In January 1921, the total sum due was decided by an Inter-Allied Reparations Commission and was set at 269 billion gold marks (2,790 gold marks equalled 1 kilogram of pure gold), about £23.6 Billion, about $32 billion (roughly equivalent to $393.6 Billion US Dollars as of 2005). This was a sum that many economists deemed to be excessive because it would have taken Germany until 1984 to pay. Later that year, the amount was reduced to 132 billion marks, which still seemed astronomical to most German observers, both because of the amount itself as well as the terms which would have required Germany to pay until 1984.
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, President 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 seventeen days of delay by André Tardieu of France . During this delay the situation in Germany as well as renewed fears of hyperinflation had resulted in a countrywide run on the bank, draining some $300,000,000. All banks in Germany were for a time closed.
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 in fact because it became irrelevant upon Hitler's rise to power.
Within Germany the general public largely saw the reparations as a betrayal. Expecting a treaty based on the widely propagandized fourteen points many minorities in Germany, such as the Jews, Communists and Social Democrats, had agitated for peace with the allies because of their religious or intellectual convictions. With the revealing of the actual treaty terms these groups within Germany felt betrayed and at the same time become a target for great distrust. The idea became common that these groups had the entire time been aware of the terms of the Versailles treaty, but secretly colluded with the Allies for personal gain. This phenomenon later became known as the "Stab in the back legend" or Dolchstosslegende, literally "Dagger stab legend".
Economists such as Keynes assert that payment of the reparations would have been economically impossible. However, according to William R. Keylor in "Versailles and International Diplomacy", '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 difficult situation. Indeed, this was one of the causes of the UK General Strike of 1926.
It has been argued by some that it is a fallacy to consider the reparations as the primary source of the economic condition in Germany from 1919 to 1939. This perspective 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. 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 A. J. P. Taylor from his 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 seen as punitive, without being crippling enough to prevent Germany regaining its superpower status, and can thus be blamed for the rise of the Reich under Hitler within decades.
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". Belgium, however, received none of the financial reparations promised under the treaty, as France and Britain failed to redistribute any of the payments they received.
The monetary reparations also helped to create mass hyperinflation in the German economy, which then led to political upheaval. This led Hitler to the forefront of German politics.
After Germany’s defeat in World War II, an international conference decided (1953) that Germany would pay the remaining debt only after the country was reunified. Nonetheless, as a show of continued self-effacement, West Germany paid off the principal by 1980. In 1995, after reunification, the new German government announced it would resume payments of the reparations. Germany will finish paying off the Americans in 2010.
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Apr 14, 2003; Byline: David R. Francis Staff writer of The Christian Science Monitor After World War I, the victorious allies tried to collect...