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Britain to make its final payment on World War II loan from U.S. - Business - International Herald Tribune
LONDON — Britain will transfer £43 million to the U.S. Treasury on Friday, the final payment on a debt used to finance the World War II defeat of Adolf Hitler and Nazi Germany.
The U.S. extended $4.34 billion in credit in 1945, allowing Britain to stave off bankruptcy after devoting almost all its resources to the war for half a decade. Since 1950 Britain has made payments on the debt, the final payment of which is worth $84 million, at the end of every year except six.
At the time it was granted, the loan strained trans-Atlantic relations. British politicians expected a gift in recognition of the country's contribution to the war effort, especially for the lives lost before the United States entered the fight in 1942.
"The U.S. didn't seem to realize that Britain was bankrupt," said Alan Sked, a historian at the London School of Economics. The loan was "denounced in the House of Lords, but in the end the country had no choice."
The loan, the equivalent of £119 billion in today's money, was double the size of the British economy at the time. Today it's a tiny fraction of Britain's £550 billion debt burden, about 36.4 percent of the economy.
Ed Balls, the British Treasury minister, hailed the loan as a mark of friendship between the two countries, which currently are allied in fighting in Iraq and Afghanistan. Those conflicts have cost Britain £8 billion since 2001.
"It was vital support which helped Britain defeat Nazi Germany and secure peace and prosperity in the postwar period," Balls said in a statement. "We honor our commitments to them now as they honored their commitments to us all those years ago."
The need to borrow followed a decision in 1945 by the administration of President Harry Truman to end the lend-lease program used to supply Britain since 1941.
By that time, Britain owed £4.2 billion to foreign creditors, while its income from overseas investments and exports had been halved since before the war.
John Maynard Keynes, the economist and lawmaker who was then the top adviser to the British Treasury, likened his country's financial situation to the military rout at Dunkirk. Prime Minister Clement Attlee dispatched Keynes to Washington to seek support.
Instead of a subsidy, Keynes came back with the loan, fixed at 2 percent interest to be reimbursed in annual payments that were structured like a mortgage. The payments were mostly interest in the early years and shifted toward capital later on.
In addition to the U.S. funds, Canada granted a loan of 1.25 billion dollars, or $1.08 billion at current exchange rates. Britain will also clear that debt with a final repayment Friday.
Germany, the former enemy of Britain, the United States and Canada, takes over the leadership of both the European Union and the Group of 8 industrialized countries on New Year's Day.
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