned—to pay the debt.

26 “But the man fell down before his master and begged him, ‘Please, be patient with me, and I will pay it all.’ 27 Then his master was filled with pity for him, and he released him and forgave his debt.

28 “But when the man left the king, he went to a fellow servant who owed him a few thousand dollars.[d] He grabbed him by the throat and demanded instant payment.

“His fellow servant fell down before him and begged for a little more time. ‘Be patient with me, and I will pay it,’ he pleaded. But his creditor wouldn’t wait. He had the man arrested and put in prison until the debt could be paid in full.

Germany was rescued after WW2 to drive the European economy. Without German exports the continent would have had no chance to recover. It's sure ironic that Germany first destroyed the continent and then profited by rebuilding it, but history doesn't seem to care about irony much.

I think the 'Germany never paid'-argument is flawed. The Marshall plan would not have worked if Germany had been indebted. Instead this happened: https://en.wikipedia.org/wiki/German_reparations_for_World_W...

If Greek defaults without paying their debt Germany (=tax payers) is about to lose 90 billions. I'm not sure how this is profiting...

Everyone always seems to forget in these discussions how fantastic for German exports having instability in the Eurozone is...

One must note, that this interview was given to the German newspaper "Die Zeit". So its important to note, what he did not mention:

The repayment of Germans debt is only delayed till Germany has a peace treaty. The 2+4 contract is not a peace treaty, but deliberate "instead a peace treaty" just allows the Russian occupied part to join the US, UK and French occupied parts.

The Euro-Zone is facing a dilemma. A debt cut, followed by inflation and taxing of private assets, would require that Greece still has monetary sovereignty. But all Euro states, even Germany and France, gave up their monetary sovereignty. None of them is a complete sovereign state anymore. An obscure bureaucracy in Brüssel is creating laws, that national governments just have to sign. And entering EU is like a roman Catholic marriage. A nation can join, but not leave EU.

it's not at all anything moral. it's business. the french and german banks lent to Greece not out of charity, but of profit, a profit earn at the risk of insolvency. Now the Greeks can pay back, that is, the french and german banks failed their business. if the EU is to bail out, it's bailing out the BIG BANKS, not the Greek People. Clear ? Business is business. why the banks would do this risky business, because their principle amount and the interest earned are guaranteed by EU. the situation now is that if the banks win, they have it all; if the banks lose, the eu people pay for them. if you cant help blaming someone, blame the BANKS and their ruthless risk taking.

Wow, he did not ever back down. An enjoyable read.

i'm sure that if the Greeks have the potential of killing as many people and as cruelly as the German do, they would be tolerated and excused, whatever they have done. It just happens that Greece is a small and weak nation that everybody can safely point a finger at and accuse them of every problem there is. it does not just happens to the Greek, but to all the disadvantaged.whenever there's a crisis, some group would be targeted. they caused it because they are lazy, they're indulgent, they're irresponsible, they are weak, they're immoral,etc.be it women, colored, the poor,the illiterate, Jews, you name it.

I feel sorry for the Greek people, but I personally favour throwing them out of the Eurozone if they default on the debt.

It will be a very dangerous signal to send that you can borrow money, and not pay it back without any retribution. This is particularly important since more countries are going in the same direction as Greece (I think Spain and Puerto Rico are close, but I might be wrong).

Besides that, it also hurts the confidence towards the Eurozone if the countries in it can behave this way.

Also, am I the only one that finds it weird that they wait until after the deadline, to vote on whether or not to pay the debt back?

According to this guy's argument, we have:

- People and businesses who save money instead of spending it, get their wealth confiscated by the state indirectly through inflation or directly through the "special tax on private wealth"

- People, businesses, and other countries who help the state out by loaning it money have those loans retroactively converted into outright gifts by debt relief measures.

So the solution to fiscal irresponsibility is to turn the fiscally responsible into...I believe the technical term would be "suckers," or maybe "bag holders."

The blame here, like the GFC, has to lie with the lenders, who are sophisticated investors making very large profits from loans to unsophisticated or (politically) pressured borrowers. The lenders in this case assumed the loans have sovereign risk, but countries have risk too and judgement day has come. Take your licks, write down the loans so they are repayable and move on. If not then this will likely become a far bigger problem for the world, and the lending institutions.

Sovereign debt is inherently unsecured. It's a credit card for the government, nothing more. The primary motivation for servicing the debt is that it will enable more borrowing. And like people, countries don't pay off their debts for all sorts of reasons...not every default is created equally. At the least, Piketty is being intellectually dishonest. Personally, I think he is really just trying to appeal to the underdog by pointing out this poor analogue.

The medium page is not viewable for me apparently due to a copyright issue. Here is an alternative site for the full transcript:

http://www.zerohedge.com/news/2015-07-06/piketty-germany-has...

I'm not qualified to judge whether Piketty is correct but I can offer this analogy. In the past, when I have loaned money to friends and family, my attitude was "kiss the money goodbye". If the money was spent wisely and served a useful purpose, I was happy. It's nice to get repaid, but it's not essential.

Sorry, first the outburst, then the argument:

Such a load of bullshit!

The reason: What are you talking about? Generous? Currently, Germany is profiting from Greece as it extends loans at comparatively high interest rates.

The interviewer suggests with his question that it's about generosity? (come on!) Piketty responds that Germany is profiting.

Using the math I learned, adding up say 5 years of 5% doesn't even come close to the 50%-80% haircut that's gonna be needed. So how is there profiting?

Even worse: In the end, the creditors of sovereigns are rarely other sovereigns but banks and funds. The former will be probably bailed out by the taxpayer, the latter is usually pensions of taxpayers. Of course, the sovereigns themselves are funded by the taxpayer, too.

So no matter the result, it's not about generosity, there is no profiting (except for the few) and someone's got to pay (debts don't disappear) and he (the taxpayer) is not even mentioned.

I sincerely get angry when I read such "elitist" opinions that completely contort and ignore facts.

Debt cuts are one thing, but I see no reason to believe that there's a wide enough acceptance for a EU-wide fiscal policy to go along with the unified monetary policy. I might see France and Germany going along with that (mostly because it'll basically be their policy), but the UK won't have none of it -- and I don't think the PIIGS states would accept it either.

On the other hand, if things keep going wrong, people might just be forced to accept this as a fact, I just hope it won't be too late by then.

So, Piketty wants to forgive debt, and he thinks it's a bad idea to kick states out of the Eurozone, since that supposedly will hurt confidence. And he wants a new European institution that will determine the maximum allowable budget deficit, in order to prevent the regrowth of debt. But if kicking states out is taboo, then I wonder what he would do if a state exceeds this maximum allowable budget deficit?

If you believe Piketty, debt is never meant to be repaid and no one should therefore ever invest in sovereign debt. That would solve the debt debate. No creditor = no need to worry about whether we want to pile more debt.

And he has a point. I personally don't believe that any of the US, Japanese and European sovereign debt will ever be repaid. The whole thing is a ponzi scheme. Investors hope that their investment will mature before the music stops. That's worth AAA...

This guy is a reknowned economist? He's conflating "war reparations" with "external debt", and also seems to have missed the big fanfare recently when Germany paid the last of it's WWI reparations - instead he claims they never paid any WWI or WWII reparations. Similarly, 'England took 100 years to repay' he claims as the way forward, yet ignores that Germany took 92 to pay their WWI debt[1]. Not hard, I guess, since he thinks that there was no repayment at all.

He also talks of Germany's post WWII debt completely independently of the Marshall Plan and the Allies pouring money in to counter the Soviets. This is clearly just an axe being ground.

[1]http://www.dailymail.co.uk/news/article-1315869/Germany-end-...

Now that this thread's on the first spot of the front page, can we admit HN isn't a libertarian echo chamber?

This has the ring of truth.

Who here is a real economist that has the ability for pointed criticism? Share your thoughts, please.