World War I reparations
Encyclopedia
World War I reparations refers to the payments and transfers of property and equipment that Germany
was forced to make under the Treaty of Versailles (1919) following its defeat during World War I
. Article 231
of the Treaty (the 'war guilt' clause) declared Germany and its allies responsible for all 'loss and damage' suffered by the Allies during the war and provided the basis for reparations.
In January 1921, the total sum due was decided by an Inter-Allied Reparations Commission
and was set at 269 billion gold marks
(the equivalent of around 100,000 tonnes of pure gold),. This 100,000 tonnes of gold is equivalent to more than 50% of all the gold ever mined in history (est 165000tonnes) which was clearly not within the means of the Germans to pay. Consequently their only way of paying back the debt was in devalued Gold Marks which ultimately led to the hyperinflation; Historical conversions between currencies are based on the nominal gold standard
s of each currency: one gold mark
≡ kg pure gold; one pound sterling
≡ 113 grains pure gold; one U.S. dollar
≡ grains gold at fineness (= 23.22 grains pure gold). ($ billion in ), a sum that many economists at the time deemed to be excessive. The yearly amount paid was reduced in 1924 and in 1929 the total sum to be paid was reduced by over 50%. Payments ceased when Adolf Hitler
's National Socialist German Workers' Party took power in 1933, with about one-eighth of the initial reparations paid. The final payments were made on 4 October 2010, the twentieth anniversary of German reunification
.
There was extensive debate about the justice and likely impact of the reparations demands both before and after the publication and signing of the Treaty of Versailles and other Treaties in 1919. Most famously, the principal representative of the British Treasury at the Paris Peace Conference, John Maynard Keynes
, resigned from the Treasury in June 1919 in protest at the scale of the reparations demands, and subsequently protested publicly in the best-selling The Economic Consequences of the Peace (1919).
The 1924 Dawes Plan
modified Germany's reparation payments. The Americans Owen D. Young and Seymour Parker Gilbert
were appointed to implement this plan. In May 1929, the Young Plan
reduced further payments to 112 billion Gold Marks, US$26.6 billion over a period of 59 years (1988). In addition, the Young Plan divided the annual payment, set at two billion Gold Marks, US$473 million, into two components, one unconditional part equal to one third of the sum and a postponable part for the remaining two-thirds.
However, the Wall Street Crash of 1929
and the onset of the Great Depression
resulted in calls for a moratorium. On June 20, 1931, realizing that Austria and Germany were on the brink of financial collapse, U.S. President Herbert Hoover
proposed a one-year world moratorium on reparations and inter-governmental debt payments. Britain quickly accepted this proposal, but it met with stiff resistance and seventeen days of delay by Premier André Tardieu
of France. During this delay the situation in Germany as well as renewed fears of hyperinflation had resulted in a countrywide bank run
, draining some $300,000,000. As a result, all German banks had to close temporarily.
The worsening economic distress within Germany resulted in the Lausanne Conference
, which voted to cancel reparations. By this time Germany had paid one eighth of the sum required under the Treaty of Versailles. However, the Lausanne agreement was contingent upon the United States agreeing to also defer payment of the war debt owed them by the Western European governments. The plan ultimately failed not because of the U.S. Congress refusal to go along but because it became irrelevant upon Hitler's rise to power and his refusal to pay any reparations. The Germans had paid a total of 20 billion marks and historian Martin Kitchen
argues that the impression the country was crippled by the reparations was a myth. Kitchen argues that, instead of a weak Germany, the reverse was true; that Germany was strong enough to win substantial concessions and a reduced reparation amount.
and the beginning of the dictatorship of Adolf Hitler
. The British economist John Maynard Keynes
in his best-selling 1919 book The Economic Consequences of the Peace
argued that reparations threatened to destabilize the German economy, and hence German politics. The majority of historians, such as the Canadian historian Margaret MacMillan
in her 2001 book Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War
, have since disagreed with this assertion. The French economist Étienne Mantoux
in his 1946 book The Carthaginian Peace, or the Economic Consequences of Mr. Keynes established that Germany could have paid all of the reparations had they wanted to, and that the problem was not the Germans were unable to pay, but rather that they were unwilling to pay. The American historian Sally Marks commented that Keynes had fallen in love with Carl Melchior
, a member of the German delegation, and that views on reparations "...were shaped by his passion for Carl Melchior, the German financier and reparations expert whom he met during negotiations at Spa shortly after the armistice".
In opposition to Keynes, Mantoux held that justice demanded that Germany should pay for the whole damage caused by the war, and he set out to prove that many of Keynes' forecasts were not verified by subsequent events. For example, Keynes believed European output in iron would decrease, but by 1929 iron output in Europe was up 10% from the 1913 figure. Keynes predicted that German iron and steel output would decrease, but by 1927 steel output increased by 30% and iron output increased by 38% from 1913 (within the pre-war borders). Keynes also argued that German coal mining efficiency would decrease but labour efficiency by 1929 had increased on the 1913 figure by 30%. Keynes contended that Germany would be unable to export coal immediately after the Treaty but German net coal exports were 15 million tons within a year and by 1926 the tonnage exported reached 35 million. He also put forward the claim that German national savings in the years after the Treaty would be less than 2 billion marks; however, in 1925 the German national savings figure was estimated at 6.4 billion marks and in 1927, 7.6 billion marks. Keynes also believed that Germany would be unable to pay the more than 2 billion marks in reparations for the next 30 years, but Mantoux contends that German rearmament spending was seven times as much as that figure in each year between 1933 and 1939
Economists such as Keynes assert that payment of the reparations would have been economically impossible. However, according to the American historian William R. Keylor in his essay "Versailles and International Diplomacy" from the book The Treaty of Versailles: A Reassessment after 75 Years, 'An increase in taxation and reduction in consumption
in the Weimar Republic would have yielded the requisite export surplus to generate the foreign exchange needed to service the reparation debt." However this export surplus and the resulting export deficit for those collecting reparations could have created a politically difficult situation. Indeed, this was one of the causes of the UK General Strike of 1926
.
The American historian Sally Marks commented the figure of 132 billion marks of reparations imposed by the London Conference of May 1921 was a highly misleading one Reparations were divided into A, B, and C bonds The bulk of the reparations were assigned to the C bonds, which were as Marks called "chimerical" as the Allies did not intend to collect the C bonds, which only existed to give the impression to French public opinion that substantial sums were going to be collected The Allies intended to collect only the A and B bonds, which totaled 50 billion marks, which was an amount that was slightly smaller than the 51 billion marks that the Germans had offered to pay Marks noted that as long as the French occupied the Düsseldorf area in 1921 as an incentive to pay, the Germans paid all of their reparations in full and on time, and it was only after the French pulled out of Düsseldorf in 1922, that the Germans started to default on a regular basis. By late 1922, the German defaults on payments had grown so serious and regular that a crisis engulfed the Reparations Commission as the French and Belgian delegates urging the seizure of the Ruhr as an way of encouraging the Germans to make more effort to pay, and the British delegate urging a lowering of the payments. As a consequence of an enormous German default on timber deliveries in December 1922, the Reparations Commission declared Germany in default, which led to the occupation of the Ruhr
in January 1923. Particularly galling to the French was that the timber quota which the Germans had defaulted was based on a German assessment of their capacity to deliver and then had subsequently been lowered from below the German assessment. There was little doubt among the Allies that the government of Chancellor Wilhelm Cuno
had defaulted on the timber deliveries deliberately as a provocation intended to test the willingness of the Allies to enforce reparations if the Germans should chose not to pay. Providing more fuel for the fire was a German default on coal deliveries in early January 1923, which was the thirty-fourth coal default in the last thirty-six months. The French Premier Raymond Poincaré
was deeply reluctant to order the Ruhr occupation, and had only taken this step after the British had rejected his proposals for more moderate sanctions against Germany. Frustrated at Germany's unwillingness to pay reparations, Poincaré hoped for joint Anglo-French economic sanctions against Germany in 1922 and opposed military action. However by December 1922 he was faced with Anglo-American-German hostility and saw coal for French steel production and money for reconstructing the devastated industrial areas draining away. Poincaré was exasperated with British failure to act, and wrote to the French ambassador in London:
Poincaré decided to occupy the Ruhr
in 11 January 1923 to extract the reparations himself. This "was profitable and caused neither the German hyperinflation, which began in 1922 and ballooned because of German responses to the Ruhr occupation, nor the franc's 1924 collapse, which arose from French financial practices and the evaporation of reparations". The profits, after Ruhr-Rhineland occupation costs, were nearly 900 million gold marks. The real issue during the Ruhrkampf (Ruhr struggle) in 1923 as the Germans labeled the battle against the French occupation was not the German defaults on coal and timber deliveries, but the sanctity of the Versailles treaty Poincaré often argued to the British that if the Germans could get away with defying Versailles in regards to the reparations, then a precedent would be created , and inevitably the Germans would proceed to dismantle the rest of the Versailles treaty. Finally, Poincaré argued that once the chains that had bound Germany in Versailles had been destroyed, then it was inevitable that Germany would once more plunge the world back into another world war.
In order to pay for the "passive resistance" in the Ruhr, the German government began the hyper-inflation
that destroyed the German economy in 1923. In 2008, the British historian Richard J. Evans
argued that Keynes was simply wrong about reparations being unpayable, and instead contended that the responsibility for the great inflation of 1923 lay with the German government who preferred hyper-inflation to paying reparations Although the French did succeed in making their occupation of the Ruhr pay, the Germans through their "passive resistance" in the Ruhr and the Hyperinflation
which wrecked their economy, won the world's sympathy, and under heavy Anglo-American financial pressure (the simultaneous decline in the value of the franc made the French very open to pressure from Wall Street and the City), the French were forced to agree to the Dawes Plan
of April 1924, which substantially lowered German reparations payments. Under the Dawes Plan, Germany paid only 1 billion marks in 1924, and then increasing large sums for the next three years, until the total was to rise to 2 and quarter billion by 1927. After 1927, Germany was to make an annual payment of 2 and half billion marks. Even under the reduced payments under the Dawes Plan, Germany continued to default in reparations payments. To deal with the implementation of the Dawes Plan, a conference took place in London in July–August 1924. The British Prime Minister J. Ramsay MacDonald
, who accepted Keynes's view of reparations as impossible to pay successfully pressured the French Premier Édouard Herriot
into a whole series of concessions to Germany. A British onlooker, the diplomat Sir Eric Phipps
commented that “The London Conference was for the French “man in the street” one long Calvary…as he saw M. Herriot abandoning one by one the cherished possessions of French preponderance on the Reparations Commission, the right of sanctions in the event of German default, the economic occupation of the Ruhr, the French-Belgian railroad Régie, and finally, the military occupation of the Ruhr within a year.” The Dawes Plan was a momentous moment in European history as it marked the first time that Germany had succeeded in defying Versailles, and revised an aspect of the treaty in its favour. The London conference was the first major triumph of British Appeasement
.
Following German complaints that reparations payments under the Dawes Plan were too high, the Young Plan
of 1928, under which the Germans were to pay annuities of various amounts, but none to be higher than two and a quarter billion until 1988. Under the Young Plan, transfer protection was reduced while the Reparations Commission was abolished. The commission was replaced by the Bank for International Settlements
. The task of executing the Young Plan was assigned to an international conference in the Hague which took place in August 1929. During the conference, the German Foreign Minister Gustav Stresemann
demanded that an “unconditional Rhineland evacuation” five years ahead of schedule as the German condition for accepting the Young Plan. In this, Stresemann was strongly supported by the British, and as a result of strong Anglo-German pressure, the French agreed to evacuate the Rhineland in June 1930, five years ahead of schedule as the price of reducing German reparations. Labour
had been returned to power in the 1929 elections, and as a result, MacDonald returned to his policy of 1924 of pressuring France into concessions to Germany with little regard for French concerns. Although the Young Plan did not come into effect until January 1930 owning largely to difficulties over the Rhineland evacuation, it was made retroactive to September 1, 1929 the date it was scheduled to come into effect, and as a result the Germans paid less than half of what they would have under the Dawes Plan from September 1929. Despite these concessions to Germany, a referendum was called in that country in December 1929 in an attempt to pass the so-called Liberty Law, which would had cancelled the Young Plan and tried those German politicians who accepted the plan for high treason.
Starting in September 1930, the German Chancellor Heinrich Brüning
claimed that the reparations payments under the Young Plan were too high, and demanded the total and unconditional cancellation of reparations. Though Brüning claimed that Germany could not pay reparations because of the Great Depression
, his real reason was to seek a foreign policy success that might bolster his highly unpopular government. At the same time, Brüning started to demand gleichberechtigung (equality of status), that is doing away with Part V of Versailles, which had disarmed Germany. Brüning never explained why Germany was so impoverished by the Depression that she could not afford to pay reparations, even under the reduced rate of the Young Plan while at the same time stating that Germany could afford tanks, air force, heavy artillery, conscription, submarines, and the rest of weapons forbidden by Part V.
Marks has argued that the Germans could have easily paid the 50 billion marks in reparations, but instead chose to repeatedly default on reparations payments as part of a political strategy of undermining Versailles. Marks also points out that Article 231
of the Versailles treaty, the so-called “war guilt clause” says no such thing, and all that the clause does say is “the responsibility of Germany and her Allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies” The claim that Article 231 implies “war guilt” was the work of various German politicians and apologists who misinterpreted Article 231 as saying that as a way of gaining international sympathy. Moreover, Marks points out that the next article, Article 232 of the Versailles treaty limits German responsibility to pay only for civilian damages, and that when a conference was called in London in 1921 to determine how much Germany should pay, the Allies calculated on the basis of Germany could pay, not on their needs.
It has been argued by some that it is a fallacy to consider the reparations as the primary source of the economic condition in Germany from 1919 to 1939. This perspective argues that Germany paid a small portion of the reparations and the hyper-inflation of the early 1920s was a result of the political and economic instability of the Weimar Republic. In fact, the occupation of the Ruhr
by the French (which began when Germany failed to supply a required delivery of telegraph poles) did more damage to the economy than the reparations payments. Another fallacy is that these reparations were the single cause of the economic condition that saw Hitler's rise to power. Germany was in fact doing remarkably well after its hyper-inflation of 1923, and was once more one of the world's largest economies.
The economy continued to perform reasonably well until the foreign investments funding the economy, and the loans funding reparations payments, were suddenly withdrawn with the Stock Market Crash of 1929. This collapse was magnified by the volume of loans provided to German companies by US lenders. Even the reduced payments of the Dawes plan were primarily financed through a large volume of international loans. From 1924 onward German officials were "virtually flooded with loan offers by foreigners." When these debts suddenly came due it was as if years of reparations payments were compressed into a few short weeks.
Also of note are the ideas of the British historian A. J. P. Taylor
from his 1961 book The Origins of the Second World War, in which he claims that the settlement had been too indecisive: it was harsh enough to be seen as punitive, without being crippling enough to prevent Germany regaining its big power status, and can thus be blamed for the rise of the Reich
under Hitler within decades.
The British economic historian Niall Ferguson
in his 1998 book The Pity of War argued that Germany could have paid reparations had there been the political will. Ferguson began his argument by noting that all of the belligerent countries in World War I had endured significant economic losses, not just Germany, and that in 1920–21, German net national product grew at 17%. Ferguson has argued that the German trade deficit of 1920 was caused by speculation promoted in turn by the amalgamation of rapid economic growth in Germany and a weak exchange rate for the mark, and not by the prospect of reparations. Ferguson has contended that the rise in the value of the mark after March 1920 was caused by speculators buying up the mark, and this revaluation of the mark led to inflation becoming a serious problem in Germany from 1921 onwards Ferguson has maintained that the ratio of total German debts in 1921 to the gross national product was less than the ratio of total British debts to the British G.N.P in the same period. Likewise, Ferguson has argued that the total annuity of 3 billion marks imposed by the London conference in 1921, which totalled 4–7% of German national income was far less than the worries expressed by Keynes of 25–50% of German national income being handled over in reparations. Similarly, Ferguson has argued that France paid 4,933 million francs in reparations to Germany between 1871 and 1873 totalling 25% of French national net income without causing national bankruptcy, and has argued that German claims in the 1920s that reparations payments threatened Germany with bankruptcy were just an excuse to try to get out of paying reparations. Ferguson has argued that the plan called by the Young Committee in 1929 for Germany to pay reparations until 1988 is a far less than the 163 billion marks paid by Germany to the Economic European Community between 1958 and 1998 without experiencing a drastic collapse in living standards, and as such, the Young Plan
was not the economically unviable plan as often depicted. The American historian Stephen Schuker has argued that the Germans received in much in American loans which they never repaid as Germany paid in reparations. Schuker has noted that between 1921 and 1931, Germany paid 19.1 billion marks in reparations, and in the same time, took in 27 billion marks in loans from the United States, which Germany defaulted on in 1932. Ferguson has argued the principle problem with reparations was not that the sum, but rather that the Allies entrusted the Germans with responsibility for paying reparations voluntarily without occupying significant amounts of German territory as an incentive to pay. Since German politicians were reluctant to raise the necessary taxes to pay for reparations, successive German governments chose to default on reparations out the hope that the Allies were not serious about collecting reparations. Even without reparations, total public spending in Germany between 1920 and 1923 comprised 33% of German net national product, and Ferguson has argued that even if no reparations had been imposed, Germany would still had significant problems caused by the need to pay World War I debts combined with the demands of voters for more social services. As a result of inflation, German debts by 1922 were reduced down to where they had been in 1914. Ferguson has argued that German inflation in the 1920s was not caused by reparations, but rather were a conscious political decision on the part of the German government to employ this particular economic strategy to deal with World War I debts and reparations.
Under the Hoover Moratorium
of June 1931 issued by the American president Herbert Hoover
, which was designed to deal with the world-wide financial crisis caused by the bankruptcy of the Creditanstalt
in May 1931, Germany ceased paying reparations. At the Lausanne Conference
of June 1932, reparations were formally cancelled. Marks calculates that between 1921 and 1931, Germany paid a total of 20 billion marks in reparations, most of which came from American loans that the Germans repudiated in 1932. In this way, the Germans largely escaped paying for World War I, and instead shifted the costs onto American investors. The American historian Gerhard Weinberg
commented about the way the Germans used reparations to avoid paying the costs of World War I that "The shifting of the burden of reparations from her shoulders to those of her enemies served to accentuate this disparity" in the economic strength of the Allies, which struggled to pay their heavy World War I debts and the other costs of the war and Germany, which paid neither reparations nor its World War I debts.
, signed after the Franco-Prussian War
. Indemnities of the Treaty of Frankfurt were in turn calculated, on the basis of population, as the precise equivalent of the indemnities demanded by Napoleon after the defeat of Prussia.
Infrastructure damage caused by the retreating German troops was also cited. In her book, Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War, Margaret MacMillan
described the significance of the claims for French and Belgium: "From the start, France
and Belgium
argued that claims for direct damage should receive priority in any distribution of reparations. In the heavily industrialized north of France, the Germans had shipped out what they wanted for their own use and destroyed much of the rest. Even as German forces were retreating in 1918, they found time to blow up France's most important coal mine". Belgium, however, received none of the financial reparations promised under the treaty, as France and Britain failed to redistribute any of the payments they received.
, 1953) that Germany would pay some parts of the remaining debt only after the country was reunified, at that time an event thought very unlikely to happen. West Germany
paid off the remainder by 1980. According to the agreement, the debt would be serviced for 20 years, leading to the last payments being due on 3 October 2010, the 20th anniversary of German reunification
. About 10% of this debt, about 20 million euro, has not been claimed yet.
German Empire
The German Empire refers to Germany during the "Second Reich" period from the unification of Germany and proclamation of Wilhelm I as German Emperor on 18 January 1871, to 1918, when it became a federal republic after defeat in World War I and the abdication of the Emperor, Wilhelm II.The German...
was forced to make under the Treaty of Versailles (1919) following its defeat during World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
. Article 231
Article 231 of the Treaty of Versailles
Article 231, commonly known as the "Guilt Clause" or the "War Guilt Clause", is the first article in Part VIII, "Reparations" of the Treaty of Versailles. Apart from "Article 231", there is no title for this article in the treaty itself...
of the Treaty (the 'war guilt' clause) declared Germany and its allies responsible for all 'loss and damage' suffered by the Allies during the war and provided the basis for reparations.
In January 1921, the total sum due was decided by an Inter-Allied Reparations Commission
Inter-Allied Reparations Commission
Inter-Allied Reparations Commission was an international commission established following the First World War by the Allied governments to consider the issue of war reparations from the defeated central powers...
and was set at 269 billion gold marks
German gold mark
The Goldmark was the currency used in the German Empire from 1873 to 1914.-History:Before unification, the different German states issued a variety of different currencies, though most were linked to the Vereinsthaler, a silver coin containing 16⅔ grams of pure silver...
(the equivalent of around 100,000 tonnes of pure gold),. This 100,000 tonnes of gold is equivalent to more than 50% of all the gold ever mined in history (est 165000tonnes) which was clearly not within the means of the Germans to pay. Consequently their only way of paying back the debt was in devalued Gold Marks which ultimately led to the hyperinflation; Historical conversions between currencies are based on the nominal gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
s of each currency: one gold mark
German gold mark
The Goldmark was the currency used in the German Empire from 1873 to 1914.-History:Before unification, the different German states issued a variety of different currencies, though most were linked to the Vereinsthaler, a silver coin containing 16⅔ grams of pure silver...
≡ kg pure gold; one pound sterling
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
≡ 113 grains pure gold; one U.S. dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
≡ grains gold at fineness (= 23.22 grains pure gold). ($ billion in ), a sum that many economists at the time deemed to be excessive. The yearly amount paid was reduced in 1924 and in 1929 the total sum to be paid was reduced by over 50%. Payments ceased when Adolf Hitler
Adolf Hitler
Adolf Hitler was an Austrian-born German politician and the leader of the National Socialist German Workers Party , commonly referred to as the Nazi Party). He was Chancellor of Germany from 1933 to 1945, and head of state from 1934 to 1945...
's National Socialist German Workers' Party took power in 1933, with about one-eighth of the initial reparations paid. The final payments were made on 4 October 2010, the twentieth anniversary of German reunification
German reunification
German reunification was the process in 1990 in which the German Democratic Republic joined the Federal Republic of Germany , and when Berlin reunited into a single city, as provided by its then Grundgesetz constitution Article 23. The start of this process is commonly referred by Germans as die...
.
Evolution of Reparations
There was extensive debate about the justice and likely impact of the reparations demands both before and after the publication and signing of the Treaty of Versailles and other Treaties in 1919. Most famously, the principal representative of the British Treasury at the Paris Peace Conference, John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
, resigned from the Treasury in June 1919 in protest at the scale of the reparations demands, and subsequently protested publicly in the best-selling The Economic Consequences of the Peace (1919).
The 1924 Dawes Plan
Dawes Plan
The Dawes Plan was an attempt in 1924, following World War I for the Triple Entente to collect war reparations debt from Germany...
modified Germany's reparation payments. The Americans Owen D. Young and Seymour Parker Gilbert
Seymour Parker Gilbert
Seymour Parker Gilbert was an American lawyer, banker, politician and diplomat. He is chiefly known for being Agent General for Reparations to Germany, from October 1924 to May 1930. Afterwards, in 1931, he became an associate at J. P. Morgan. He died at age 45, from a heart attack. His son S...
were appointed to implement this plan. In May 1929, the Young Plan
Young Plan
The Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
reduced further payments to 112 billion Gold Marks, US$26.6 billion over a period of 59 years (1988). In addition, the Young Plan divided the annual payment, set at two billion Gold Marks, US$473 million, into two components, one unconditional part equal to one third of the sum and a postponable part for the remaining two-thirds.
However, the Wall Street Crash of 1929
Wall Street Crash of 1929
The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout...
and the onset of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
resulted in calls for a moratorium. On June 20, 1931, realizing that Austria and Germany were on the brink of financial collapse, U.S. President Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
proposed a one-year world moratorium on reparations and inter-governmental debt payments. Britain quickly accepted this proposal, but it met with stiff resistance and seventeen days of delay by Premier André Tardieu
André Tardieu
André Pierre Gabriel Amédée Tardieu was three times Prime Minister of France and a dominant figure of French political life in 1929-1932.-Biography:...
of France. During this delay the situation in Germany as well as renewed fears of hyperinflation had resulted in a countrywide bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
, draining some $300,000,000. As a result, all German banks had to close temporarily.
The worsening economic distress within Germany resulted in the Lausanne Conference
Lausanne Conference of 1932
The Lausanne Conference was a 1932 meeting of representatives from Great Britain, Germany, and France that resulted in an agreement to suspend World War I reparations payments imposed on the defeated countries by the Treaty of Versailles...
, which voted to cancel reparations. By this time Germany had paid one eighth of the sum required under the Treaty of Versailles. However, the Lausanne agreement was contingent upon the United States agreeing to also defer payment of the war debt owed them by the Western European governments. The plan ultimately failed not because of the U.S. Congress refusal to go along but because it became irrelevant upon Hitler's rise to power and his refusal to pay any reparations. The Germans had paid a total of 20 billion marks and historian Martin Kitchen
Martin Kitchen
Martin Kitchen is a British-Canadian historian, specialized in modern European history, with an emphasis on Germany. Professor Emeritus of history at Simon Fraser University, he started teaching in 1966...
argues that the impression the country was crippled by the reparations was a myth. Kitchen argues that, instead of a weak Germany, the reverse was true; that Germany was strong enough to win substantial concessions and a reduced reparation amount.
As viewed within Germany
In the German public, there was little acceptance that the German army had been defeated in war. The German High Command, which could claim that the army had not been defeated in the field, evaded responsibility for the defeat, and blame was attributed by many to civilian elements, particularly Socialists, Communists, and Jews. This became known as the Dolchstoßlegende (stab-in-the-back myth). There was also little acceptance of German responsibility for the war and little sense that Germany had done anything wrong. Accordingly, there was growing resentment at the reparations, which were perceived as harsh, partly because of deliberate misrepresentation by German leaders.Impact on the German economy
The economic problems that the payments brought, and German resentment at their imposition are usually cited as one of the more significant factors that led to the end of the Weimar RepublicWeimar Republic
The Weimar Republic is the name given by historians to the parliamentary republic established in 1919 in Germany to replace the imperial form of government...
and the beginning of the dictatorship of Adolf Hitler
Adolf Hitler
Adolf Hitler was an Austrian-born German politician and the leader of the National Socialist German Workers Party , commonly referred to as the Nazi Party). He was Chancellor of Germany from 1933 to 1945, and head of state from 1934 to 1945...
. The British economist John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
in his best-selling 1919 book The Economic Consequences of the Peace
The Economic Consequences of the Peace
The Economic Consequences of the Peace is a book written and published by John Maynard Keynes. Keynes attended the Versailles Conference as a delegate of the British Treasury and argued for a much more generous peace. It was a bestseller throughout the world and was critical in establishing a...
argued that reparations threatened to destabilize the German economy, and hence German politics. The majority of historians, such as the Canadian historian Margaret MacMillan
Margaret MacMillan
Margaret Olwen MacMillan, OC is a historian and professor at the University of Oxford, where she is Warden of St. Antony's College. She is former provost of Trinity College and professor of history at the University of Toronto and previously, at Ryerson University...
in her 2001 book Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War
Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War
Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War is a historical narrative based on the events of the Paris Peace Conference of 1919. It was written by the Canadian historian Margaret MacMillan with a foreword by American diplomat Richard Holbrooke...
, have since disagreed with this assertion. The French economist Étienne Mantoux
Étienne Mantoux
Étienne Mantoux was a French economist and son of Paul Mantoux. He is probably best known for his book The Carthaginian Peace, or the Economic Consequences of Mr. Keynes published two years after it was completed and one year after his death...
in his 1946 book The Carthaginian Peace, or the Economic Consequences of Mr. Keynes established that Germany could have paid all of the reparations had they wanted to, and that the problem was not the Germans were unable to pay, but rather that they were unwilling to pay. The American historian Sally Marks commented that Keynes had fallen in love with Carl Melchior
Carl Melchior
Carl Melchior was a German banker.Born in Hamburg, Melchior studied law and eventually was appointed a judge. In 1900 Melchior was made legal counsel to Hamburg banking concern, M.M.Warburg & CO. During World War I, he served with a Bavarian regiment of the German army and was seriously injured...
, a member of the German delegation, and that views on reparations "...were shaped by his passion for Carl Melchior, the German financier and reparations expert whom he met during negotiations at Spa shortly after the armistice".
In opposition to Keynes, Mantoux held that justice demanded that Germany should pay for the whole damage caused by the war, and he set out to prove that many of Keynes' forecasts were not verified by subsequent events. For example, Keynes believed European output in iron would decrease, but by 1929 iron output in Europe was up 10% from the 1913 figure. Keynes predicted that German iron and steel output would decrease, but by 1927 steel output increased by 30% and iron output increased by 38% from 1913 (within the pre-war borders). Keynes also argued that German coal mining efficiency would decrease but labour efficiency by 1929 had increased on the 1913 figure by 30%. Keynes contended that Germany would be unable to export coal immediately after the Treaty but German net coal exports were 15 million tons within a year and by 1926 the tonnage exported reached 35 million. He also put forward the claim that German national savings in the years after the Treaty would be less than 2 billion marks; however, in 1925 the German national savings figure was estimated at 6.4 billion marks and in 1927, 7.6 billion marks. Keynes also believed that Germany would be unable to pay the more than 2 billion marks in reparations for the next 30 years, but Mantoux contends that German rearmament spending was seven times as much as that figure in each year between 1933 and 1939
Economists such as Keynes assert that payment of the reparations would have been economically impossible. However, according to the American historian William R. Keylor in his essay "Versailles and International Diplomacy" from the book The Treaty of Versailles: A Reassessment after 75 Years, 'An increase in taxation and reduction in consumption
Austerity
In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to...
in the Weimar Republic would have yielded the requisite export surplus to generate the foreign exchange needed to service the reparation debt." However this export surplus and the resulting export deficit for those collecting reparations could have created a politically difficult situation. Indeed, this was one of the causes of the UK General Strike of 1926
UK General Strike of 1926
The 1926 general strike in the United Kingdom was a general strike that lasted nine days, from 4 May 1926 to 13 May 1926. It was called by the general council of the Trades Union Congress in an unsuccessful attempt to force the British government to act to prevent wage reduction and worsening...
.
The American historian Sally Marks commented the figure of 132 billion marks of reparations imposed by the London Conference of May 1921 was a highly misleading one Reparations were divided into A, B, and C bonds The bulk of the reparations were assigned to the C bonds, which were as Marks called "chimerical" as the Allies did not intend to collect the C bonds, which only existed to give the impression to French public opinion that substantial sums were going to be collected The Allies intended to collect only the A and B bonds, which totaled 50 billion marks, which was an amount that was slightly smaller than the 51 billion marks that the Germans had offered to pay Marks noted that as long as the French occupied the Düsseldorf area in 1921 as an incentive to pay, the Germans paid all of their reparations in full and on time, and it was only after the French pulled out of Düsseldorf in 1922, that the Germans started to default on a regular basis. By late 1922, the German defaults on payments had grown so serious and regular that a crisis engulfed the Reparations Commission as the French and Belgian delegates urging the seizure of the Ruhr as an way of encouraging the Germans to make more effort to pay, and the British delegate urging a lowering of the payments. As a consequence of an enormous German default on timber deliveries in December 1922, the Reparations Commission declared Germany in default, which led to the occupation of the Ruhr
Occupation of the Ruhr
The Occupation of the Ruhr between 1923 and 1925, by troops from France and Belgium, was a response to the failure of the German Weimar Republic under Chancellor Cuno to pay reparations in the aftermath of World War I.-Background:...
in January 1923. Particularly galling to the French was that the timber quota which the Germans had defaulted was based on a German assessment of their capacity to deliver and then had subsequently been lowered from below the German assessment. There was little doubt among the Allies that the government of Chancellor Wilhelm Cuno
Wilhelm Cuno
Wilhelm Carl Josef Cuno was a German politician who was the Chancellor of Germany from 1922 to 1923. He was born in Suhl, Prussian Saxony. Cuno's government is best known for its passive resistance of the French occupation of the Ruhr Area . Cuno's government was also responsible for its poor...
had defaulted on the timber deliveries deliberately as a provocation intended to test the willingness of the Allies to enforce reparations if the Germans should chose not to pay. Providing more fuel for the fire was a German default on coal deliveries in early January 1923, which was the thirty-fourth coal default in the last thirty-six months. The French Premier Raymond Poincaré
Raymond Poincaré
Raymond Poincaré was a French statesman who served as Prime Minister of France on five separate occasions and as President of France from 1913 to 1920. Poincaré was a conservative leader primarily committed to political and social stability...
was deeply reluctant to order the Ruhr occupation, and had only taken this step after the British had rejected his proposals for more moderate sanctions against Germany. Frustrated at Germany's unwillingness to pay reparations, Poincaré hoped for joint Anglo-French economic sanctions against Germany in 1922 and opposed military action. However by December 1922 he was faced with Anglo-American-German hostility and saw coal for French steel production and money for reconstructing the devastated industrial areas draining away. Poincaré was exasperated with British failure to act, and wrote to the French ambassador in London:
"Judging others by themselves, the English, who are blinded by their loyalty, have always thought that the Germans did not abide by their pledges inscribed in the Versailles Treaty because they had not frankly agreed to them. ... We, on the contrary, believe that if Germany, far from making the slightest effort to carry out the treaty of peace, has always tried to escape her obligations, it is because until now she has not been convinced of her defeat. ... We are also certain that Germany, as a nation, resigns herself to keep her pledged word only under the impact of necessity".
Poincaré decided to occupy the Ruhr
Occupation of the Ruhr
The Occupation of the Ruhr between 1923 and 1925, by troops from France and Belgium, was a response to the failure of the German Weimar Republic under Chancellor Cuno to pay reparations in the aftermath of World War I.-Background:...
in 11 January 1923 to extract the reparations himself. This "was profitable and caused neither the German hyperinflation, which began in 1922 and ballooned because of German responses to the Ruhr occupation, nor the franc's 1924 collapse, which arose from French financial practices and the evaporation of reparations". The profits, after Ruhr-Rhineland occupation costs, were nearly 900 million gold marks. The real issue during the Ruhrkampf (Ruhr struggle) in 1923 as the Germans labeled the battle against the French occupation was not the German defaults on coal and timber deliveries, but the sanctity of the Versailles treaty Poincaré often argued to the British that if the Germans could get away with defying Versailles in regards to the reparations, then a precedent would be created , and inevitably the Germans would proceed to dismantle the rest of the Versailles treaty. Finally, Poincaré argued that once the chains that had bound Germany in Versailles had been destroyed, then it was inevitable that Germany would once more plunge the world back into another world war.
In order to pay for the "passive resistance" in the Ruhr, the German government began the hyper-inflation
Inflation in the Weimar Republic
The hyperinflation in the Weimar Republic was a three year period of hyperinflation in Germany between June 1921 and July 1924.- Analysis :...
that destroyed the German economy in 1923. In 2008, the British historian Richard J. Evans
Richard J. Evans
Richard John Evans is a British academic and historian, prominently known for his history of Germany.-Life:Evans was born in London, of Welsh parentage, and is now Regius Professor of Modern History at the University of Cambridge and President of Wolfson College...
argued that Keynes was simply wrong about reparations being unpayable, and instead contended that the responsibility for the great inflation of 1923 lay with the German government who preferred hyper-inflation to paying reparations Although the French did succeed in making their occupation of the Ruhr pay, the Germans through their "passive resistance" in the Ruhr and the Hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
which wrecked their economy, won the world's sympathy, and under heavy Anglo-American financial pressure (the simultaneous decline in the value of the franc made the French very open to pressure from Wall Street and the City), the French were forced to agree to the Dawes Plan
Dawes Plan
The Dawes Plan was an attempt in 1924, following World War I for the Triple Entente to collect war reparations debt from Germany...
of April 1924, which substantially lowered German reparations payments. Under the Dawes Plan, Germany paid only 1 billion marks in 1924, and then increasing large sums for the next three years, until the total was to rise to 2 and quarter billion by 1927. After 1927, Germany was to make an annual payment of 2 and half billion marks. Even under the reduced payments under the Dawes Plan, Germany continued to default in reparations payments. To deal with the implementation of the Dawes Plan, a conference took place in London in July–August 1924. The British Prime Minister J. Ramsay MacDonald
Ramsay MacDonald
James Ramsay MacDonald, PC, FRS was a British politician who was the first ever Labour Prime Minister, leading a minority government for two terms....
, who accepted Keynes's view of reparations as impossible to pay successfully pressured the French Premier Édouard Herriot
Édouard Herriot
Édouard Marie Herriot was a French Radical politician of the Third Republic who served three times as Prime Minister and for many years as President of the Chamber of Deputies....
into a whole series of concessions to Germany. A British onlooker, the diplomat Sir Eric Phipps
Eric Phipps
Sir Eric Clare Edmund Phipps, GCB, GCMG, GCVO, PC was a British diplomat.-Family and early life:Phipps was the son of Sir Constantine Phipps, later British Ambassador to Belgium, and his wife Maria Jane...
commented that “The London Conference was for the French “man in the street” one long Calvary…as he saw M. Herriot abandoning one by one the cherished possessions of French preponderance on the Reparations Commission, the right of sanctions in the event of German default, the economic occupation of the Ruhr, the French-Belgian railroad Régie, and finally, the military occupation of the Ruhr within a year.” The Dawes Plan was a momentous moment in European history as it marked the first time that Germany had succeeded in defying Versailles, and revised an aspect of the treaty in its favour. The London conference was the first major triumph of British Appeasement
Appeasement
The term appeasement is commonly understood to refer to a diplomatic policy aimed at avoiding war by making concessions to another power. Historian Paul Kennedy defines it as "the policy of settling international quarrels by admitting and satisfying grievances through rational negotiation and...
.
Following German complaints that reparations payments under the Dawes Plan were too high, the Young Plan
Young Plan
The Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
of 1928, under which the Germans were to pay annuities of various amounts, but none to be higher than two and a quarter billion until 1988. Under the Young Plan, transfer protection was reduced while the Reparations Commission was abolished. The commission was replaced by the Bank for International Settlements
Bank for International Settlements
The Bank for International Settlements is an intergovernmental organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks." It is not accountable to any national government...
. The task of executing the Young Plan was assigned to an international conference in the Hague which took place in August 1929. During the conference, the German Foreign Minister Gustav Stresemann
Gustav Stresemann
was a German politician and statesman who served as Chancellor and Foreign Minister during the Weimar Republic. He was co-laureate of the Nobel Peace Prize in 1926.Stresemann's politics defy easy categorization...
demanded that an “unconditional Rhineland evacuation” five years ahead of schedule as the German condition for accepting the Young Plan. In this, Stresemann was strongly supported by the British, and as a result of strong Anglo-German pressure, the French agreed to evacuate the Rhineland in June 1930, five years ahead of schedule as the price of reducing German reparations. Labour
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...
had been returned to power in the 1929 elections, and as a result, MacDonald returned to his policy of 1924 of pressuring France into concessions to Germany with little regard for French concerns. Although the Young Plan did not come into effect until January 1930 owning largely to difficulties over the Rhineland evacuation, it was made retroactive to September 1, 1929 the date it was scheduled to come into effect, and as a result the Germans paid less than half of what they would have under the Dawes Plan from September 1929. Despite these concessions to Germany, a referendum was called in that country in December 1929 in an attempt to pass the so-called Liberty Law, which would had cancelled the Young Plan and tried those German politicians who accepted the plan for high treason.
Starting in September 1930, the German Chancellor Heinrich Brüning
Heinrich Brüning
Heinrich Brüning was Chancellor of Germany from 1930 to 1932, during the Weimar Republic. He was the longest serving Chancellor of the Weimar Republic, and remains a controversial figure in German politics....
claimed that the reparations payments under the Young Plan were too high, and demanded the total and unconditional cancellation of reparations. Though Brüning claimed that Germany could not pay reparations because of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, his real reason was to seek a foreign policy success that might bolster his highly unpopular government. At the same time, Brüning started to demand gleichberechtigung (equality of status), that is doing away with Part V of Versailles, which had disarmed Germany. Brüning never explained why Germany was so impoverished by the Depression that she could not afford to pay reparations, even under the reduced rate of the Young Plan while at the same time stating that Germany could afford tanks, air force, heavy artillery, conscription, submarines, and the rest of weapons forbidden by Part V.
Marks has argued that the Germans could have easily paid the 50 billion marks in reparations, but instead chose to repeatedly default on reparations payments as part of a political strategy of undermining Versailles. Marks also points out that Article 231
Article 231 of the Treaty of Versailles
Article 231, commonly known as the "Guilt Clause" or the "War Guilt Clause", is the first article in Part VIII, "Reparations" of the Treaty of Versailles. Apart from "Article 231", there is no title for this article in the treaty itself...
of the Versailles treaty, the so-called “war guilt clause” says no such thing, and all that the clause does say is “the responsibility of Germany and her Allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies” The claim that Article 231 implies “war guilt” was the work of various German politicians and apologists who misinterpreted Article 231 as saying that as a way of gaining international sympathy. Moreover, Marks points out that the next article, Article 232 of the Versailles treaty limits German responsibility to pay only for civilian damages, and that when a conference was called in London in 1921 to determine how much Germany should pay, the Allies calculated on the basis of Germany could pay, not on their needs.
It has been argued by some that it is a fallacy to consider the reparations as the primary source of the economic condition in Germany from 1919 to 1939. This perspective argues that Germany paid a small portion of the reparations and the hyper-inflation of the early 1920s was a result of the political and economic instability of the Weimar Republic. In fact, the occupation of the Ruhr
Occupation of the Ruhr
The Occupation of the Ruhr between 1923 and 1925, by troops from France and Belgium, was a response to the failure of the German Weimar Republic under Chancellor Cuno to pay reparations in the aftermath of World War I.-Background:...
by the French (which began when Germany failed to supply a required delivery of telegraph poles) did more damage to the economy than the reparations payments. Another fallacy is that these reparations were the single cause of the economic condition that saw Hitler's rise to power. Germany was in fact doing remarkably well after its hyper-inflation of 1923, and was once more one of the world's largest economies.
The economy continued to perform reasonably well until the foreign investments funding the economy, and the loans funding reparations payments, were suddenly withdrawn with the Stock Market Crash of 1929. This collapse was magnified by the volume of loans provided to German companies by US lenders. Even the reduced payments of the Dawes plan were primarily financed through a large volume of international loans. From 1924 onward German officials were "virtually flooded with loan offers by foreigners." When these debts suddenly came due it was as if years of reparations payments were compressed into a few short weeks.
Also of note are the ideas of the British historian A. J. P. Taylor
A. J. P. Taylor
Alan John Percivale Taylor, FBA was a British historian of the 20th century and renowned academic who became well known to millions through his popular television lectures.-Early life:...
from his 1961 book The Origins of the Second World War, in which he claims that the settlement had been too indecisive: it was harsh enough to be seen as punitive, without being crippling enough to prevent Germany regaining its big power status, and can thus be blamed for the rise of the Reich
Reich
Reich is a German word cognate with the English rich, but also used to designate an empire, realm, or nation. The qualitative connotation from the German is " sovereign state." It is the word traditionally used for a variety of sovereign entities, including Germany in many periods of its history...
under Hitler within decades.
The British economic historian Niall Ferguson
Niall Ferguson
Niall Campbell Douglas Ferguson is a British historian. His specialty is financial and economic history, particularly hyperinflation and the bond markets, as well as the history of colonialism.....
in his 1998 book The Pity of War argued that Germany could have paid reparations had there been the political will. Ferguson began his argument by noting that all of the belligerent countries in World War I had endured significant economic losses, not just Germany, and that in 1920–21, German net national product grew at 17%. Ferguson has argued that the German trade deficit of 1920 was caused by speculation promoted in turn by the amalgamation of rapid economic growth in Germany and a weak exchange rate for the mark, and not by the prospect of reparations. Ferguson has contended that the rise in the value of the mark after March 1920 was caused by speculators buying up the mark, and this revaluation of the mark led to inflation becoming a serious problem in Germany from 1921 onwards Ferguson has maintained that the ratio of total German debts in 1921 to the gross national product was less than the ratio of total British debts to the British G.N.P in the same period. Likewise, Ferguson has argued that the total annuity of 3 billion marks imposed by the London conference in 1921, which totalled 4–7% of German national income was far less than the worries expressed by Keynes of 25–50% of German national income being handled over in reparations. Similarly, Ferguson has argued that France paid 4,933 million francs in reparations to Germany between 1871 and 1873 totalling 25% of French national net income without causing national bankruptcy, and has argued that German claims in the 1920s that reparations payments threatened Germany with bankruptcy were just an excuse to try to get out of paying reparations. Ferguson has argued that the plan called by the Young Committee in 1929 for Germany to pay reparations until 1988 is a far less than the 163 billion marks paid by Germany to the Economic European Community between 1958 and 1998 without experiencing a drastic collapse in living standards, and as such, the Young Plan
Young Plan
The Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
was not the economically unviable plan as often depicted. The American historian Stephen Schuker has argued that the Germans received in much in American loans which they never repaid as Germany paid in reparations. Schuker has noted that between 1921 and 1931, Germany paid 19.1 billion marks in reparations, and in the same time, took in 27 billion marks in loans from the United States, which Germany defaulted on in 1932. Ferguson has argued the principle problem with reparations was not that the sum, but rather that the Allies entrusted the Germans with responsibility for paying reparations voluntarily without occupying significant amounts of German territory as an incentive to pay. Since German politicians were reluctant to raise the necessary taxes to pay for reparations, successive German governments chose to default on reparations out the hope that the Allies were not serious about collecting reparations. Even without reparations, total public spending in Germany between 1920 and 1923 comprised 33% of German net national product, and Ferguson has argued that even if no reparations had been imposed, Germany would still had significant problems caused by the need to pay World War I debts combined with the demands of voters for more social services. As a result of inflation, German debts by 1922 were reduced down to where they had been in 1914. Ferguson has argued that German inflation in the 1920s was not caused by reparations, but rather were a conscious political decision on the part of the German government to employ this particular economic strategy to deal with World War I debts and reparations.
Under the Hoover Moratorium
Hoover Moratorium
The Hoover Moratorium was a public statement issued by U.S. President Herbert Hoover on June 20, 1931, which he hoped would ease the coming international economic crisis, as well as provide time for recovery. Hoover's proposition was to put a one-year moratorium on payments of World War I and other...
of June 1931 issued by the American president Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
, which was designed to deal with the world-wide financial crisis caused by the bankruptcy of the Creditanstalt
Creditanstalt
The Creditanstalt was an Austrian bank. The Creditanstalt was based in Vienna, founded in 1855 as K. k. priv. Österreichische Credit-Anstalt für Handel und Gewerbe by the Rothschild family...
in May 1931, Germany ceased paying reparations. At the Lausanne Conference
Lausanne Conference of 1932
The Lausanne Conference was a 1932 meeting of representatives from Great Britain, Germany, and France that resulted in an agreement to suspend World War I reparations payments imposed on the defeated countries by the Treaty of Versailles...
of June 1932, reparations were formally cancelled. Marks calculates that between 1921 and 1931, Germany paid a total of 20 billion marks in reparations, most of which came from American loans that the Germans repudiated in 1932. In this way, the Germans largely escaped paying for World War I, and instead shifted the costs onto American investors. The American historian Gerhard Weinberg
Gerhard Weinberg
Gerhard Ludwig Weinberg is a German-born American diplomatic and military historian noted for his studies in the history of World War II. Weinberg currently is the William Rand Kenan, Jr. Professor Emeritus of History at the University of North Carolina at Chapel Hill. He has been a member of the...
commented about the way the Germans used reparations to avoid paying the costs of World War I that "The shifting of the burden of reparations from her shoulders to those of her enemies served to accentuate this disparity" in the economic strength of the Allies, which struggled to pay their heavy World War I debts and the other costs of the war and Germany, which paid neither reparations nor its World War I debts.
Reasons for the size of the reparations demands
In many ways, the Versailles reparations were a reply to the reparations placed upon France by Germany through the 1871 Treaty of FrankfurtTreaty of Frankfurt (1871)
The Treaty of Frankfurt was a peace treaty signed in Frankfurt on 10 May 1871, at the end of the Franco-Prussian War.- Summary :The treaty did the following:...
, signed after the Franco-Prussian War
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
. Indemnities of the Treaty of Frankfurt were in turn calculated, on the basis of population, as the precise equivalent of the indemnities demanded by Napoleon after the defeat of Prussia.
Infrastructure damage caused by the retreating German troops was also cited. In her book, Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War, Margaret MacMillan
Margaret MacMillan
Margaret Olwen MacMillan, OC is a historian and professor at the University of Oxford, where she is Warden of St. Antony's College. She is former provost of Trinity College and professor of history at the University of Toronto and previously, at Ryerson University...
described the significance of the claims for French and Belgium: "From the start, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
argued that claims for direct damage should receive priority in any distribution of reparations. In the heavily industrialized north of France, the Germans had shipped out what they wanted for their own use and destroyed much of the rest. Even as German forces were retreating in 1918, they found time to blow up France's most important coal mine". Belgium, however, received none of the financial reparations promised under the treaty, as France and Britain failed to redistribute any of the payments they received.
Current status
After Germany’s defeat in World War II, payment of the reparations was not resumed. There was, however, outstanding German debt that the Weimar Republic had used to pay the reparations. An international conference decided (Agreement on German External DebtsAgreement on German External Debts
London Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany on one part and on Belgium, Canada, Ceylon, Denmark, the French Republic, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan,...
, 1953) that Germany would pay some parts of the remaining debt only after the country was reunified, at that time an event thought very unlikely to happen. West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
paid off the remainder by 1980. According to the agreement, the debt would be serviced for 20 years, leading to the last payments being due on 3 October 2010, the 20th anniversary of German reunification
German reunification
German reunification was the process in 1990 in which the German Democratic Republic joined the Federal Republic of Germany , and when Berlin reunited into a single city, as provided by its then Grundgesetz constitution Article 23. The start of this process is commonly referred by Germans as die...
. About 10% of this debt, about 20 million euro, has not been claimed yet.
See also
- Dawes PlanDawes PlanThe Dawes Plan was an attempt in 1924, following World War I for the Triple Entente to collect war reparations debt from Germany...
- Young PlanYoung PlanThe Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
- Occupation of the RuhrOccupation of the RuhrThe Occupation of the Ruhr between 1923 and 1925, by troops from France and Belgium, was a response to the failure of the German Weimar Republic under Chancellor Cuno to pay reparations in the aftermath of World War I.-Background:...
- Aftermath of World War IAftermath of World War IThe fighting in World War I ended in western Europe when the Armistice took effect at 11:00 am GMT on November 11, 1918, and in eastern Europe by the early 1920s. During and in the aftermath of the war the political, cultural, and social order was drastically changed in Europe, Asia and Africa,...
- Agreement on German External DebtsAgreement on German External DebtsLondon Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany on one part and on Belgium, Canada, Ceylon, Denmark, the French Republic, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan,...