World War I reparations

World War I reparations were the payments and transfers of property and equipment that Germany was forced to make under the Treaty of Versailles (1919) following its defeat during World War I. Article 231 of the Treaty (the 'war guilt' clause) declared Germany and its allies responsible for all 'loss and damage' suffered by the Allies during the war and provided the basis for reparations.

In January 1921, the total sum due was decided by an Inter-Allied Reparations Commission and was set at 132 billion gold marks. However, the actual amount of reparations that Germany was obliged to pay out was not the 132 billion marks cited in 1921 but rather the 50 billion marks stipulated in the (schedules A 12 billion marks, B 38 billion). The historian Sally Marks stated the 112 billion marks in "C bonds" were entirely chimerical—a device to fool the public into thinking Germany would pay much more. The actual total payout from 1920 to 1931 (when payments were suspended indefinitely) was 20 billion German gold marks, worth about 5 billion US dollars or one billion British pounds. Of this amount, 12.5 billion was cash that came mostly from loans from New York bankers. The rest was goods like coal and chemicals, or from assets like railway equipment. The total amount of reparations was fixed in 1921 on the basis of the German capacity to pay, not on the basis of Allied claims. The highly publicized rhetoric of 1919 about paying for all the damages and all the veterans' benefits was irrelevant to the total, but it did affect how the recipients spent their share. Austria, Hungary, and Turkey were also supposed to pay some reparations but they were so impoverished that they in fact paid very little. Germany was the only country rich enough to pay anything; it owed reparations chiefly to France, Britain, Italy and Belgium; the US received $100 million.

Payments were suspended for one year in June 1931 as proposed by U.S. president Herbert Hoover in the "Hoover Moratorium", and ended at the Lausanne Conference of July 1932. About one-eighth of the initial reparations had been paid. West Germany resumed payments on the debt in the London Debt Agreement of 1953. The final payments were made on 3 October 2010 the twentieth anniversary of German reunification.

Currency
Historical conversions between currencies are based on the nominal gold standards of each currency: one gold mark ≡ $1/undefined$ kg pure gold; one pound sterling ≡ 113 grains pure gold; one U.S. dollar ≡ $25 8/10$ grains gold at $9/10$ fineness (= 23.22 grains pure gold). ($0 billion in 2024),

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.

As viewed within Germany
In the German public, there was little acceptance that the German army had been defeated in war. The German High Command, which could claim that the army had not been defeated in the field, evaded responsibility for the defeat, and blame was attributed by many to civilian elements, particularly Socialists, Communists, and Jews. This became known as the Dolchstoßlegende (stab-in-the-back myth). There was also little acceptance of German responsibility for the war and little sense that Germany had done anything wrong. Accordingly, there was growing resentment at the reparations, which were perceived as harsh, partly because of deliberate misrepresentation by German leaders.

Impact on the German economy
The economic problems that the payments brought, and German resentment at their imposition are generally considered one of the most significant factors that led to the end of the Weimar Republic and the beginning of the dictatorship of Adolf Hitler. The British economist John Maynard Keynes in his best-selling 1919 book The Economic Consequences of the Peace showed that reparations threatened to destabilize the German economy, and hence German politics. Some historians, such as the Canadian historian Margaret MacMillan in her 2001 book Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War, have since disagreed with this analysis. Étienne Mantoux in his 1946 book The Carthaginian Peace, or the Economic Consequences of Mr. Keynes believed that Germany could have paid all of the reparations had they wanted to, and that the problem was not the Germans were unable to pay, but rather that they were unwilling to pay.

In opposition to Keynes, Mantoux demanded that Germany should pay for the whole damage caused by the war, and he set out to prove that many of Keynes' forecasts were not verified by subsequent events. For example, Keynes believed European output in iron would decrease, but by 1929 iron output in Europe was up 10% from the 1913 figure. Keynes predicted that German iron and steel output would decrease, but by 1927 steel output increased by 30% and iron output increased by 38% from 1913 (within the pre-war borders). Keynes also argued that German coal mining efficiency would decrease but labour efficiency by 1929 had increased on the 1913 figure by 30%. Keynes contended that Germany would be unable to export coal immediately after the Treaty but German net coal exports were 15 million tons within a year and by 1926 the tonnage exported reached 35 million. He also put forward the claim that German national savings in the years after the Treaty would be less than 2 billion marks; however, in 1925 the German national savings figure was estimated at 6.4 billion marks and in 1927, 7.6 billion marks. Keynes also believed that Germany would be unable to pay the more than 2 billion marks in reparations for the next 30 years, but Mantoux contends that German rearmament spending was seven times as much as that figure in each year between 1933 and 1939. Mantoux, however, ignores numerous intervening factors, such as the relaxation and eventual suspension of reparations payments, and the frequent defaults of Germany, and the serious economic consequences when these payments were carried out on time. Economists such as Keynes assert that payment of the reparations would have been economically impossible. However, according to the American historian William R. Keylor in his essay "Versailles and International Diplomacy" from the book The Treaty of Versailles: A Reassessment after 75 Years, 'An 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 and economically difficult situation. Indeed, this was one of the causes of the UK General Strike of 1926.

The American historian Sally Marks believed that the figure of 132 billion marks of reparations imposed by the London Conference of May 1921 was a highly misleading one Reparations were divided into A, B, and C bonds The bulk of the reparations were assigned to the C bonds, which were as Marks called "chimerical" as the Allies did not intend to collect the C bonds, which only existed to give the impression to French public opinion that substantial sums were going to be collected The Allies intended to collect only the A and B bonds, which totaled 50 billion marks, which was an amount that was slightly smaller than the 51 billion marks that the Germans had offered to pay, and there was little hope of collecting the fall amount in any case In 1987, the German historian Detlev Peukert wrote about reparations: "'Opinions range from the traditional verdict that the national budget and economy were intolerably squeezed to the opposite view that the burden was scarcely larger than present-day aid to developing countries. For once, the truth really seems to lie somewhere between these positions. It is certainly true that the flexibility of the German economy, already constrained by the low post-war level of economic activity in any case, was further restricted by the need to pay reparations. On the other hand, the actual payments that had to made were perfectly manageable. Reparations were not, therefore, an utterly intolerable burden, especially since any clear-sighted politician could reckon that after a few years of uninterrupted payment and reduced international tension there was a reasonable chance that the overall size of the debt would be cut down.'" In the early 1920s, there were two strands of German foreign policy that were not mutually exclusive, namely Erfüllungspolitik (fulfilment politics) where Germany would go through the motions of attempting to fulfill the terms of Versailles out of the hope that the failure to do so would lead to treaty revison and Katastrophenpolitik (catastrophe politics) where Germany would seek to provoke a catastrophic situation in order to force the Allies to revise Versailles.

Marks noted that as long as the French occupied the Düsseldorf area in 1921 as an incentive to pay, the Germans paid all of their reparations in full and on time, albeit, with disastrous immediate consequences on the German economy, and it was only after the French pulled out of Düsseldorf in 1922, that the Germans started to default on a regular basis. Peukert argued that the reasons for German economic problems in the early 1920s were not reparations, but rather the legacy of World War I. In 1914, the German government decided not to raise taxes or create new taxes in order to pay for the war, and instead raised loans that would be repaid once the "final victory" had been achieved, and "...skating close to the limits of financial probity, it [the government] increased the volume of money in circulation, progressivly abandoning the link between paper money and gold reserves that had been maintained before the war". Defeat in 1918 meant the end of the hope that Germany could impose reparations on the Allies to pay off the by now colossal war debts, and instead the only remedy that remained was currency reform. Peukert wrote that "The republican governments, however, were hardly likely to impose a painful remedy of this sort: it would have amounted to an expropriation of war-loan subscribers and people on fixed incomes, and the odium would have been incurred by the new state". Instead of embracing a politically unpopular and potentially disastrous currency reform, successive governments in the early 1920s chose to muddle through the resulting economic problems while blaming everything that was going wrong with the economy on reparations.

By late 1922, the German defaults on payments had grown so serious and regular that a crisis engulfed the Reparations Commission as the French and Belgian delegates urging the seizure of the Ruhr as a way of encouraging the Germans to make more effort to pay, and the British delegate urging a lowering of the payments. As a consequence of an enormous German default on timber deliveries in December 1922, the Reparations Commission declared Germany in default, which led to the occupation of the Ruhr in January 1923. Particularly galling to the French was that the timber quota which the Germans had defaulted was based on a German assessment of their capacity to deliver and then had subsequently been lowered from below the German assessment. There was little doubt among the Allies that the government of Chancellor Wilhelm Cuno had defaulted on the timber deliveries deliberately as a provocation intended to test the willingness of the Allies to enforce reparations if the Germans should chose not to pay. Providing more fuel for the fire was a German default on coal deliveries in early January 1923, which was the thirty-fourth coal default in the last thirty-six months. The French Premier Raymond Poincaré was deeply reluctant to order the Ruhr occupation, and had only taken this step after the British had rejected his proposals for more moderate sanctions against Germany. Frustrated at Germany's unwillingness to pay reparations, Poincaré hoped for joint Anglo-French economic sanctions against Germany in 1922 and opposed military action. However by December 1922 he was faced with Anglo-American-German hostility and saw coal for French steel production draining away. Poincaré was exasperated with British failure to act, and wrote to the French ambassador in London:

"'Judging others by themselves, the English, who are blinded by their loyalty, have always thought that the Germans did not abide by their pledges inscribed in the Versailles Treaty because they had not frankly agreed to them. ... We, on the contrary, believe that if Germany, far from making the slightest effort to carry out the treaty of peace, has always tried to escape her obligations, it is because until now she has not been convinced of her defeat. ... We are also certain that Germany, as a nation, resigns herself to keep her pledged word only under the impact of necessity'."

Poincaré decided to occupy the Ruhr in 11 January 1923 to extract the reparations himself. This "was profitable and caused neither the German hyperinflation, which began in 1922 and ballooned because of German responses to the Ruhr occupation, nor the franc's 1924 collapse, which arose from French financial practices and the evaporation of reparations". The profits, after Ruhr-Rhineland occupation costs, were nearly 900 million gold marks. The real issue during the Ruhrkampf (Ruhr struggle) in 1923 as the Germans labeled the battle against the French occupation was not the German defaults on coal and timber deliveries, but the sanctity of the Versailles treaty Poincaré often argued to the British that if the Germans could get away with defying Versailles in regards to the reparations, then a precedent would be created, and inevitably the Germans would proceed to dismantle the rest of the Versailles treaty. Finally, Poincaré argued that once the chains that had bound Germany in Versailles had been destroyed, then it was inevitable that Germany would once more plunge the world back into another world war.

In order to pay for the passive resistance in the Ruhr, the German government began the hyper-inflation that destroyed the German economy in 1923. In 2008, the British historian Richard J. Evans argued that Keynes was simply wrong about reparations being unpayable, and instead contended that the responsibility for the great inflation of 1923 lay with the German government who preferred hyper-inflation to paying reparations Although the French did succeed in making their occupation of the Ruhr pay, the Germans through their passive resistance in the Ruhr and the Hyperinflation which wrecked their economy, won the world's sympathy, and under heavy Anglo-American financial pressure (the simultaneous decline in the value of the franc made the French very open to pressure from Wall Street and the City), the French were forced to agree to the Dawes Plan of April 1924, which substantially lowered German reparations payments. Under the Dawes Plan, Germany paid only 1 billion marks in 1924, and then increasing large sums for the next three years, until the total was to rise to 2 and quarter billion by 1927. After 1927, Germany was to make an annual payment of 2 and half billion marks. Even under the reduced payments under the Dawes Plan, Germany was unable to make reparations payments. To deal with the implementation of the Dawes Plan, a conference took place in London in July–August 1924. The British Prime Minister J. Ramsay MacDonald, who accepted Keynes's view of reparations as impossible to pay successfully pressured the French Premier Édouard Herriot into a whole series of concessions to Germany. A British onlooker, the diplomat Sir Eric Phipps commented that “The London Conference was for the French “man in the street” one long Calvary…as he saw M. Herriot abandoning one by one the cherished possessions of French preponderance on the Reparations Commission, the right of sanctions in the event of German default, the economic occupation of the Ruhr, the French-Belgian railroad Régie, and finally, the military occupation of the Ruhr within a year.” The Dawes Plan was a momentous moment in European history as it marked the first time that Germany had succeeded in defying Versailles, and revised an aspect of the treaty in its favour. The London conference was the first major triumph of British Appeasement.

Following German complaints that reparations payments under the Dawes Plan were too high, the Young Plan of 1928, under which the Germans were to pay annuities of various amounts, but none to be higher than two and a quarter billion until 1988. Under the Young Plan, transfer protection was reduced while the Reparations Commission was abolished. The commission was replaced by the Bank for International Settlements. The task of executing the Young Plan was assigned to an international conference in The Hague which took place in August 1929. During the conference, the German Foreign Minister Gustav Stresemann demanded that an “unconditional Rhineland evacuation” five years ahead of schedule as the German condition for accepting the Young Plan. In this, Stresemann was strongly supported by the British, and as a result of strong Anglo-German pressure, the French agreed to evacuate the Rhineland in June 1930, five years ahead of schedule as the price of reducing German reparations. Labour had been returned to power in the 1929 elections, and as a result, MacDonald returned to his policy of 1924 of pressuring France into concessions to Germany with little regard for French concerns. Although the Young Plan did not come into effect until January 1930 owning largely to difficulties over the Rhineland evacuation, it was made retroactive to September 1, 1929 the date it was scheduled to come into effect, and as a result the Germans paid less than half of what they would have under the Dawes Plan from September 1929. Despite these concessions to Germany, a referendum was called in that country in December 1929 in an attempt to pass the so-called Liberty Law, which would have cancelled the Young Plan and tried those German politicians who accepted the plan for high treason.

Starting in September 1930, the German Chancellor Heinrich Brüning explained that the reparations payments under the Young Plan were sti too high, and demanded the total and unconditional cancellation of reparations. Though Brüning said that Germany could not pay reparations because of the Great Depression, his main goal was to seek a foreign policy success that might bolster his highly unpopular government. At the same time, Brüning started to demand gleichberechtigung (equality of status), that is to say, doing away with Part V of Versailles, which had disarmed Germany.

Marks has argued that the Germans could have easily paid the 50 billion marks in reparations, but instead chose to repeatedly default on reparations payments as part of a political strategy of undermining Versailles. Marks also points out that Article 231 of the Versailles treaty, the so-called “war guilt clause” says no such thing, and all that the clause does say is “the responsibility of Germany and her Allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies” The claim that Article 231 implies “war guilt” was the work of various German politicians and apologists who misinterpreted Article 231 as saying that as a way of gaining international sympathy. Moreover, Marks points out that the next article, Article 232 of the Versailles treaty limits German responsibility to pay only for civilian damages, and that when a conference was called in London in 1921 to determine how much Germany should pay, the Allies calculated on the basis of what Germany could pay, not on their needs.

The perspective of economists argues that Germany paid a small portion of the reparations and the hyper-inflation of the early 1920s was a result of the political and economic instability of the Weimar Republic, albeit, triggered by reparations. 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 the reparations payments. Another fallacy is that these reparations were the single cause of 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.

The economy continued to perform reasonably well until the foreign investments funding the economy, and the loans funding reparations payments, were suddenly withdrawn with the Stock Market Crash of 1929. This collapse was magnified by the volume of loans provided to German companies by US lenders. Even the reduced payments of the Dawes plan were primarily financed through a large volume of international loans. From 1924 onward German officials were "virtually flooded with loan offers by foreigners." When these debts suddenly came due it was as if years of reparations payments were compressed into a few short weeks.

Also of note are the ideas of the British historian A. J. P. Taylor from his 1961 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 punitive, without being crippling enough to prevent Germany regaining its great power status, and can thus be blamed for the rise of the Reich under Hitler within decades.

The British economic historian Niall Ferguson in his 1998 book The Pity of War argued that Germany could have paid reparations had there been the political will. Ferguson began his argument by noting that all of the belligerent countries in World War I had endured significant economic losses, not just Germany, and that in 1920–21, German net national product grew at 17%. Ferguson has argued that the German trade deficit of 1920 was caused by speculation promoted in turn by the amalgamation of rapid economic growth in Germany and a weak exchange rate for the mark, and not by the prospect of reparations. Ferguson has contended that the rise in the value of the mark after March 1920 was caused by speculators buying up the mark, and this revaluation of the mark led to inflation becoming a serious problem in Germany from 1921 onwards Ferguson has maintained that the ratio of total German debts in 1921 to the gross national product was less than the ratio of total British debts to the British G.N.P in the same period. Likewise, Ferguson has argued that the total annuity of 3 billion marks imposed by the London conference in 1921, which totalled 4–7% of German national income, was far less than the worries expressed by Keynes of 25–50% of German national income being handled over in reparations. Similarly, Ferguson has argued that France paid 4,933 million francs in reparations to Germany between 1871 and 1873 totalling 25% of French national net income without causing national bankruptcy, and has argued that German claims in the 1920s that reparations payments threatened Germany with bankruptcy were just an excuse to try to get out of paying reparations. Ferguson has argued that the plan called by the Young Committee in 1929 for Germany to pay reparations until 1988 is a far less than the 163 billion marks paid by Germany to the Economic European Community between 1958 and 1998 without experiencing a drastic collapse in living standards, and as such, the Young Plan was not the economically nonviable plan as often depicted. The American historian Stephen Schuker has argued that the Germans received as much in American loans, which they never repaid, as Germany paid in reparations. Schuker has noted that between 1921 and 1931, Germany paid 19.1 billion marks in reparations, and in the same time, took in 27 billion marks in loans from the United States, which Germany defaulted on in 1932. Ferguson has argued the principle problem with reparations was not the sum, but rather that the Allies entrusted the Germans with responsibility for paying reparations voluntarily without occupying significant amounts of German territory as an incentive to pay. Since German politicians were reluctant to raise the necessary taxes to pay for reparations, successive German governments chose to default on reparations out the hope that the Allies were not serious about collecting reparations. Even without reparations, total public spending in Germany between 1920 and 1923 comprised 33% of German net national product, and Ferguson has argued that even if no reparations had been imposed, Germany would still had significant problems caused by the need to pay World War I debts combined with the demands of voters for more social services. As a result of inflation, German debts by 1922 were reduced to their level in 1914. Ferguson has argued that German inflation in the 1920s was not caused by reparations, but rather were a conscious political decision on the part of the German government to employ this particular economic strategy to deal with World War I debts and reparations.

Under the Hoover Moratorium of June 1931 issued by the American president Herbert Hoover, which was designed to deal with the world-wide financial crisis caused by the bankruptcy of the Creditanstalt in May 1931, Germany ceased paying reparations. At the Lausanne Conference of June 1932, reparations were formally canceled. Marks calculates that between 1921 and 1931, Germany paid a total of 20 billion marks in reparations, most of which came from American loans that the Germans repudiated in 1932. In this way, the Germans largely escaped paying for World War I, and instead shifted the costs onto American investors. The American historian Gerhard Weinberg commented about the way the Germans used reparations to avoid paying the costs of World War I that "The shifting of the burden of reparations from her shoulders to those of her enemies served to accentuate this disparity" in the economic strength of the Allies, which struggled to pay their heavy World War I debts and the other costs of the war and Germany, which paid neither reparations nor its World War I debts.

Reasons for the size of the reparations demands
In many ways, the Versailles reparations were a reply to the reparations placed upon France by Germany through the 1871 Treaty of Frankfurt, signed after the Franco-Prussian War. Indemnities of the Treaty of Frankfurt were in turn calculated, on the basis of population, as the precise equivalent of the indemnities demanded by Napoleon after the defeat of Prussia.

Infrastructure damage caused by the retreating German troops was also cited. In her book, Peacemakers: The Paris Peace Conference of 1919 and Its Attempt to End War, Margaret MacMillan described the significance of the claims for French and Belgium: "From the start, France and Belgium argued that claims for direct damage should receive priority in any distribution of reparations. 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 mine".

Current status
After Germany’s defeat in World War II, payment of the reparations was not resumed. There was, however, outstanding German debt that the Weimar Republic had incurred to pay the reparations. An international conference decided (Agreement on German External Debts, 1953) that Germany would pay some parts of the remaining debt only after the country was reunified, at that time an event thought very unlikely to happen. West Germany paid off the remainder by 1980. According to the agreement, the debt would be serviced for 20 years, leading to the last payments being due on 3 October 2010, the 20th anniversary of German reunification. About 10% of this debt, about 20 million euro, has not been claimed yet.