The Allies’ determination to extract reparations from Germany hindered that nation’s recovery after World War I. Vast sums of money were demanded from Berlin as compensation for the Kaiserreich’s role in instigating war. The issue of reparations would provoke significant divisions in the new republic.
Determining a figure
The legal basis for reparations was provided by Article 231 of the Treaty of Versailles, the infamous ‘war guilt’ clause that deemed Germany responsible for “all the loss and damage” suffered by Allied nations during the war.
Germany’s negotiators at the Paris peace conference gave an in-principle agreement to the payment of reparations. Allied negotiators were unwilling to fix a final reparations figure or determine how these reparations should be recovered. Instead, this was left to an Inter-Allied Reparations Commission, formed in 1919 by the governments of Britain, France, Belgium, Italy and Japan.
The commission met over 1920 and again in Paris in January 1921. It eventually proposed a final figure of 269 billion gold marks, or £UK11.3 billion.
A remarkable amount
This was a remarkable amount by any measure. It was the equivalent of 96,000 tons of gold – or around half the known gold reserves of the entire world. Today, it would equate to almost $US500,000,000,000 (half a trillion American dollars).
Understandably, German delegates refused to accept this figure. This forced the commission to reconvene in London in March.
By then, Berlin was under considerable pressure to accept a final reparations figure. The Weimar government had already failed to pay a £1 billion interim instalment, leading to the occupation of three industrial cities along the Rhine.
The total revised
In April 1920, a London meeting of the Commission fixed a final reparations figure of £6.6 billion. The reparations instalments were to be paid quarterly in gold or foreign currency backed by gold, along with tradable commodities such as steel, raw iron or coal.
Berlin was informed that any defaults on these payments would lead to the occupation of the industrial Ruhr region and the confiscation of raw materials and industrial equipment there.
While this revised amount was less than two-thirds the initial figure, it remained well beyond the capacity of the war-ravaged German economy.
The reparations figure generated worldwide debate for a decade. In England, the noted economist John Maynard Keynes criticised the agreed figure. Keynes suggested the true amount of war damages had been exaggerated by the Allies, particularly France and Belgium.
Forcing Germany to pay the full amount, Keynes argued, would not only devastate the German economy but would have a detrimental impact on European trade and probably generate considerable political instability.
Germany made an initial reparations payment of $250 million – or about 0.8 per cent of the total – in August 1921. Even this small instalment placed enormous strains on the German economy, which suffered from dwindling gold reserves, a post-war drop in foreign trade and a reliance on imported raw materials for its industries.
Germany struggles to pay
In late 1921, the Weimar government asked the Reparations Commission for a moratorium on payments. This was granted in May 1922 over the opposition of the French government.
In 1922, the value of the German Reichsmark collapsed. By late in the year, almost 3,500 Reichsmarks were needed to purchase one US dollar.
Unable to import or buy foreign exchange, the German government found itself unable to meet its reparations obligations. The French government, claiming the German government was ‘crying poor’ and acting purposefully and dishonestly, began to agitate for punitive action.
Post-war debt struggles
It should be noted that Germany was not the only European nation struggling to account for its wartime debts. France was itself defaulting on scheduled instalments on its wartime loans, particularly those to its largest creditor, the United States.
One German cartoon of the early 1920s showed the French prime minister threatening war against Germany but being obstructed by ‘Uncle Sam’, who suggested: “Why don’t you pay for your last war before starting another?”
The issues of war debts and reparations remained divisive issues for much of the 1920s. The reparations figures would be constantly challenged and revised, most notably by the Dawes Plan (1924) and the Young Plan (1929).
A historian’s view:
“Inflation started before reparations became an issue; the connection with reparations cannot therefore be considered the entire problem. Yet reparations were more than merely a contributory factor to the acceleration of inflation. The earlier stage ‘creeping inflation’ was the result of long-term structural problems within the economy and the pressures exerted by war, and the later-stage hyperinflation was directly related to the obligation after 1921 to pay reparations. The connection between the reparations saga and the collapse of the mark is too strong to be coincidental.”
1. After its defeat in World War I, Germany was required to pay war reparations, a measure determined at the Paris peace conferences.
2. The French advocated a massive figure. They hoped to place a massive burden on the German economy to prevent its recovery.
3. The final reparations figure proved too much for Germany’s struggling economy to pay, though she met her first instalment.
4. The German economy slumped in 1922-23, marred by its massive obligations, currency inflation, strikes and falling production.
5. Unable to make further reparations payments, the Germans saw French troops occupy the Ruhr industrial region.