REPARATIONS.

At the end of World War I, there was considerable support both in the French Chamber of Deputies and the British House of Commons in favor of punishing Germany and indemnifying the allies. Led by Woodrow Wilson (1856–1924), the U.S. delegation to the peace conference in Paris opposed the idea of punitive indemnity and favored compensation for actual damages.

THE TREATY OF VERSAILLES

The reparation clauses of the Treaty of Versailles stated Germany's responsibility for "all the loss and damage" to which the allies and the United States had been "subjected as a consequence of the war imposed on them by the aggression of Germany and her allies" (Article 231). Germany's financial responsibility was defined as damage done to civilians and their property (Article 232). To determine the sum of German payment, the treaty provided for a reparation commission composed of representatives of the principal recipients. To it was assigned the task of drawing up a thirty-year schedule of payments, and with doing so within two years (Article 233). Article 231 became known as "the war guilt clause." It reflected the belief of the allies that Germany and its allies were morally responsible for all the damage caused by their armed forces. Germans across the political spectrum were offended by the implication that the war was a result of German aggression and that Germany alone was responsible for it. Article 232 reflected the reality that Germany could not pay the entire costs of the entire war, and that Germany's actual financial obligations were to be defined more narrowly and specifically. The appointment of a reparation commission reflected the fact that it was not possible to total up allied reparation claims or to estimate German capacity to pay with any reasonable accuracy in 1919. There was no definitive reparation settlement in the Versailles treaty.

THE LONDON SCHEDULE

At a conference held in Spa in July 1920, the creditors apportioned prospective reparation receipts among themselves: For France 52 percent; 22 percent for Britain and the empire; 9.3 percent for Italy; 8 percent for Belgium; 5.9 percent for the Kingdom of Serbs, Croats, and Slovenes; 3 percent for the other nations. The reparation commission determined German's total debt to be 132 billion gold marks (33 billion dollars). As it was impossible to verify or reconcile the various national claims and because German capacity to pay was as yet unknown, the figure represented a political compromise among the creditors. The sum was divided into three series of bonds. The "A" and "B" series' totaled 50 billion marks, and Germany was liable for interest and principle over a period of thirty-six years. The annual payment was set at two billion gold marks plus a sum equal to 26 percent of the German exports. The "C" bonds of 82 billion bore no interest and were not to be issued until the "A" and "B" bonds were paid off. The schedule, had it been paid, would have amounted to a transfer of around 7 percent of German national income. Delivered to the Germans in May 1921, it became known as the London schedule.

Some scholars have argued that 7 percent of national income was not an insurmountable burden and that the London schedule was within Germany's economic capacity. What was lacking in Germany was the political determination to cut domestic consumption and raise taxes. Others have argued that the London schedule was not feasible. Transferring the annual payments would have required a significant trade surplus and thus a cut in imports and an increase in exports. They doubt that any of the weak coalition governments of the Weimar Republic could have accomplished the massive government intervention in the economy to have achieved this or that the victors of the war would have been willing to accept a flood of German exports in iron, steel, and textiles, which were already under considerable world pressure. In the payment of the London schedule, two large issues were at stake. How would the costs of the war be distributed? Could reparation be an instrument that France could use to prevent Germany from becoming the most powerful economy in Europe?

Over the next eighteen months German governments such as that of Joseph Wirth, instead of raising taxes to meet the London schedule, aimed to demonstrate that the London schedule was impossible to meet. And as part of that strategy they permitted price-wage inflation and currency depreciation. No French government, such as those of Aristide Briand and Raymond Poincaré, could allow Germany to avoid payment of the London schedule and preferred harsh sanctions—the occupation of the Ruhr Valley—if British cooperation could be won. British governments, such as that of David Lloyd George, regarded reparations as a burden on German, European, and British economic recovery, and they resisted sanctions as something that would damage the German economy without fulfilling the London schedule. American bankers refused to lend money to Germany to stabilize the mark without a long moratorium and a reduction in the London schedule. Moreover none of the principal countries involved conducted policies that were coherent or consistent.

Meeting at Cannes in January 1922, the reparation commission granted Germany a temporary reprieve in exchange for promises to increase taxes and balance the budget. In Berlin this proved to be politically impossible. By January 1923 Germany was in default not only on cash payments but also on payments-in-kind. French and Belgian engineers and troops occupied the Ruhr district to impose sanctions and to seize the coal there as reparation payment. German workers refused to work the mines and the trains, adopting a strategy of passive resistance. They were supported by payment from the government, and inflation now became astronomical. In September the newly appointed chancellor of Germany, Gustav Stresemann, was compelled to end passive resistance unilaterally. The occupation authority (Inter-Allied Control Commission for Factories and Mines, or MICUM) then succeeded in concluding an agreement with Ruhr mine owners to deliver coal and be reimbursed by the government in Berlin, which would receive credit on the reparation account.

THE DAWES PLAN

Led by London, the reparation creditors took up a suggestion made earlier by the American secretary of state, Charles Evans Hughes, that an international commission of experts be convened to resolve the reparation question. It met in Paris in January–April 1924 and was composed of leading banking figures and financial experts from each of the major creditor powers and from the United States. It was chaired by Charles Gates Dawes, a prominent midwestern businessman and banker and director of the Federal Office of the Budget. Subsequently he was awarded the Nobel Peace Prize and served as vice president of the United States in the Coolidge administration. The second American expert was Owen D. Young, a lawyer from upstate New York and chairman of the board of directors of the General Electric Company and the Radio Corporation of America.

The scheme the committee devised was temporary by intention—a way of testing German capacity to pay with a graduated series of annuities beginning at one billion gold marks per year in 1924–1925 (approximately one-half of the London schedule) and increasing to 2.5 billion in 1928–1929. The latter was termed the standard Dawes annuity. These figures amounted to from 1.8 to 3.2 percent of German national income. German transportation, excise, and customs revenues were earmarked for the reparation account. An agent general for reparations was appointed who was to see that payment of the annuities would not weaken the economy and that the transfer abroad of large sums of currency would not threaten the stability of the mark. The post was filled by S. Parker Gilbert, a former undersecretary of the treasury, and future chairman of the board of Morgan Stanley. The technical details of the plan were worked out by Sir Joshua Stamp of Britain and Emile Francqui of Belgium. Winning the agreement of all the experts can be credited to Young's skills as a negotiator. The plan was adopted at a conference in London in July–August 1924 attended by the creditors and Germany with American observers. There Édouard Herriot, the French premier, agreed that France would withdraw all troops from the Ruhr within one year and, at American and British insistence, not again impose sanctions against Germany unilaterally.

THE YOUNG PLAN

In September 1928 Gilbert persuaded the creditors and the Germans to agree to appoint another committee of financial experts to discuss a definitive and final reparation settlement. The French and British agreed among themselves to set the German payments high enough to indemnify France and Belgium and to cover their war debts to each other and to the United States. Germany would be rewarded, the British insisted and the French agreed, with the end of allied military occupation of the Rhineland, which was scheduled to continue until 1935. The Germans believed that because there would be American experts on the committee, annuities would be determined by German capacity to pay without borrowing, resulting in a sharp reduction in payments from the Dawes level.

The committee met in Paris from 11 February to 7 June 1929. It was chaired by Young. The second American expert was John Pierpont Morgan Jr. The Young plan divided German payments into two schedules. Germany would pay annuities averaging 2.05 billion marks for thirty-seven years. These payments were 20 percent below the standard Dawes annuity. Of that, 674 million were to be paid unconditionally and was subject to commercialization. Seventy-five to eighty percent of that portion went to France, offering to France the prospect of advanced receipts of German reparation. The remaining portion was conditional—subject to a two-year moratorium at Germany's request. Following the thirty-seven year period, Germany would pay annuities rising slightly from 1.567 billion to 1.684 billion for a period of twenty-one years—into the 1980s. The thirty-seven-year schedule covered indemnities, interallied war debts, and service on the Dawes loan. The twenty-one-year schedule covered war debts only. Young stated that the plan represented minimum creditor requirements.

The chief German delegate was Hjalmar Schacht, the president of the Reichsbank. He sought to limit the annuities to German capacity to pay without borrowing, which he stated to be 1.65 billion marks for thirty-seven years. His hope that a committee of independent experts with German membership and with American representation would reduce payments to this level proved to be illusory. Instead the plan was shaped by the demands of the creditors that their debts to the United States and to each other be covered by receipts from Germany—a matter of particular importance to France, the chief war-debt debtor and the United States, the chief war-debt creditor. The process by which the plan was formulated was not depoliticized; the committee was dominated by members of the boards of central banks and former officials of ministries of finance. They were experts and they also spoke for the interests of their nations.

At the Young conference Britain's portion of the annuity was diminished in favor of the other creditors. At the conference held to adopt the Young plan, which met at the Hague in August, Philip Snowden, the British chancellor of the exchequer, succeeded in restoring partially Britain's losses and secured for Britain a larger share of the unconditional annuity. The British agreed to end military occupation by December 1929 and the French by April 1930. In Germany the Nazis and nationalists collaborated and launched a campaign against the Young plan and demanded a national plebiscite on the issue. They were not successful in blocking the plan.

THE END OF REPARATIONS

To preserve payment of international commercial debts at the time of the Austro-German banking crisis in 1931, U.S. president Herbert Hoover (1874–1964) called for a one-year moratorium on all intergovernmental debts in June of that year. In the months that followed, the German government of Heinrich Brüning agitated for a complete abolition of reparations. The British also favored abolition. The American Congress strongly opposed any abolition of war debts, and the U.S. government rejected any linkage of war debts and reparations. The French sought political compensation for any concessions they might make. At the Lausanne conference in June 1932, reparations were ended; the Young plan payments were abolished with a final lump sum payment of three billion marks. In all, the Germans paid 19.1 billion marks in reparation, nowhere near the 50 billion of the London schedule "A and B bonds." Less than one-third of it was in cash. The British and French both defaulted on their war-debt payments to the United States in 1933. In January 1934 Congress passed the Johnson Act prohibiting any further government lending to nations in default on their debts to the United States.

See alsoDawes Plan; Depression; Rhineland Occupation; World War I.

BIBLIOGRAPHY

Feldman, Gerald D. The Great Disorder: Politics, Economics, and Society in the German Inflation, 1914–1924. New York, 1993.

Jacobson, Jon. "The Reparation Settlement of 1924." In Konsequenzen der Inflation, edited by Gerald D. Feldman, Carl-Ludwig Holtfrerich, Gerhard A. Ritter, and Peter-Christian Witt, 79–108. Berlin, 1989.

Kent, Bruce. The Spoils of War: The Politics, Economics, and Diplomacy of Reparations, 1918–1932. Oxford, U.K., 1989.

Marks, Sally. "The Myth of Reparations." Central European History 11 (1978): 231–255.

——. "'Smoke and Mirrors': In Smoke-Filled Rooms and the Galerie des Glaces." In The Treaty of Versailles: A Reassessment after 75 Years, edited by Manfred F. Boemeke, Gerald D. Feldman, and Elisabeth Glaser. Cambridge, U.K., 1998.

Steiner, Zara. The Lights That Failed: European International History, 1919–1933. New York, 2005. Chapters 1, 4, and 9.

Trachtenberg, Marc. Reparation in World Politics: France and European Economic Diplomacy, 1916–1923. New York, 1980.

Jon Jacobson