Wednesday, October 6, 2010

Germany finishes paying WWI Reparations



By CLAIRE SUDDATH – Mon Oct 4, 5:55 am ET

World War I ended over the weekend. Germany made its final reparations-related payment for the Great War on Oct. 3, nearly 92 years after the country's defeat by the Allies. That's not to say that Germany has been paying its dues consistently over the decades; the country defaulted on its loans many times and the current payouts have only been happening since the 1990s. What took Germany so long to pay for the war? Didn't World War I end long ago? Does this mean we're all survivors of the Great War?

Not quite. Germany's last $94 million payment issued on Sunday isn't a direct reparations settlement but rather the final sum owed on bonds that were issued between 1924 and 1930 and sold to foreign (mostly American) investors but then never paid. The story of German reparations involves several payment plans, years of inflation, broken promises, canceled debts and a man named Adolf Hitler who flat out refused to give anyone anything. (See pictures of Hitler's rise to power.)

Signed at the 1919 Paris Peace Conference, the Treaty of Versailles - the formal agreement that ended World War I - stripped Germany of its colonies overseas and the region of Alsace-Lorraine (now part of France), placed restrictions on its military and levied punitive damages for supposedly starting what was, at the time, the most destructive war the world had ever seen. "Large parts of Belgium and France were so destroyed by trench warfare that they looked desolate, like moonscapes, just huge areas of land where nothing remained," explains Stephen Schuker, professor of history at the University of Virginia and author of American "Reparations" to Germany, 1919-33. "They needed money to help rebuild the area."

But how do you put a price on war? Is it the property value of destroyed buildings? Rounds of ammunition shot? The cost in human life? It took two years for the international Reparations Commission to assess damages in relation to Germany's national wealth - after all, the payment plan needed to be affordable - and decide how much the government owed. The first reparation demands were 266 gold marks, which amounted to roughly $63 billion then (close to $768 billion today), although this was later reduced to $33 billion (about $402 billion today).

That's a lot of money. So much money, in fact, that British economist John Maynard Keynes famously stormed out of the Paris Peace Conference and penned The Economic Consequences of Peace, arguing that reparations would cripple Germany's economy. At the time, Keynes' opinion was largely supported, though many historians today believe that while burdensome, the fines could have been paid. (See the top 10 national apologies.)

When it came time for Germany to make its first payment of $500 million in August 1921, it "just literally printed the paper money," says Schuker. "They gave it to the Reparations Commission saying essentially, 'O.K., here you go.'" In fact, Germany began printing money for everything. They printed so much money, knowingly devaluing their currency, that within a few years it "literally took a wheelbarrow of money to buy a loaf of bread," as Shucker puts it. By 1923, Germany had defaulted on its reparations so many times that France sent troops to occupy the Ruhr region in northern Germany to force them to pay. (It didn't work.) (Read TIME's 1923 article on the Ruhr occupation.)

In 1924, an American banker named Charles Dawes outlined what came to be known as the Dawes Plan - a new reparations agreement under which U.S. banks such as J.P. Morgan issued bonds to private investors on behalf of Germany, which agreed to pay them back when the money became due. Dawes won the 1925 Nobel Peace Prize for his work on this plan. But when the first batch of bonds came due in 1928, Germany again defaulted. So in June 1929, a new plan was enacted, floating more U.S.-backed bonds and reducing Germany's payments to $28 billion paid out over 59 years.

When Adolf Hitler rose to power in 1933, he cancelled all reparations. "So there are all these bonds out there, held by private individuals, that instantly become worthless," says Schuker. "American citizens lost a lot of money." But as David Andelman, World Policy Journal editor and author of A Shattered Peace: Versailles 1919 and the Price We Pay Today, points out, "refusing to pay doesn't make an agreement null and void. The bonds, the agreement, still existed."

In June 1953, at an international meeting that came to be known as the London Agreement, a fractured West Germany offered to slowly pay back some of the bonds on which it had defaulted back in the 1920s, but said that it wouldn't pay everything until the country was one day reunified. In 1995, no longer divided, Germany took up the task of settling all its debts. "The Germans just agreed to do the right thing, as it were," says Andelman, although he is quick to point out that the interest on the unpaid bonds is now so high that it has been adjusted downward many times. On Oct. 3, Germany paid off the last installment of interest, finally settling its World War I accounts.

1 comment:

  1. Does this mean that Germany still hasnt repaid WWII reparations?

    ReplyDelete