Young Plan
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The Young Plan was a program for settlement of German reparations debts after World War I. It was presented by the committee headed (1929-30) by American Owen D. Young. After the Dawes Plan was put into operation (1924), it became apparent that Germany could not meet the huge annual payments, especially over an indefinite period of time.
The committee, itself appointed by the Allied Reparation Committee, met in the first half of 1929, and submitted its first report on June 7 of that year. As well as Young, the United States was represented by J. P. Morgan, the prominent banker, and his partner, Thomas W. Lamont. The report met with great objections from the United Kingdom but, after a first Hague Conference, a plan was finalized on August 31. The plan was formally adopted at the second Hague Conference in January 1930.
The Young Plan—which set the total reparations at $26,350,000,000 to be paid over a period of 58½ years—was thus adopted by the Allied Powers in 1930 to supersede the Dawes Plan. Designed to substitute a definite settlement under which Germany would know the exact extent of German obligations and to reduce the payments appreciably, the Young Plan divided the annual payment, set at about $473 million, into two elements—an unconditional part (one third of the sum) and a postponable part (the remainder). The annuities were to be raised through a transportation tax and from the budget.
Amongst other provisions, the plan called for an international bank of settlements to handle the reparations transfers. The resulting Bank for International Settlements was duly established at the Hague Conference in January.
Between agreement and adoption of the plan came the Wall Street Crash of 1929, of which the main consequences were twofold. The American Banking system had to recall money from Europe and cancel the credits that made possible the Young Plan. Moreover, the downfall of imports and exports affected the rest of the world. By 1933, almost two-thirds of world trade had vanished. A new trade policy was set with the Hawley-Smoot custom duty. Following Kindleberger, we should therefore distinguish between the crisis and the Great Depression. The later was influenced by nationalism and the adopted economic policy. Unemployment soared to 33.7% in 1931 in Germany, and 40% in 1932.
Under such circumstances, US President Herbert Hoover issued a public statement that proposed a one-year moratorium of the payments. He managed to assemble support for the moratoriuum from 15 nations by July 1931. But the adoption of the moratorium did little to slow economic decline in Europe. Germany was gripped by a major banking crisis. A final effort was made at the Lausanne Conference in 1932. Here, representatives from Great Britain, France, Italy, Belgium, Germany and Japan gathered to come to an agreement. By that time it was clear that the deepening depression had made it impossible for Germany to resume its reparations payments. They agreed:
- not to press Germany for immediate payments.
- To reduce indebtedness by nearly 90% and require Germany to prepare for the issuance of bonds. This provision was close to cancellation, reducing the German obligation from the original $32.3 billion to $713 million.
- It was also informally agreed among the delegates that these provisions would be ineffective unless the US government agreed to cancellation of war debts owed by the Allied government. Hoover made the obligatory public statement about the lack of any connection between reparations and war debts. When the moratorium expired, the situation returned to the terms of the Young Plan, but the system had collapsed. Germany did not resume payments and once the National Socialist government consolidated power, the debt was repudiated. After Germany’s defeat in World War II, an international conference decided (1953) that Germany would pay the remaining debt only after the country was reunified. Nonetheless, West Germany paid off the principal by 1980; then in 1995, after reunification, the new German government announced it would resume payments of the interest.
This agreement had been preceded by bitter diplomatic struggles, and its acceptance aroused nationalist passions and resentment. It also weakened, rather than helped the advocates of a policy of international understanding.
