World War I Reparations

World War I Reparations
World War I Reparations

Since Woodrow Wilson rejected indemnities, World War I's victors required reparation for civilian damage done from the losers, ostensibly to ease reconstruction costs. All of the 1920 treaties written at Paris contained reparations clauses, although only Germany could pay appreciably.

Article 231 of the Versailles Treaty with Germany, as limited by article 232 and similar clauses in the Austrian and Hungarian treaties, laid the legal basis. Only Germany saw this as a war guilt clause.

At Paris, reparations were stretched to cover war pensions to enable Britain and its empire to gain a share. As the total set in 1921 was based on estimates of German capacity to pay, the British share, not the total, was thereby increased.

Germany was to pay 20 milliard (U.S. billion) gold marks ($5 billion) by May 1921. Meanwhile, the victors would assess damage claims and arrive at a total sum. Actual German payments to May 1921, chiefly in credits for state properties in transferred territories and battlefield salvage, were deliberately overestimated by the Allies at 8 milliard, which did not cover prior charges, including provisioning Germany.

The total figure set in April and May 1921 was ostensibly 132 milliard gold marks, but actually 50 milliard, including the unpaid balance on the interim payment. Figures were always misleadingly inflated so victor politicians could claim great accomplishments and German politicians could orchestrate outrage. A schedule of continuing payments in cash and kind (chiefly coal and timber) was established but soon were in virtual abeyance as Germany claimed inability to pay.

Battles over reparations dominated the postwar decade. If the victors had to pay vast reconstruction costs as well as domestic and foreign war debts while Germany, which had no foreign war debt and eradicated its domestic debt through inflation, paid nothing, Germany would be the victor.

Berlin sought to reverse the military verdict by paying little and inflating its currency, blaming reparations for the inflation. Repeated German defaults on coal deliveries led to the 1923 Ruhr encirclement to force Germany to honor the treaty.

France won that battle but lost the war, since in 1924 at British insistence, reparations payments and the total were reduced in the Dawes Plan, which provided a large loan to Germany and slowly rising payments. When these became onerous, Germany gained another reduction and loan in the 1929 Young Plan.

After Adolf Hitler's September 1930 electoral triumph, foreign, liberal, and Jewish capital fled Germany, creating a spreading economic crisis that led to the July 1931 one-year Hoover Moratorium on all intergovernmental debts. When it expired, the July 1932 Lausanne Agreement effectively ended reparations without saying so.

In all, Germany paid about 21.5 milliard gold marks, chiefly in kind. Cash was mostly borrowed, and the Dawes and Young loans were defaulted and not settled until 1995. Reparations could not be collected without German cooperation, which was not forthcoming. Of all Germany's battles to escape the Versailles Treaty, that over reparations was the most prolonged, bitter, and devisive.