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10 - World War II Reparations to the Soviet Bloc

Published online by Cambridge University Press:  19 October 2023

Simon Hinrichsen
Affiliation:
University of Copenhagen
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Summary

Chapter 10 is the story of World War II reparations to the Soviet Bloc. It focuses on Finnish reparations in the 1940s, which were repaid under great economic strain. Unable to default because of geopolitical considerations, it took Finland years to grow its economy following the war because large parts of its domestic resources went to produce reparations. The country did not have the option of defaulting because of political pressure in the new geopolitical landscape that emerged from World War II. Finland managed to eventually grow its way out of debt trouble. The trajectory was suboptimal. It involved three devaluations, a fall in real wages of more than 50 per cent, and large inflationary problems. I argue that a sovereign debt default would have allowed foreign exchange to be used for domestic purposes, but because it was not possible the macroeconomic adjustment had to come from elsewhere. Finnish state survival and its geographical location meant that it chose to repay reparations rather than attempt a default.

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When Nations Can't Default
A History of War Reparations and Sovereign Debt
, pp. 133 - 138
Publisher: Cambridge University Press
Print publication year: 2023

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