EUROPE, 1919-1929

REPARATIONS

Occupation of the Ruhr Valley, 1923.     Collapse of the Mark.    
The Dawes Plan, 1924.     The Young Plan, 1929. 

Side by side with these peace negotiations and agreements there went parallel negotiations to solve the problem of reparations.  As the facts will show, the two movements often affected each other closely.  Already some explanation has been given of the nature of the reparation problem, and of the demand made by the Reparations Commission in April 1921 that Germany should pay to the Allies a total of £6,600 million, the amount being payable in yearly instalments partly in cash and partly in materials.  We now continue the story from that point.

Occupation of the Ruhr Valley, 1923

The fixing of the theoretical amount that Germany ought to pay was soon seen to be far from solving the problems of the payments. 

There were further complications because the Allies differed widely among themselves about their attitude to Germany.  These differ¬ences were brought to a head by the rapid decline in Germany's financial condition.  Germany had never anticipated a long war.  Her original war plans had been drawn up in the belief that the struggle would be sharp but short - a blitzkrieg.  The huge scale of the war, and its duration for more than four years, had driven Germany to virtual bankruptcy.  Before the war the value of the German mark had been 20 to the sterling.  After the war its value began to fall, and by the end of 1921 it stood at 1,000 to the £.  This would affect the value of Germany's reparation payments.  In August 1921 she had paid the instalment of £50 million then due from her, but thereafter she asked permission to suspend further payments until her finances were restored. 

The responses of Britain and France to this request differed widely because their own circumstances differed.  Britain in 1921 was in the middle of a serious slump in trade, and for a time 3 million of her people were unemployed.  The only remedy for this was an improvement in trade, and this in turn depended upon the ability of foreign markets to take British goods.  Britain there¬fore was anxious for Germany to recover her prosperity so that once more she could buy from Britain.  To Britain, the revival of trade was far more important than her share of reparations, and for this reason she was willing to accede to Germany's request for their suspension.

France was differently situated.  In material damage and general devastation France had suffered more than any other belligerent.  To repair this damage would need enormous supplies of materials and labour, all of which would be extremely costly.  Because the restoration was urgent, sources of money also were urgent.  German reparation payments were an obvious source, and this meant that France would not agree to the suspension of the payments.

During 1922 Germany's payments both in money and in goods were below the amounts required from her.  When the subject was debated among the Allies, the British and French took opposite views.  France demanded that if Germany continued to default the Allies should exact their demands by force.  Britain believed that any such move would drive the Germans further towards bank¬ruptcy and so would decrease, rather than increase, the Allies' chances of receiving full compensation for their war losses.  The clash of views came to a head in November 1922 when once more Germany defaulted in her payments.  Finally, in January 1923, France acted.  She sent troops to occupy the Ruhr Valley, to the east of the lower Rhine, where four-fifths of all German iron and steel were produced.  The French troops were accompanied by Belgians and also by a few Italians; but Britain refused to take any part in the occupation.

Since the Germans were powerless to oppose the invasion by force, they adopted a policy of thorough-going passive resistance.  That is to say, in every possible way they refused to co-operate with the French authorities.  They stopped all reparation payments to France and Belgium.  Workers in the postal and rail services refused to take orders from the French, and the German miners refused to dig coal.  The French retaliated by imprisoning the directors of industrial works and the mayors of towns and cities, and they deported many obstinate workmen.  But it all made little difference.  The Germans were not likely to work when they knew that the more they produced the more they would have to pay.  Also, it clearly was in their interest to make France's occupation unworkable and also to widen the rift between France and Britain.

Occupation of the Ruhr Valley, 1923

Collapse of the Mark

All this upheaval had its effect upon the value of the mark.  By the middle of 1923 its value was 500,000 to the E.  From then on¬wards it fell catastrophically, daily and even hourly, until by the end of 1923 it was virtually valueless.  In part this had been brought about by the German Government's frantic efforts to keep pace with the mark's decline by printing notes as fast as the presses could roll them off.  Inevitably this only hastened the fall in value.  Within Germany the effect was to make trading and manufacturing almost impossible.  A worker was paid wages in mark notes that were almost valueless: even so, before he had time to spend them their value had fallen still more.  The savings of the German middle classes, where much of the nation's accumulated wealth lay, were similarly wiped out.  Retired people and others with fixed incomes had no incomes left.  Except among the landowners, whose food-producing acres were as valuable as ever, and the factory-owners, with their wealth in property and material resources, the mass of the population, rich and poor, were all alike reduced to poverty and near-starvation. 

The German Government had no policy to save the situation.  Indeed it was difficult to see how Germany, if left to her own resources, could possibly save herself.  Only by outside help would she be lifted out of the morass. 

Collapse of the Mark

The Dawes Plan, 1924

The first sign of a change came in August 1923 when the German Government resigned and a new Government took office having Gustav Stresemann as Foreign Minister and Chancellor.  He faced a thankless task.  Whatever positive policy he might adopt was likely to be unpopular at home and suspect abroad among at least one section or other of the Powers.  His first step, in September 1923, was to call off the passive resistance to the French in the Ruhr.  On the face of it the French had won their struggle on the Ruhr.  In fact the matter was not so simple as this.  Stresemann's action had been intended to show his willingness to co-operate with the Allied Governments.  By this time, also, the French had been driven to see that the Ruhr occupation was not achieving their purpose of exacting the equivalent of the reparations due to them from Germany.  The costs of the occupation alone were so high that even these were not defrayed by the value of the coal and iron that the Ruhr produced.  Thus there was an all-round desire to secure an agreed solution to the whole reparation problem. 

The most hopeful sign of all was that at this point the British Government was able to persuade the United States to share in the task of working out a plan to save the German financial situation and, at the same time, to enable reparations to be paid to the Allies.  With this object a committee of financial experts was set up under the chairmanship of an American, Charles Dawes.  This committee, having begun its work in January 1924, was able in May to present proposals which became known as the Dawes Plan. 

This Plan was concerned to reduce reparations to something within Germany's ability to pay and then to devise a scheme of payments.  Hence it did not state what should be the total amount of reparations, nor did it set a time-limit within which the pay¬ments must be completed.  It fixed the amount to be paid during the first year, and made provision for increasing this sum year by year as returning prosperity should increase Germany's economic resources.  As a means of expanding those resources, foreign loans were to be raised for the restoration of German industries.  The Dawes Plan came into operation in September 1924.  The new spirit of hope and confidence which its arrangements encouraged made it possible for Germany to revalue the mark and to restore order in her currency.  This all but impossible task was the work of a financial wizard, Dr Schact, who later served Hitler with similar astuteness. 

The Dawes Plan was much less oppressive to Germany than the Allies formerly had aimed to be.  Britain's and France's acceptance of these lower figures was due to the coincidence that in that same year, 1924, both countries had ministerial changes which brought liberal-minded governments to power: in France under Edouard Herriot and in Britain under Ramsay MacDonald.  The changed atmosphere was shown when France began to withdraw her troops from the Ruhr in the very month that the Dawes Plan came into force.  Another reason for the Plan's continuing was that the following year, 1925, saw the Locarno Agreements which brought a new sense of hope and security to Europe.  The Dawes Plan and the Locarno Agreements together steered Europe through a highly dangerous crisis which at one time had seemed beyond human wisdom to negotiate.

The immediate result in Germany was a boom in trade and prosperity.  The loans - raised mostly in America - enabled German industries to expand so as to meet the needs of a people starved of supplies of all kinds during the war years.  What only a few people realized at the time was that this prosperity was artificial and unsound : Germany's ability to pay her debts abroad was based upon borrowed money.  If the day should come when that money was called in, or no longer was forthcoming, Germany might plunge back into the slough of despond.

The Dawes Plan, 1924

The Young Plan, 1929

For five years German payments under the Dawes Plan were paid regularly and in full.  The Plan, however, had been intended as no more than a stop-gap measure to enable Germany to survive her crisis.  That purpose apparently having been achieved, a more permanent settlement was desirable.  In particular, Germany's total reparation debt and the period during which payments should continue needed to be determined.  With these objects another committee representing the interested Powers met in Paris during 1929 with an American chairman, Owen D.  Young.  Its final proposals were known as the Young Plan.  These provisions, being concerned with international finance, were complex and technical, but their two main features can be summarized briefly.  The total of Germany's reparations was scaled down below any figure previously fixed, and that total was to be reached by fifty-nine annual payments.  These payments were to be made to the newly created Bank of International Settlement which also was to distribute the funds among the Powers entitled to receive them.. 

At last the whole subject of reparations surely had received its permanent, final settlement.  Uncertainty about the amount of Germany's liability, and about the period during which that liability was to last, was removed.  Yet, in fact, the Young Plan had hardly come into operation when circumstances seemed to be conspiring to overthrow it.  When it was being signed at The Hague in January 1930, the crash on the New York stock-market had already begun.  The result was the end of loans to Germany and, more widely, similar financial collapse - or the danger of it - throughout the world.  In Germany and Austria banks closed and factories ceased production, and unemployment spread.  Consequently the financial structure of the Young Plan could not be enforced. 

Alongside this financial chaos there was a threat to German political stability.  As a later chapter will show, the German people, now released from the depression and defeatism of the immediate post-war period, were beginning to challenge their subjection to their former conquerors.  The Young Plan did nothing to remove this opposition to the continued payment of reparations, no matter how moderate their amount might be.  That Germany should be compelled to continue payments until 1988, as the Plan stipulated, meant that generations would be penalized for actions committed before they were born.  These were condi¬tions which favoured the revived nationalism of Hitler and the Nazi movement which, during the years 1930-33, advanced rapidly to power in Germany.  In face of such a movement, there was no chance that reparation payments could continue to be extorted.

The Young Plan, 1929