How Germany should respond to $1.2 trillion in reparations claims

Greece and Poland are stepping up their demands for Germany to pay reparations for World War II. This may appear to be little more than an attempt to pander to domestic voters. But, in fact, it's an effort to ground in history their calls for Europe's largest economy to show more altruism toward its poorer allies. Berlin should heed this pressure, if not the actual demand for money.

On Tuesday, Greece formally asked Germany to negotiate reparations for the Axis powers' invasion of 1941 to 1944. In 2016, parliamentarians put the minimum amount due at 292 billion euros ($330 billion).

Meanwhile, Polish legislators are working on a report on German-inflicted war damage that could, according to newspaper Dziennik Gazeta Prawna, include a demand for about $850 billion. The paper may be released on Sept. 1 to coincide with both the 80th anniversary of the start of the conflict and a visit by German President Frank-Walter Steinmeier to commemorate the date.

The demands are, at least in part, meant for the ears of Greek and Polish voters. Greece's governing party, Syriza, came to power promising to cut the country's debt burden and get justice from Germany, which had opposed a write-off. Having failed to deliver on either, the leftist party now faces a losing battle in an early election scheduled for July 7. It can't hurt to remind voters that the government hasn't given up.

In Poland, the ruling Law and Justice party, its confidence boosted by a convincing victory in the European Parliamentary election, is keen to push back in the most headline-generating way against what it sees as undue German dominance in the European Union.

Berlin rejects these demands, saying the matter has long been settled. Legally, that may well be the case, though some experts in Germany itself aren't so sure.

The question was formally decided by the 1945 Potsdam conference. There, the Soviet Union undertook to meet the reparations claims of its new satellites, including Poland, from its own share of reparations, which was largely paid in industrial equipment.

That's essentially why Greece received only a small fraction of the $7.1 billion (in 1938 prices) it was allocated by the Inter-Allied Reparations Agency; as for the Soviet Union, it wasn't too concerned about reimbursing conquered nations, considering it sufficient that it had "liberated" them.

In the 1950s, Germany signed compensation agreements with 12 nations, including Greece, which received 115 million Deutsche marks in 1960 in final settlement of its claims. In all, Germany has paid 76 billion euros in compensation for Nazi crimes since 1951, a figure that would be much bigger in today's prices.

The 1953 London Agreement on German External Debts put off the final settlement of reparation claims until a formal peace agreement was agreed. But the so-called two-plus-four treaty of 1990, in which the U.S., Soviet Union, U.K. and France blessed reunification, established that no such peace agreement would be necessary. That's how Berlin justifies its legal position. For some Germans, such as left-wing historian Karl Heinz Roth, the matter still isn't settled because it is primarily an ethical question rather than a legal or economic one.

Modern German leaders continue to acknowledge Germany's historic guilt. They're not claiming it has been fully expiated, just that they have no further financial obligations. That, of course, is something of a flawed moral stand. And since Germans understand the language of moral guilt, it is the one which Greek and Polish politicians choose when they air grievances that have little to do with World War II.

The Polish nationalists make the not unjustified case that western European countries, Germany first and foremost, have colonized Eastern Europe, capturing markets and extracting profits without boosting living standards commensurately. The Greeks are still angry about bailouts which helped Germany's banks and government but failed to relieve their country's long-term debt burden.

To me, however, there is one overriding argument that requires Germany to make a serious effort to understand what the Poles and Greeks actually want and need. They are all part of a peace project whose purpose is to prevent the kind of damage Nazi ambition once wreaked on the world. As the primary reason the project became necessary in the first place, as well as its main economic engine, Germany bears a disproportionate responsibility for the E.U.'s success. This, in large part, depends on a more equitable distribution of wealth throughout the bloc.

Germany should show much more flexibility on issues such as common debt instruments and a fiscal union for Europe. The electorate is averse to sharing more wealth and risk, but responsible leaders should remind it about the country's ethical burden. In the end, more solidarity — balanced with checks against moral hazard — can only make the E.U. and the eurozone stronger and more internationally competitive.

In other words, even if the German government doesn't need to pay more than $1 trillion to Poland and Greece — money it doesn't have — it should be more accommodating on matters of common economic interest. Then, perhaps, the noisy demands for reparations will die down.