Forgiving debt, if done right, can get an economy back on its feet.

The International Monetary Fund certainly thinks so, according to a new report in which it argues Greece should get help.

But Germany, another major creditor to Greece, is resisting, even though it knows better than most what debt relief can achieve. After the hell of World War II, the Federal Republic of Germany –  commonly known as West Germany – got massive help with its debt from former foes.

Among its creditors then? Greece.

The 1953 agreement, in which Greece and about 20 other countries effectively wrote off a large chunk of Germany's loans and restructured the rest, is a landmark case that shows how effective debt relief can be. It helped spark what became known as the German economic miracle.

So it's perhaps ironic that Germany is now among the countries resisting Greece's requests for debt relief.

Greek Finance Minister Yanis Varoufakis claims debt relief is the key issue that held up a deal with creditors last week and says he'd rather cut off his arm than sign anything that doesn't tackle the country's borrowings.

The IMF backed the call to make Greece's debt manageable with a wide-ranging report on Thursday that also blames the Greek government for being slow with reforms.

Despite years of budget cuts, Greece's debt burden is higher than when its bailout began in 2010 – over €300 billion (US$332 billion) or 180 per cent of annual GDP – because the economy has shrunk by a quarter.

Here's a look at when Germany got debt relief, and if such action might help Greece.

FORGIVE US OUR DEBTS
1953's London Agreement, hammered out over months, was generous to West Germany. It cut the amount owed, extended the repayment schedule and granted low interest rates.

And crucially, it linked West Germany's debt repayment schedule to its ability to pay — tying repayments to the trade surplus it was running and expected to run. That created an incentive for trading partners to buy German goods.

The deal effectively blocked claims for reparations for the destruction the Nazis inflicted on others.

But it wasn't a one-way street.
"The London Agreement gave Germany sweeping debt forgiveness and protection from creditors, in exchange for pro-market reforms," said Professor Albrecht Ritschl of the London School of Economics.

West Germany was able to borrow on international markets again, and, free of onerous debt payments, saw its economy grow strongly.

Development activists cite that case when arguing for easier terms for troubled countries today.

"The same opportunity should be given to Greece that was given to Germany in 1953," said Eric LeCompte, executive director of debt relief organisation Jubilee USA.

Greece has had some relief. Private sector bondholders lost 53 per cent of face value in a 2012 restructuring, and remaining debts have been stretched out.

Now most of Greece's debt is owed to bailout creditors. While they, notably the IMF, have indicated that the debt load should be made more manageable, little has been done of late.

NOT CHARITY
The German debt forgiveness was driven by the United States, which pressed others to get a deal — British creditors gave up two-thirds of what they were owed.

It wasn't charity. The US needed a strong West Germany as an ally against the perceived threat of the Soviet Union.

Yale University Professor Timothy Guinnane warns against making too many comparisons, partly because Germany was so much more important geopolitically than Greece today.

And Germany had economic pedigree, being a big exporter. Greece, on the other hand, hasn't, and isn't. That's partly why Germany in particular is insisting on reforms to make Greece more competitive — if they are enacted, then it's indicated it would be open to help out on the debt front.

"The US was basically the last man standing after the war and essentially decided to cut Germany's debt in half," Guinnane said. "It was a hard-nosed decision ... it's wrong to say it was an act of generosity."

LESSONS LEARNED
Still, there are echoes from the German case that are relevant to Greece today.

The deal to help Germany was based on a realistic way for the country to pay its debts — Greece's Varoufakis has suggested debt repayments be linked to growth. Over the bailout years, Greece has had to meet debt commitments even though its economy was in a depression.

Germany's deal also acknowledged that mistakes after World War I in imposing punitive conditions helped boost extremists. In its misery, Greece has seen votes go to radical parties of left and right, including Nazi-inspired Golden Dawn.

"It's deeply ironic that it's forcing Greece into a position that's prompting the rise of extremist parties," said Guinnane.

CHANGE AHEAD?
One of the reasons why relations between Greece and European creditors deteriorated is the disagreement over what to do about the country's debts. It's difficult for anyone, especially those that have endured austerity too, to accept a lower return.

But there are signs of movement as Sunday's referendum nears in Greece on recent reform proposals from the country's creditors.

Cyprus has said it could consider writing off €330 million (US$370 million) in rescue loans to Greece. The US, while not directly involved, has consistently advocated debt relief.

The IMF came out most forcefully on Thursday, arguing in a report that Greece needs large-scale debt relief alongside more than euro60 billion (US$67 billion) in financing between June 2015 and the end of 2018. Given the recent economic shock related to the capital controls and the referendum uncertainty, Greece's needs will likely be significantly higher, the IMF said.

It blamed the current government for being slow on reforms and privatizations, but said it was clear the debt needed to be made more manageable.

"A significant haircut could possibly do it," an IMF official said, on condition of anonymity in line with department rules. "So could an extension, so Greece would not have to go back to the markets for a very long time."

One option the IMF mentioned was doubling the grace period on Greece's loans from EU countries to 20 years and the subsequent repayment period to 40.

"Greece needs a sort of breathing space," the IMF official said.