Abstract
This chapter deals with the 1924-29 Dawes reparations arrangement. The Dawes Plan was an Anglo-American sponsored bankers’ bail out of Germany after the chaos of hyperinflation and Ruhr occupation. Germany was put in ‘receivership’, headed by an American, as Reparations Agent-General. The rescue package involved ‘transfer protection’, international supervision of German finances, railways and revenues. Germany resumed reparation payments on the basis of a partial moratorium and reduced annual payments for four years with the aid of an international pump-priming loan of $200 million. Germany recovered with further private loans, mainly from the United States. For five years Germany paid reparations with American money that returned to the United States as Britain and France used the reparation receipts to service their American war debts. That ‘virtuous’ circle ended when American loans stopped in 1928 and Germany was left with a foreign-debt mountain. A revised reparations scheme (the 1929 Young Plan) came to the rescue; but it was too late, as Germany succumbed early to the Great Depression.
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Notes
For the full text and a discussion of the Dawes Plan, see Moulton (1924). See also, Reparations Commission, Report of the First Committee of Experts (Paris, 1924).
See J. Henry Scattergood, ‘The Dawes Report – A Business Man’s View’, The Annals of the American Academy, CXIV (1924), p. 22. Scattergood referred to a 1924 estimate contained in a report on Germany’s economic and trade position by the Washington-based Institute of Economics.
See, Edouard Herriot (Memoires) Jadis, vol. 2 (Paris: Flammarion, 1952), p. 156.
See, Louis Muron, Edouard Herriot (1872–1957) (Lyons: Editions Lyonnaises d’Art et d’Histoire, 1997), p. 133.
Julius Curtius, Der Young-Plan: Entstelllung und Wahrheit (Stuttgart: Mittelbach, 1950), p. 13.
For a brief, but excellent analysis of the importance of the 1926 budget in the history of Weimar fiscal policy, see C. Edmund Clingan, ‘The Budget Debate of 1926: A Case Study in Weimar Democracy’, European History Quarterly, 10 (2000), pp. 33–48.
At Locarno, Germany, France and Belgium renounced the use of force to alter their existing frontiers in western Europe and affirmed the permanence of a demilitarised Rhineland. While accepting the permanence of her western boundaries, Germany reserved the right to change its eastern borders; but agreed not to do so forcibly – only by peaceful revision under non-binding arbitration treaties with Poland and Czechoslovakia. The treaty commitments by Germany, France and Belgium were underwritten and guaranteed by Britain and Italy. A year later Germany was rewarded with a permanent seat on the Council of the League of Nations. Thus, it was claimed, the ‘economic peace’ of Dawes was underpinned by the ‘political peace’ of Locarno. In this amicable climate of peaceful coexistence, Briand and Stresemann had their famous four-hour private conversation over lunch on 17 September 1926 at Thoiry – a village in the French Jura, across the lake from Geneva. The two friends resolved to settle outstanding Franco-German differences, and agreed on a wide range of contentious matters – from early evacuation of the Rhineland to the advance payment of reparation annuities to France through the public sale of German railway bonds. However, the promise of Thoiry failed, owing to lack of domestic political support in France and Germany, and American opposition and British obstruction. A story, widely believed at the time, had it that when the waiter brought the bill, Briand grabbed it, saying: ‘I’ll pay the bill. You will pay the reparations.’ See Bernard Oudin, Aristide Briand: La Paix (Paris: Editions Robert Laffont, 1987), p. 494; also Steiner (2005, pp. 422–4).
See Robert K. Kuczynski, Bankers’ Profits from German Loans (Washington, DC: The Brookings Institution, 1932), pp. 150–5.
See Jacques Attali, A Man of Influence: Sir Siegmund Warburg 1902–82 (London: Weidenfeld and Nicolson, 1986), p. 89.
See Albert Fishlow, ‘Lessons from the Past: Capital Markets during the 19th Century and the Interwar Period’ in M. Kahler (ed.), The Politics of International Debt (Ithaca, NY and London: Cornell University Press, 1986), p. 73.
The priority of reparations was enshrined in Article 248 of the Treaty of Versailles that gave reparation creditors a ‘floating charge’ on all the assets and revenues of the Reich and its constituent states. The 1924 Dawes Loan (as part of the Dawes Plan) was accorded preferential treatment and granted special priority over all reparation payments and transfers. In fact, the payments of the loan were made out of the Dawes annuities themselves, and were secured by the ‘controlled revenues’. Some German states, municipalities and corporations disputed or ignored this priority ranking in their prospectuses and loan applications in order to assure American investors that they had unimpeded access to foreign exchange to meet loan repayments. For contemporary comments on the priority question, see Ernst H. Feilchenfeld, ‘Reparations and German External Loans’, Columbia Law Review, vol. 28 (1928), pp. 300–11;
Roland W. Boyden, ‘The Priority Question’, Foreign Affairs, 6 (1928), pp. 368–78.
Quoted in Werner Link, Amerikanische Stabilisierungspolitik (Düsseldorf: Droste, 1970), p. 386.
The presence of the Military Control Commission was deeply resented by the Germans and was never able to get on with its job of controlling German rearmament. In fact, as Lionel Kochan commented: ‘[The Commission’s] final report, detailing the full extent to which its work had been frustrated, was hushed up, lest it jeopardise the policy and atmosphere of understanding’ with Germany following the Locarno treaties. See Lionel Kochan, The Struggle for Germany 1914–1945 (Edinburgh: Edinburgh University Press, 1963), p. 55. The Commission’s report, running to 504 pages, concluded that Germany had never disarmed, and had no intention of disarming. But Sir Austen Chamberlain and Briand wanted nothing to block Germany’s admission to the League of Nations, and so acceded to Germany’s request to recall the IAMCC.
Quoted in John M. Carroll, ‘Owen D. Young and German Reparations: The Diplomacy of an Enlightened Businessman’ in Kenneth Paul Jones (ed.), US Diplomats in Europe, 1919–1941 (Santa Barbara, CA and Oxford: ABC-Clio, 1981), p. 57.
Germany’s top reparations expert, Carl Bergmann remarked that from the moment Young’s compromise figures were accepted, ‘it finally became very clear that what was afoot in Paris was not the recognition of economic possibilities, but a purely political deal.’ See, Carl Bergmann, ‘Germany and the Young Plan’, Foreign Affairs, 8 (1930), p. 588.
Up to 1928, Sir Josiah Stamp, ‘who probably knew more about … reparations than anyone else’, believed that even after the Dawes experiment, Germany’s capacity to pay still remained a matter of guesswork. See, J. Harry Jones, Josiah Stamp, Public Servant (London: Pitman, 1964), p. 242.
See, Young Report (1929) reprinted in American Journal of International Law, 24 (1930) Supplement (Official Documents), pp. 85 and 93.
Owen Young, as a leading entrepreneur in the new growth industry of electrical engineering was personally optimistic that ultimately Germany would be able to pay reparations in goods out of export surpluses. He saw the prospects for world economic growth as extremely bright. The reconstruction of German industry, based on the financing of the country’s chemical (I.G. Farben), steel (Vereinigte Stahlwerke) and electrical (Allgemeine Elektrizitäts Gesellschaft) cartels would be an important part of it. And that would require the continuation of American loans for some time to come. In July 1928 he confidently made the prediction that a German export surplus could develop only ‘as a result of the greatest economic development which the world has yet seen; and that must take place … in the next ten or fifteen or twenty years.’ Speech by Owen D. Young (14 July 1928), quoted in Frank Costigliola, ‘The Other Side of Isolationism: The Establishment of the First World Bank, 1929–1930’, Journal of American History, 59 (1972), pp. 604–5. Some others shared Young’s misplaced optimism. Even as the Depression got under way, the prominent Columbia University international economist, James Angell could write in July 1931 that: ‘it can reasonably be expected that we [the United States] will continue to make large new investments in Germany for many years to come.’ See,
James Angell, ‘Economic Germany and the United States Today’, Annals of the American Academy of Political and Social Science, 156 (July 1931), p. 1. Of course, the business interests of Young’s General Electric were involved. In common with other US multinationals, General Electric targeted Germany as the base for the expansion of operations overseas through direct investment and mergers with German cartels to share or dominate world markets.
See Robertson’s comments in ‘Reparation: The Young Report’ by C.R.S. Harris in Royal Institute of International Affairs (September 1929), pp. 477–9.
This implies that Germany carried a debt ‘overhang’, defined as the difference between the face value and the market value of debt, where the market value is the expected present value of the future net transfer from the debtor (Germany) to the creditors. Krugman states: ‘A country has a debt overhang problem when the expected present value of potential future resource transfers is less than its debt.’ See, Paul Krugman, ‘Financing vs. Forgiving a Debt Overhang’, Journal of Development Economics, 29 (1988), p. 255. Creditworthiness and access to international credit market will decline. Lifting the burden of a debt overhang calls for a reduction in debt and debt service. In the absence of good growth prospects, further rescheduling, or events that might change the outlook, deflation is the unavoidable remedy.
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© 2010 Leonard Gomes
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Gomes, L. (2010). From Dawes to Young. In: German Reparations, 1919–1932. Palgrave Macmillan, London. https://doi.org/10.1057/9780230277465_5
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