The German Transfer Problem, 1920-1933: A Sovereign Debt Perspective
AbstractThe severity of the Great Depression in Germany has sometimes been blamed on reparations in simplistic fashion. Alternative interpretations relied on American capital exports, the demise of the Gold Standard, or on malfunctions of the domestic economy, such as excessive wage increases during the 1920s. This paper argues for a more subtle link between Germany's slump and these policies. I explain Germany's foreign borrowing rush before 1929 from transfer protection under the Dawes Plan, which gave commercial credits seniority over reparations. I argue that the Young Plan of 1929 implied a reversal of this seniority scheme, causing a sudden stop and reversal in the German balance of payments that lasted throughout the Great Depression. Invoking basic results of sovereign debt theory, the paper identifies a sequence of reparation regimes with varying degrees of relaxation of Germany's participation constraint in international credit markets. Transfer protection under the Dawes Plan created an incentive for Germany (and her commercial creditors) to drive out reparations. I conclude that the Young Plan could only have worked in the absence of an international recession, and that attempts to salvage it in 1931 were necessarily futile.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1155.
Date of creation: Jul 2012
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
Germany; Great Depression; sovereign debt; reparations;
Other versions of this item:
- Ritschl, Albrecht, 2012. "The German Transfer Problem, 1920-1933: A Sovereign Debt Perspective," CEPR Discussion Papers 9062, C.E.P.R. Discussion Papers.
- N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
- N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
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- Hautcoeur, Pierre-Cyrille & Sicsic, Pierre, 1999.
"Threat of a capital levy, expected devaluation and interest rates in France during the interwar period,"
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- Ritschl, Albrecht, 1998. "Reparation transfers, the Borchardt hypothesis and the Great Depression in Germany, 1929 32: A guided tour for hard-headed Keynesians," European Review of Economic History, Cambridge University Press, vol. 2(01), pages 49-72, April.
- Ritschl, Albrecht, 1996. "Sustainability of High Public Debt: What the Historical Record Shows," CEPR Discussion Papers 1357, C.E.P.R. Discussion Papers.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- How to wreak havoc in sovereign debt seniority
by Economic Logician in Economic Logic on 2012-07-31 13:29:00
- Jörn-Steffen Pischke & Hannes Schwandt, 2012.
"A Cautionary Note on Using Industry Affiliation to Predict Income,"
CEP Discussion Papers
dp1163, Centre for Economic Performance, LSE.
- Jörn-Steffen Pischke & Hannes Schwandt, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," NBER Working Papers 18384, National Bureau of Economic Research, Inc.
- Pischke, Jörn-Steffen & Schwandt, Hannes, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," IZA Discussion Papers 6840, Institute for the Study of Labor (IZA).
- Pischke, Jörn-Steffen & Schwandt, Hannes, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," CEPR Discussion Papers 9131, C.E.P.R. Discussion Papers.
- Kim Oosterlinck & Loredana Ureche-Rangau & Jacques-Marie Vaslin, 2013.
"Waterloo: a Godsend for French Public Finances?,"
0041, European Historical Economics Society (EHES).
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