Tales of Fortune: West-German Lending to Socialist Poland in the 1970s

This paper takes as its starting point Nobel Laureate Robert Shiller’s assertion that stories have a powerful impact on economic outcomes. It traces the shifting narratives that West-German bankers and government officials relied on to justify massive loans to socialist Eastern Europe during the 1970s, arguing that the stories that circulated among them fueled the investment boom that brought the People’s Republic of Poland to the brink of default in the early 1980s. These stories—connecting the past to predictions about the future—varied widely over the decade. They included, among others: a tale of reconciliation between two countries, one the main aggressor, the other the main victim of the Second World War; the biography of a Polish banker well-known in the West that was cited as evidence for Poland’s reliability as a debtor; and the so-called umbrella theory, built around the assumption that the Soviet Union would bail out its Eastern European satellites to protect the overall creditworthiness of the socialist bloc. When signs abounded that a Polish default was imminent, the Bonn government and Frankfurt bankers rolled over loans and negotiated a costly debt restructuring agreement to prop up the fiction that the People’s Republic was still solvent. Had Poland officially declared default, outstanding debt would have had to be written off—with drastic consequences not just for the banks involved but the economies of Western Europe in general. The paper, then, emphasizes human and cultural aspects of international finance, and it assigns to the lending side some of the responsibility for a debt crisis that is commonly explained with the domestic mismanagement of the borrower. On a theoretical level, it offers a historian’s take on Shiller’s “narrative economics,” relying on a qualitative analysis of archival sources rather than attempts to quantify the irresistible power of stories.