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. Although the LDA was signed in February 1953, ratification by the German government did not arrive until August 1953. Mr. Abs noted that with the introduction of the LDA, “the terms of payment in foreign trade have changed [and] the foreign willingness to grant trade credits for foreign trade has increased” (in early 1991, 251). It is relatively clear that trade with dollar-based companies has grown more rapidly, increasing Germany`s ability to repay the remaining LDA debts.

It is interesting to note that we can also compare trade in Europe, Latin America, Asia and Africa with the national currency and the dollar from the data of the monthly bulletins of the Deutsche Bundesbank. In all cases, dollar trade accelerated after August 1953, while trade in local currencies declined or remained stable. These arguments on easing restrictive restrictions on new social spending are not entirely new. Sachs has long argued that before debt cancellation, debt service often prevailed over social spending in heavily indebted poor countries (HIPCs). For him, “solvency must be assessed according to the alternative uses of funds claimed by the debt service… If resources were successfully freed up and responded to basic human needs, they could make significant improvements to human well-being… On the other hand, for many ETCs, the most basic human needs are threatened by the continuation of contractual debt service” (Sachs 1999, 4). Indeed, Sachs argues that debt relief, not trade surpluses, are new domestic expenditure: “Export-based ratios are not relevant to solvency (governments do not have export earnings; Trade-offs between debt service and social spending are also not taken into account by a debt ratio). The new objective of public debt is an improvement, but it is numerically arbitrary and does not allow for the assessment of trade-offs between urgent social spending and debt serviis” (Sachs 1999, 416). We anticipate that from 1953, after the introduction of the LDA, social spending will increase relative to the other ten categories.

We use Weitzel (1967) data and aggregate budgetary expenditure into fourteen consistent categories for the period 1948-1962.12 The post-treatment period begins in 1953, so the post indicator for 1948-52 is zero and another. In addition, we look at the locations of social expenditure processing groups, which include the categories of health, education, economic development and housing spending. The control group contains the remaining 10 categories. We look graphically at the problem of parallel trends in Figure A1 of the appendix. This figure shows that spending in the social and non-social categories was about equal in 1948 and increased about as fast as other categories between 1949 and 1952, and that spending in the social categories increased much faster in 1953 than in the non-social categories. The LDA has not only allocated the central government`s budget, but has also eased the burden on regional (national and local) budgets (Guinnane 2