It's probably a bit unfortunate that this Piketty interview is getting prominence, because the whole question of analogies or disanalogies to Germany's war-related sovereign debt problems is mostly beside the point. The most urgent disanalogy in Greece's case is to what happens to just about every other country from A to Z that goes broke and needs to enter an IMF program. The SOP is for their pre-existing sovereign debt to be haircut as far as is necessary (if it is necessary) to make their debt burden clearly sustainable from then on, as a central part of the program designed and supervised by the IMF. This is what the IMF was designed to do from Day 1 and no-one, including Germany or any Eurozone core countries, is running around shouting that the IMF system is morally depraved, or a source of unacceptable moral hazard or a surrender to blackmail etc. etc. because it frequently results in program countries defaulting on a large chunk of their sovereign debts. And compared to the rogue's gallery of mostly developing countries that enter IMF programs Greece is probably not exceptionally profligate, corrupt, structurally rigid, unreformable and so on.
Instead Greece was moved onto the special, ad hoc Troika scheme, in which a country with a greatly unsustainable debt burden was given more loans but originally no debt relief at all, and great efforts were made to make the country run primary surpluses so that the creditors would not only get all their money back but make a profit. Greatly inadequate debt relief was only added later on when the original plan had collapsed. I'll let the former head of the Bundesbank explain why:
Politically this was a wonder solution for the EU core leadership: bail out their banks by stealth, avoiding the anger of their taxpayers by camouflaging it as a rescue mission for the wayward Greeks. Even better, the whole cost of the EU-wide bank bailout could be sweated out of the Greek taxpayer! Well, not really of course: probably no-one ever expected the official creditors to actually get their money back, but hopefully the defaults would be acceptably far in the future for the politicians, who live hand-to-mouth and election to election. Now that the whole thing has exploded, perhaps sooner and harder than they expected, those EU core politicians are trapped by their earlier lies.
There is one further wrinkle: not only was the Troika fix-up job vastly harsher on Greece as a creditor than a normal IMF program, it was specifically forbidden by the treaty of Lisbon (the solemn document I was asked to vote on twice, as an Irish citizen) articles 123 http://euwiki.org/TFEU#Article_123 and 125 http://euwiki.org/TFEU#Article_125 while at the same time the treaty had been crafted to allow Euro member countries continued access to normal IMF programs while remaining inside the Euro. Or at least, everyone thought that it was specifically forbidden, until this prohibition was no longer convenient, and the wizards at the ECJ (the same visionaries who recently discovered the "right to be forgotten") helpfully made it go away.
But if we do want to talk about the German example, we don't have to go back to the Marshall Plan either. The US Fed's cross-border largesse in 2008 would be a good place to start.
Although you and I probably disagree on root causes and perhaps solutions, this was a great summary. Thank you.
Reading the HN comments, it occurs to me what a total mess this is. People on all sides are not happy. Furthermore it's one of those he-said, she-said stories where each party has a long and detailed argument for why outsiders should consider things one way or another.
Along those lines, I am very unhappy that Piketty chose to give this interview on this topic. I want to see his ideas about wealth being put under harsh light and deep scrutiny -- after all, he's supposed to have something important to say in this matter. But now he's just turning into another Krugman -- economist-cum-pundit. That's probably great for his career, but it makes honest and objective evaluation of his ideas much more difficult because from now on everybody's going to conflate his political views on various matters with his academic ones. Bah.
It's probably a bit unfortunate that this Piketty interview is getting prominence, because the whole question of analogies or disanalogies to Germany's war-related sovereign debt problems is mostly beside the point. The most urgent disanalogy in Greece's case is to what happens to just about every other country from A to Z that goes broke and needs to enter an IMF program. The SOP is for their pre-existing sovereign debt to be haircut as far as is necessary (if it is necessary) to make their debt burden clearly sustainable from then on, as a central part of the program designed and supervised by the IMF. This is what the IMF was designed to do from Day 1 and no-one, including Germany or any Eurozone core countries, is running around shouting that the IMF system is morally depraved, or a source of unacceptable moral hazard or a surrender to blackmail etc. etc. because it frequently results in program countries defaulting on a large chunk of their sovereign debts. And compared to the rogue's gallery of mostly developing countries that enter IMF programs Greece is probably not exceptionally profligate, corrupt, structurally rigid, unreformable and so on.
Instead Greece was moved onto the special, ad hoc Troika scheme, in which a country with a greatly unsustainable debt burden was given more loans but originally no debt relief at all, and great efforts were made to make the country run primary surpluses so that the creditors would not only get all their money back but make a profit. Greatly inadequate debt relief was only added later on when the original plan had collapsed. I'll let the former head of the Bundesbank explain why:
http://www.spiegel.de/international/germany/former-central-b...
Politically this was a wonder solution for the EU core leadership: bail out their banks by stealth, avoiding the anger of their taxpayers by camouflaging it as a rescue mission for the wayward Greeks. Even better, the whole cost of the EU-wide bank bailout could be sweated out of the Greek taxpayer! Well, not really of course: probably no-one ever expected the official creditors to actually get their money back, but hopefully the defaults would be acceptably far in the future for the politicians, who live hand-to-mouth and election to election. Now that the whole thing has exploded, perhaps sooner and harder than they expected, those EU core politicians are trapped by their earlier lies.
There is one further wrinkle: not only was the Troika fix-up job vastly harsher on Greece as a creditor than a normal IMF program, it was specifically forbidden by the treaty of Lisbon (the solemn document I was asked to vote on twice, as an Irish citizen) articles 123 http://euwiki.org/TFEU#Article_123 and 125 http://euwiki.org/TFEU#Article_125 while at the same time the treaty had been crafted to allow Euro member countries continued access to normal IMF programs while remaining inside the Euro. Or at least, everyone thought that it was specifically forbidden, until this prohibition was no longer convenient, and the wizards at the ECJ (the same visionaries who recently discovered the "right to be forgotten") helpfully made it go away.
But if we do want to talk about the German example, we don't have to go back to the Marshall Plan either. The US Fed's cross-border largesse in 2008 would be a good place to start.