World War I reparations
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World War I reparations refers to the payments and transfers of property and equipment that the German state was forced to make following its defeat during World War I.
Article 231 of the Treaty (the 'war guilt' clause) held Germany solely responsible for all 'loss and damage' suffered by the Allies during the war and provided the basis for reparations. (Actually, the treaty specifically referenced "Germany and her allies", thus Germany was not "solely" blamed for the war.)
In January 1921, the total sum due was decided by an Inter-Allied Reparations Commission and was set at 269 billion gold marks (2790 gold marks equalled 1 kilogram of pure gold), about £23.6 Billion, about $32 billion (roughly equivalent to $393.6 Billion US Dollars as of 2005[1]). This was a sum that many economists deemed to be excessive because it would have taken Germany till 1984 to pay. Later that year, the amount was reduced to 132 billion marks, which still seemed astronomical to most German observers, both because of the amount itself as well as the terms which would have required Germany to pay until 1984.
[edit] Reasons for the harshness of the reparations demands
In many ways, the Versailles reparations was a reply to the reparations placed upon France by Germany through the 1871 Treaty of Frankfurt. Signed after the Franco-Prussian War, France took huge loans in order to pay the expected 5 billion Francs by 1873, because the Treaty conditions allowed the German Army to occupy France until the war reparations were paid. The Versailles Reparations came in a variety of forms, including coal, steel and agricultural products. For reference, it should be noted that the reparations expected of France under the Treaty of Frankfurt were less then 10% (adjusted for inflation) of those agreed upon under the treaty of Versailles.
In her book, Margaret Olwen MacMillan wrote that, "from the start, France and Belgium argued that claims for direct damage should receive priority in any distribution of reparations. Belgium had been picked clean. 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 mines."
[edit] 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 Republic and the beginning of the dictatorship of Adolf Hitler, which eventually led to the outbreak of World War II. Some historians, such as Margaret Olwen MacMillan, have since disagreed with this assertion, originally popularised by John Maynard Keynes.
In 1921, Carl Melchior, a World War I soldier and German financier with M. M. Warburg & Co who became part of the German negotiating team, thought it advisable to accept an impossible reparations burden. Melchior said: "We can get through the first two or three years with the aid of foreign loans. By the end of that time foreign nations will have realized that these large payments can only be made by huge German exports and these exports will ruin the trade in England and America so that creditors themselves will come to us to request modification."[2]
The 1924 Dawes Plan modified Germany's reparation payments. In May 1929, the Young Plan reduced further payments to 112 billion Gold Marks, US $26,350,000,000 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 the Allies instituting a moratorium for 1931–32 during which the Lausanne Conference voted to cancel reparations. By this time Germany had paid only 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 in fact because no more reparations were paid by Germany.
At first glance, payment of the reparations seemed economically impossible. However, according to William R. Keylor in "Versailles and International Diplomacy", 'A 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. In "American Reparations to Germany 1919-33", Stephen Schuker says that 'the Weimar Republic ended up paying no net reparations at all, employing the proceeds of American commercial loans to discharge its reparation liability before defaulting on its foreign obligations in the early thirties.'
It has been argued by some that it is a fallacy to consider the reparations as the source of the economic condition in Germany from 1919 to 1939(John Maynard Keynes. The Economic Consequences of the Peace, available at Project Gutenberg.). This perspective argues that Germany paid very little 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 if the Germans had actually met their commitments under the Treaty. Another fallacy is that these reparations caused 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, until the foreign investment funding the economy was suddenly withdrawn with the Stock Market Crash of 1929.
These ideas are countered by AJP Taylor in his 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 superpower status, and can thus be blamed for the rise of the Reich under Hitler within decades.
