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The Myth of Un-Payable and Unjust Reparations at the Treaty of Versailles

Updated on February 5, 2018
German reparations are delivered in kind to the Allies
German reparations are delivered in kind to the Allies | Source

Myth: Reparations were completely unfair, and their huge numbers meant that Germany could never hope to pay them.

If Germany lost the Great War militarily, as the victorious armies of the Allied powers destroyed German forces in the Hundred Days Offensive and swept through Belgium, it might be said that it had won the war economically. Germany had occupied neutral Belgium and much of Northern France for four long years. During this time period it had exploited Belgium industry in an economically brutal occupation where they had stolen vast amounts of Belgian industry capacity, taken huge sums of money (35 million Belgian francs per month) from Belgian banks as "war contributions" leading to intense inflation in Belgium, and utilized hundreds of thousands of Belgians as either labor in Germany or as construction forces for military projects in the West - both in exceedingly poor conditions in which thousands of Belgians died. In Northern France, similarly harsh occupation policies were enacted, but even more importantly Northern France was the center-piece of industrial France. The war did not treat this area well, as immense destruction was visited on it from fighting, destroying large swathes of French industry and killing many French civilians. As a result, both Belgium - again, a neutral power invaded by Germany - and Northern France - were essentially destroyed by the end of the war. These were the primary industrial competitors to Germany. Germany by contrast, had escaped largely unharmed from the war in industrial terms, and asides from the need to convert its military industry back to civilian production and deal with the running down of industrial machinery, had even expanded in industrial terms.

Another thing rarely mentioned is what might have been the terms imposed by Germany on the Allies if they won... although we can only speculate, some of the demand proposals such as the Septemberprogramm were extremely harsh.
Another thing rarely mentioned is what might have been the terms imposed by Germany on the Allies if they won... although we can only speculate, some of the demand proposals such as the Septemberprogramm were extremely harsh.

So if reparations were in some form justified, why did the settlement produce so much hostility and enter into history as a tragic mistake? To start with, reparations with Germany were greatly inflated in appearance by a slight of hand in the way they were structured. German reparations were divided into three categories - Category A, B, and C bonds. Only category A and B bonds were ever seriously expected to be issued and hence repaid by Germany. The total figure of these sums came out to 132 billion gold marks ($33 billion). Furthermore, these were technically assigned to the Central Powers as a whole, although in practice, only Germany was capable of paying any signifiant amounts (Bulgaria did pay 214 million gold marks). Category A and B reparations, the ones which were actually to be issued, amounted to some 50 billion gold marks - $12.5 billion. While still a large figure, this is a much more reasonable sum. The vast 132 billion goldmark sum was one which was provided out of an effort to convince the Allied publics that they money they would receive would be larger than the amount actually seriously intended to be collected from Germany : it has had the unfortunate historical legacy of clouding lucid analysis of the matter.

A typical view of the reparations, but one which is wrong.
A typical view of the reparations, but one which is wrong.

For economic and moral reasons, reparations in some form were justified. Germany's payment was needed both to make amends for the immense harm it had inflicted upon the civilians and the economies of the nations it had invaded - in particular Belgium, again a neutral power invaded by Germany - and in doing so the spectre of German economic domination of Europe, even in defeat, as occasioned by its actions in war would be avoided.

German reparations were large, larger than those that had to be paid by France, but Germany had longer to pay them and an economy with large exports that made repayment easier.
German reparations were large, larger than those that had to be paid by France, but Germany had longer to pay them and an economy with large exports that made repayment easier. | Source

While Germany's sums paid were indeed very large, they can easily be compared to the example of France. France had much higher interest payments and lower exports, and compared to Germany chose a path of internal borrowing which was less efficient than the fully external borrowing path chosen by the Germans. And yet, the French were able to pay off their reparations not simply on time, but vastly ahead of schedule in 1871. If the German political machine was actually motivated to pay reparations, it could have done so.

An element of the reparations viewed as unjust by the Germans was that reparations did not go simply for war damages, but also for tasks like war widows pensions. This was in response to a British request for their inclusion, as the British, desirous of reparations, had themselves sustained no damage that would justify such repayments. However, whatever legal or moral judgments may be passed on this, they did not inflate the amount of reparations that were paid : reparations were defined based upon the German capability to pay, and only afterwards were they then apportioned out to the various Allied powers according to a percentages framework. War widow reparations thus did not increase the total amount of reparations and only affected the distribution. In any case, they are another product of British involvement at the peace conference producing a short term political gain for England, but at the cost of catastrophic long term consequences for all parties involved, including herself.

The greatest irony of all for reparations came later in the 1920s, when Germany chose to cover its reparation payments by taking out massive loans from the United States. These loans, which also helped to sustain an artificially high German standard of living at a time where their economy was un-competitive, produced a vast German debt when the international financial system broke down in 1929, following the stock market crash. Americans demanded repayment, but as the German financial system deteriorated over the following years, this became increasingly impossible, and finally the Nazi regime elected in 1933 defaulted on its debts. The result? Germany had received far more in American loans than it had paid in reparations : in effect, it was Germany that received reparations from the United States, instead of the other way around. The cost in the long term, would be a tremendous one, the destruction of German democracy and ultimately the destruction of Germany itself in the Second World War, but German diplomacy had accomplished the admirable feat of turning reparations that they were to pay to the Allies into a boon for their own finances by filching money from the United States.

© 2017 Ryan Thomas


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