The London Agreement 1953

Debt repayment began quickly after the closing of the LDA and was the subject of repeated discussions in the monthly reports of Deutsche Bundesbank:7 “From the entry into force of the various LDAs in August 1953 to September 1957 no less than 3.17 billion DM… In the form of regular and prepayment and repayment of pre- and post-war debts paid in London” (November 1957 report, 45). According to the various figures of the Deutsche Bundesbank, 15.2 per cent of the initial debt was already repaid in 1955, 30.7 per cent in 1958, 46.4 per cent in 1960, 72.2 per cent in 1962 and 74.3 per cent in 1964; by the late 1960s, more than three-quarters of the initial debts had been repaid. What was left was repaid in subsequent years. Dernburg (1954, 537) also believes that “Germany`s overall position against the dollar zone in 1954 and thereafter is influenced not only by its liberalization of dollar imports, but also, and more importantly, by the resumption of transfers on its high external debt under the London Debt Agreement.” Dornbusch, Nolling, and Layard (1993, 24) also comment: “The objective of total monetary convertibility to the capital account could have been achieved much earlier than in 1958, but not before the conclusion of the agreement on the London debt” (italics in the original) and Giersch, Paque and Schmieding (1992, 105) that ” until the issue of Germany`s external debt was definitively resolved by the London agreement on debt in early 1953. , West Germany was de facto excluded from the international capital market. Piketty and Zucman (2014, 93) found that “the London Debt Agreement also explains why a large net capital transfer was recorded in 1953.” It is essential to highlight how the LDA has shaped German finances, considering the evolution of the rhetoric of German officials before and after the implementation of the LDA. Thus, in the first months of the LDA, sufficient reserves in U.S. dollars were a primary concern of German officials, although they also argued that this was due to the successful implementation of the LDA. The July 1953 report (p.14) points out that “in the second half of the year, Germany`s balance of payments surpluses will decrease significantly not only in the EU area, but also in other currency areas, particularly in the dollar area… However, the German government intends to begin the transfer to other countries after the London agreement enters into force. Similarly, in the September 1953 report (p.26), “it remains to be seen how the dollar`s balance of payments will change over the next few months, when seasonal factors become less favourable and, if possible, significant transfers will have to be made as a result of the London Debt Agreements.” However, in the months that followed, this concern was completely dispelled.

The January 1954 report (p. 23) states that “the gradual improvement in the balance of payments situation has enabled the Federal Republic of Germany to eliminate, in many areas, the exchange rate restrictions still in force and thus move significantly closer to the DM convertibility objective. The main aspect of this process was created by the entry into force of the London Debt Agreement on 16 September 1953, the necessary condition, the relaxations of the transfer were amassed to cover capital income by capitalization and payments related to capital receivables in general” (see also the 1958 Annual Report). In Chart 5, we show the expansion of German bilateral trade (relative to German exports) after August 1953 in up and down, Sterling and the United States or Canada.