REPARATIONS AFTER WORLD WAR I
World War I reparations were compensation imposed during the Paris Peace Conference upon the Central Powers following their defeat in World War I by the Allied and Associate Powers. Each of the defeated powers was required to make payments in either cash or kind. However, it was Germany that was officially held responsible for World War I and while other Allied powers' payments were soon dramatically reduced or cancelled, the 1919 Treaty of Versailles, which ended WWI, and the 1921 London Schedule of Payments required Germany to pay 132 billion gold marks (US$33 billion) in reparations to cover civilian damage caused during the war. Part of the sum was never expected from Germany and was included to deceive the Anglo-French public into believing Germany was being heavily fined and punished for the war.
An important factor that contributed to this development was a massive debt that American allies, most notably France and the United Kingdom, owed to the United States in the aftermath of World War I. As the United States demanded its debtors to repay their loans, both France and the United Kingdom hoped the post-war reparations from Germany to enable them to do so. A massive economic crisis that ensued in Germany as a result of these policies is considered to be the major factor in the eventual growth of Hitler's popularity and power.
GERMANY AFTER WORLD WAR I
Article 231 of the 1919 Treaty of Versailles (knows as the "War Guilt Clause") declared Germany responsible for all "loss and damage" experienced by the Allied and Associated powers during World War I. The Article noted that "Germany accepts 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."
After negotiations, the 1921 London Schedule of Payments established the sum of 132 billion gold marks to be paid by Germany. This sum was a compromise promoted by Belgium against higher figures demanded by the French and Italians and the lower figure the British supported. It was divided into three series of bonds: "A" and "B" Bonds together had a nominal value of 50 billion gold marks (US$12.5 billion)—less than the sum Germany had previously offered to pay. "C" Bonds, comprising the remainder of the reparation figure, were included in the document to convince the public opinion that Germany was held fully responsible for the war but the Allied forced recognized that the German government would be unable to pay the sum. Taking into account the sum already paid between 1919 and 1921, Germany's immediate obligation was 41 billion gold marks. To pay towards this sum, Germany could pay in kind or in cash. Commodities paid in kind included coal, timber, chemical dyes, pharmaceuticals, livestock, agricultural machines, construction materials, and factory machinery. The gold value of these would be deducted from what Germany was required to pay.
WEIMAR REPUBLIC
Germans (between 1919 and 1933 referred to as Weimar Republic) viewed the Article 231 and the resulting reparations requirement as a national humiliation. German politicians were vocal in their opposition to the article in an attempt to generate international sympathy, while German historians worked to undermine the article with the objective of subverting the entire treaty. The Allied leaders were surprised at the German reaction; they saw the article only as a necessary legal basis to extract compensation from Germany. American diplomat John Foster Dulles—one of the two authors of the Article—later regretted the wording used, believing it further aggravated the German people.
Under the burden of the reparation demands, the German economy was on the verge of collapse. As some of the payments were in industrial raw materials, German factories were unable to function, and the German economy suffered, further damaging the country's ability to pay. By late 1922, the German defaults on payments had grown so regular that a crisis engulfed the Reparations Commission; the French and Belgian delegates urged occupying the Ruhr, Germany's major industrial region, as a way of forcing Germany to pay more, while the British delegate urged a lowering of the payments. As a consequence of a German default on timber deliveries in December 1922, the Reparations Commission declared Germany in default, which led to the Franco-Belgian occupation of the Ruhr in January 1923. Particularly galling to the French was that the timber quota the Germans defaulted on was based on an assessment of their capacity the Germans made themselves and subsequently lowered. The entire conflict was further exacerbated by a German default on coal deliveries in early January 1923. The occupation, which led to the death of some German civilians, provoked pro-German sentiments within the international community.
THE DAWES PLAN AND THE YOUNG PLAN
The Allied occupation of the Ruhr industrial area contributed to the hyperinflation crisis in Germany, partially because of its disabling effect on the German economy. In response to the crisis, the Dawes Committee, chaired by Charles G. Dawes, proposed a plan in 1924. The Dawes Plan ended the occupation of the Ruhr region and reorganized German payments, which contributed to some level of stabilization of the German economy.
The Dawes Plan managed to end a major international crisis and Germany was able to meet its payment requirements. However, the plan was a temporary measure and in 1929, a new committee was formed to re-examine reparations. It was chaired by the American banker Owen D. Young and presented its findings in June 1929. The Young Plan was accepted and was ratified by the German Government in 1930. It established a theoretical final reparation figure at 112 billion gold marks (US$26.35 billion), with a new payment schedule that would see reparations completed by 1988—the first time a final date had been set. In addition, foreign oversight of German finances was to end with the withdrawal of the Reparations Agency, which would be replaced by the Bank for International Settlements. The bank was established to provide cooperation among central banks and to receive and disburse reparation payments. A further loan of US$300 million was to be raised and given to Germany.
THE GREAT DEPRESSION
In March 1930, the German Government collapsed and was replaced by a new coalition led by Chancellor Heinrich Brüning. During 1931, a financial crisis began in Germany. In May, Creditanstalt—the largest bank in Austria—collapsed, sparking a banking crisis in Germany and Austria. In response, Brüning announced that Germany was suspending reparation payments. This resulted in a massive withdrawal of domestic and foreign funds from German banks. By mid-July, all German banks had closed. Until this point, France's policy had been to provide Germany with financial support to help Brüning's Government stabilize the country. Brüning, now under considerable political pressure from the far-right and President Paul von Hindenburg, was unable to make any concessions or reverse policy. As a result, Brüning was unable to borrow money from foreign or domestic sources. Further attempts to enlist British support to end reparations failed; the British said it was a joint issue with France and the United States. In early July, Brüning announced "his intention to seek the outright revision of the Young Plan." In light of the crisis and with the prospect of Germany being unable to repay her debts, United States President Herbert Hoover intervened. In June, Hoover publicly proposed a one-year moratorium to reparation and war debts. By July, the "Hoover Moratorium" had been accepted.
With the Great Depression now exerting its influence, the Bank for International Settlements reported that the Young Plan was unrealistic in light of the economic crisis and urged the world governments to reach a new settlement on the various debts they owed each other. During January 1932, Brüning said he would seek the complete cancellation of reparations. His position was supported by the British and Italians, and opposed by the French. Because of the political differences between countries on the subject and impending elections in France and Germany, a conference could not be established until June. This delay brought about the downfall of Brüning's Government. On 16 June, the Lausanne Conference opened. However, discussions were complicated by the ongoing World Disarmament Conference. At the latter conference, the US informed the British and French that they would not be allowed to default on their war debts. In turn, they recommended that war debts be tied into German reparation payments, to which the Germans objected. On 9 July, an agreement was reached and signed. The Lausanne Conference annulled the Young Plan and required Germany to pay a final, single installment of 3 billion marks, saving France from political humiliation and ending Germany's obligation to pay reparations.
The British economist John Maynard Keynes, in his best-selling 1919 book, argued that reparations threatened to destabilize the German economy and hence German politics. Keynes' views greatly influenced the way historians and economists assess the post-WWI reparations. Many agree that the economic crisis and the sense of national humiliation resulting from the unrealistic demands paved the way for Hitler to take over power and, eventually, led to the tragedy of World War II.
Between 1923 and 1925 France and Belgium occupied the German industrial region of the Ruhr. Germans fervently opposed the occupation.
Protests by gymnasts from the Ruhr at the 1923 Munich Gymnastics Festival. The sign on the left reads "The Ruhr remains German." The right placard reads "We never want to be vassals." German Federal Archive, 1923.