World War I Reparations - Evolution of Reparations

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, 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 sixteen 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.