London Agreement on German External Debts

On 24 May 1951, the US and UK Departments of Foreign Affairs respectively, informed the Allied Countries involved in the settlement, about a new arrangement regarding Germany's External Debts.

[1] The parties that were involved besides West Germany included Belgium, Canada, Ceylon, Denmark, France, Greece, Iran, the Republic of Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan, Spain, Sweden, Switzerland, the Union of South Africa, the United Kingdom of Great Britain and Northern Ireland, the United States of America, and Yugoslavia.

Some amounts owed by Germany arose from its efforts to pay war reparations, and others were associated with large scale loans by the United States.

[4] It can be described as a broad based Agreement as it settled just about every kind of German debt arising from the period before and after the Second World War.

[6] The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s,[4] but which Germany decided to repay to restore its reputation.

Under the London Agreement, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.

[6] This gave Germany's creditors a powerful incentive to import German goods, assisting reconstruction.

As time went by Germany’s exports increased significantly, making fulfilment of payments a lot easier and reducing their negative effects on the economy.

[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] 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.

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".

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.