The German Transfer Problem, 1920-1933: A Sovereign Debt Perspective
The 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.
|Date of creation:||Jul 2012|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- A.O. Ritschl, 2001. "Nazi economic imperialism and the exploitation of the small: evidence from Germany’s secret foreign exchange balances, 1938-1940[While I wa]," Economic History Review, Economic History Society, vol. 54(2), pages 324-345, 05.
- Bulow, Jeremy & Rogoff, Kenneth, 1989.
"A Constant Recontracting Model of Sovereign Debt,"
Journal of Political Economy,
University of Chicago Press, vol. 97(1), pages 155-178, February.
- Jeremy I. Bulow & Kenneth Rogoff, 1986. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
- Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
- Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
- Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
- Lloyd A. Metzler, 1942. "The Transfer Problem Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 50, pages 397-397.
- Ritschl, Albrecht, 1996. "Sustainability of High Public Debt: What the Historical Record Shows," CEPR Discussion Papers 1357, C.E.P.R. Discussion Papers.
- Hautcoeur, Pierre-Cyrille & Sicsic, Pierre, 1999. "Threat of a capital levy, expected devaluation and interest rates in France during the interwar period," European Review of Economic History, Cambridge University Press, vol. 3(01), pages 25-56, April.
- Hautcoeur, P-C. & Sicsic, P., 1998. "Threat of a Capital Levy, Expected Devaluation and Interest Rates in France during the Interwar Period," Working papers 50, Banque de France.
- Hautcoeur, P. C. & Sicsic, P., 1998. "Threat of a capital levy, expected devaluation and interest rates in France during the interwar period," DELTA Working Papers 98-01, DELTA (Ecole normale supérieure).
- Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
- Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
- Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
- 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. Full references (including those not matched with items on IDEAS)