As trailed here a few days ago, I sent off for a copy of Harold Nicolson's Diaries and Letters (inspired by the library at Sissinghurst Castle), and started reading them today. After a disappointing 3rd class degree at Oxford, Nicolson worked hard to succeed in the competitive entry into the Foreign Office and became a diplomat. His duties at the Versailles peace conference features early in the diaries, and Nicolson shares the views Keynes put forward so eloquently in his Economic Consequences of the Peace. Nicolson says in a letter to his father about the terms imposed on Germany:

“Now that we see them as a whole we realise that they are much too stiff. They are not stern merely, but actually punitive. …. There is not a single person among the younger people here who is not unhappy and disappointed at the terms.”

This set me thinking about the truths that 'everybody' sees but international agreements seem unable to acknowledge. The field of international debt is littered with these. Every economist I know is clear that the people of Greece, Ireland, Portugal and Iceland cannot possibly repay their debts to the global banking industry. For example, Morgan Kelly in the Irish Times points out that in theory the debt burden on each Irish worker is €120,000; with the real interest rate in excess of the economy's growth rate, that notional figure will be going up. German taxpayers feel disgruntled because they think they are bailing out Greek taxpayers; but what they are in fact doing – Greeks and Germans alike – is bailing out the banks that extended unrepayable loans in the first place. Yet the international negotiations are unable to face reality.

The same clash between reality and debt realpolitik was evident in the 1990s when it came to the Highly Indebted Poor Countries and the Jubilee 2000 campaign to win them debt relief. It was obvious that at least some of the countries concerned would never grow their export revenues fast enough to escape the debt and interest burden. But it took years of campaigning (and the determination of Ann Pettifor) to win adequate debt relief from the World Bank and IMF.

There's no better text on the inevitability of default on unbearable debts than Carmen Reinhardt and Ken Rogoff's This Time is Different. Punitive debt repayment terms never do better than achieving an unacknowledged default and sometimes have far, far worse results.