London Agreement on German External Debts
The London Agreement on German External Debts, also known as the London Debt Agreement (German: Londoner Schuldenabkommen), was a debt relief treaty between the Federal Republic of Germany and creditor nations. The Agreement was signed in London on 27 February 1953, and came into force on 16 September 1953.[1]
Negotiations[edit]
The negotiations started with the Allies creating a Commission. The Commission's key role was to determine the types of debts that would be addressed by the London Agreement. During the process, the two sides negotiated the terms of the Agreement “as equals”.[6] The first conference was held in Bonn, in June 1951. The next conference was held in London in July 1951.[4]
In February 1952 another conference occurred. This was the most essential moment of the entire negotiation process. The total amounts of debts and the compensations’ deadlines were the main topic of conversation. Germany’s negotiating skills played a huge role in the settlements’ outcome.[4]
In the last parts of negotiations, some “intergovernmental debts” were settled and “detailed technical reports” were produced that were included in the London Agreement.[9]
Impact[edit]
The agreement significantly contributed to the growth of the post-war German economy and re-emergence of Germany as a world economic power. A 2018 study in the European Review of Economic History showed that the London Agreement "spurred economic growth in three main ways: creating fiscal space for public investment; lowering costs of borrowing; and stabilising inflation."[10] It allowed Germany to enter international economic institutions such as the World Bank and the International Monetary Fund. Another study has shown that the London Agreement can be associated with a "rise in real per capita social expenditure in health, education, housing, and economic development". The stabilization of inflation was a major benefit for the German economy. West Germany's new currency, the Deutsche Mark, was highly unstable until 1953. After the signing of the agreement, it stabilized due to the debt relief. The transition of West Germany from a debtor to a creditor by the middle of the 1950s had an impact on Germany's economic growth as well.[11] The agreement's outcome can be described as a German economic miracle. Germany achieved all of the above, despite being obligated to pay the total amount of war reparations (with interest) prior to the London Conference and despite the presence of an Arbitral tribunal.[9]