A Perfidious Distortion of History

by Jurgen Tampke

  Article 232 of the treaty assured Germany that, Article 231 notwithstanding, the amount to be paid would be within the limits of the country’s capacity to pay. The amount was to be estimated by an Inter-Allied Reparation Commission (Article 233). This commission would determine the extent of Germany’s obligation on 1 May 1921, after taking into account all the evidence and allowing the German government ‘a just opportunity to be heard’. An initial payment of 20 billion goldmarks was to be made (Article 235) before this deadline. The remaining clauses (Articles 236–244) and their annexes spelt out the details for this initial payment.

  Like the territorial settlement, the reparation terms of the first payment were modest. Payment could be made either in cash or, as happened for the most part, in kind. Reparation credit was given for coal, timber chemicals and dyes, industrial and agricultural machinery and locomotives, rolling stock, and shipping. Germany was credited for confiscated military equipment, and for its colonies and transferred territories, including the Saarland but excluding Alsace-Lorraine. As far as the transfer of industrial equipment and plants from occupied territory was concerned, no levy was imposed. Included in the first payment were the Rhineland occupation costs and the Allies’ expected outlays in providing Germany with food and raw materials — an amount of eight billion goldmarks.

  Germany was to surrender all ships over 1,600 tons gross, half of those between 1,000 and 1,600 tons gross, a quarter of its steam trawlers and fishing boats, and a small part of its river fleet. This was to compensate for the losses caused by German submarine warfare, Britain alone having lost eight million tons of shipping. Over 2.6 million tons were handed over during the next two years. The loss of shipping, however, did not have an undue impact on the German economy. Ships were handed over only gradually, and by the end of 1919 leading German shipping companies such as HAPAG and Norddeutscher Lloyd were beginning to use agencies to run their former fleets. 33 Ship-building replaced the losses and helped to revive Germany’s post-war economy, and by 1921 the German merchant fleet was greater than its pre-war size. 34

  All of these requirements were within Germany’s capacity to pay, and did not effectively cripple the immediate post-war economy. 35

  The subsequent part ‘Special Provisions’, which dealt with the return of items of historical importance, has sometimes given critics of the treaty grounds for ridicule. Article 245, which covered the restoration to the French government of trophies, archives, historical souvenirs, and works of art carried away in the two previous wars, was reasonable, although one does wonder why, of all the confiscated documents, ‘the political papers taken by the German authorities on October 10, 1870, at the Chateau of Cercay, near Brunoy, belonging to Mr. Rouhier, formerly Minister of State’ should have been singled out for special mention. The subsequent clauses could perhaps have been settled privately.

  Article 246 specified that the original Koran of the Caliph Othman, which had been taken from Medina by the Turks and handed to Wilhelm II, should be returned to the King of Hedjaz (the western part of today’s Saudi Arabia), and that the skull of Sultan Mkawa, which had been removed from the Protectorate of German East Africa, should be handed over to the British government in good condition.

  Article 247 required the replacement of all items of value (manuscripts, incunabula, printed books, maps, and other objects of collection) destroyed by the burning of the Library of Louvain, for which Germany would be given reparation credit. No such credit was allowed for returning the leaves of the Triptych of the Mystic Lamb, painted by the Van Eyck brothers, from the Berlin Museum to the Church of St. Bavon at Ghent; nor for the return of the Dierick Bouts’ triptych of the Last Supper to the Church of St. Peter at Louvain.

  The remaining seven parts of the treaty were concerned mainly with post-war arrangements for international financial and economic matters, customs and international traffic regulations, maritime and river navigation, aerial navigation, postal and telecommunications systems, and ports, waterways, and railways. Clauses here did not arouse the acrimony that accompanied the earlier parts, especially those on reparation. In its reply, Germany objected again to its exclusion, short-term, from the League of Nations and its affiliated organisations, and even more so to not being immediately admitted to all of the post-war trade arrangements. The Allies responded by pointing to the economic reality that had resulted from the war:

  The illegal acts of the enemy have placed many of the Allied States in a position of economic inferiority to Germany, whose territory has not been ravaged, whose plant is in a condition enabling manufactures and trade to be at once resumed after the war. For such countries, a certain freedom of action during the transition period is vitally necessary … hence during the transitory period formal reciprocity with Germany is not practicable. 36

  Reciprocity would be forthcoming once economic balance was restored.

  The Reparation Commission

  After two years of deliberations, the Reparation Commission announced a total reparation debt of 132 billion goldmarks enshrined in the London Schedule of Payments presented to Germany on 5 May 1921. The amount was regarded as the lowest figure that would not cause a major public backlash in the Allied countries, but in reality it was for public consumption only; the commission consigned all but 50 billion goldmarks to never-never land.

  The commission, in a highly complicated payment schedule, divided the reparation debt into A, B, and C Bonds. A and B Bonds, which amounted to a nominal value of 50 billion goldmarks, covered genuine German war debts such as occupation costs, coal deliveries, reparations, and food purchases as specified in Articles 233 to 244 of the treaty and their annexes. A and B Bonds would bear a modest interest rate of 5 per cent, and were to be delivered to the Reparation Commission by 21 July and 1 November 1921 respectively. 37 Repayments were to be made at the rate of two billion goldmarks per annum, in addition to a variable annuity of 26 per cent of the value of Germany’s exports. The annual payment would thus be linked to the county’s economic performance — an obvious invitation for the German government to cook the books.

  C Bonds were also to be delivered to the Reparation Commission by 1 November, but authorisation and repayment was not to occur until the obligations under the A and B Bonds had been met. To meet this target, Germany would need to export to the value of approximately 21 billion goldmarks per annum. Because this was a near impossibility, it was estimated that the A and B Bonds would not be settled for 36 years, and only then would C Bond repayments begin. The likelihood that a recovered Germany would then meet any such obligations was nil. In fact, as the whole C Bond business ‘would depend upon complete German good faith, favourable political conditions, and extraordinary German prosperity, and even then, would remain improbable’, 38 the 83 billion goldmarks worth of C Bonds was phony money and was never meant to be anything else. Gaston Furth, assistant secretary of the Belgian delegation to the Reparation Commission, put it bluntly:

  [T]he Authors of the Schedule of Payments knew themselves that the C Bonds were only a fiction and that, if they had not wished or dared to touch the total of the debt, they had deliberately arranged to reduce in fact to 50 billion the nominal amount of 132 billion. In this there was an undeniable deception but an undoubtedly useful and even necessary deception. The men who had been studying the reparations question for several years knew then that one could not reasonably require of Germany more than 3 billion per year and that, consequently, there was no hope that she could pay off a debt of more than 50 billion gold marks. But the statesmen believed that public opinion in the allied nations was not sufficiently enlightened not to rebel at the brutal announcement of a total so short of its expectations. In brief, the Schedule of Payments elegantly resolved the difficulty on which all previous negotiations had foundered: the German debt was reduced in fact to a reasonable amount but this reduction was sufficiently cleverly disguised to keep public opinion from perceiving it and becoming aroused. 39

  To reiterate, the total
sum Germany was obliged to pay in reparations was effectively 50 billion goldmarks. Yet even this was only a nominal figure. Experts recognised that the bonds could not be marketed at nominal value at the interest rate of only 5 per cent. Estimates of the 1921 present value ranged between 25 billion goldmarks (Keynes) and 35 billion (Furth), but whatever the exact figure, it is clear that the extent of the obligation Germany was to meet in 1921 was considerably less than 50 billion goldmarks in value. By coincidence, Germany had made a previous offer to the U.S. government to pay reparations to a present value of 50 billion marks. 40 This was refused, because the sum was not considered large enough to allow for public acceptance in the receiver countries.

  Germany made its first cash payment in the summer of 1921, but paid only a fraction of the subsequent annuities. It also fell short on payments in kind, in particular on the delivery of coal. The destruction of coalmines by retreating German troops prior to the Armistice had deprived France of 50 per cent of its coal production. As coal was the chief source of energy at that time, France was dependant on German deliveries. Saar coal, which totalled eight million tons per annum, brought some relief, but the key to French supplies was the delivery of the 27 million tons Germany was obliged to provide under the terms of the Peace Treaty. Germany’s chief coal region, the Ruhr, was so rich that Weimar should have been able to deliver. Yet Germany consistently defaulted, even though the Allies offered five dollars per ton as a goodwill gesture, and the quotas were constantly revised downward until they met barely half of the required amount. By the end of 1922, the London Schedule had run into great difficulties. 41

  In January 1923, the Germans defaulted in their coal deliveries for the thirty-fourth time in 36 months. As a consequence, French, Belgian, and Italian engineers, accompanied by a small contingent of troops, entered the Ruhr. Britain, the fourth member of the Reparation Commission, was highly critical of this action, but for France more was at stake than collecting coal. With a few exceptions, the whole peacemaking process had failed to work in France’s favour. It had lost on the issue of war criminals, and Germany was failing to comply with provisions on disarmament and assistance with the costly reconstruction of France’s provinces. Were it to lose out on reparations as well, the French prime minister at the time, Raymond Poincaré, knew that the post-war balance would tilt against his nation. The fundamental issue of the Ruhr occupation was not the delivery of coal or timber: it was a last-ditch effort to force Germany to acknowledge defeat in World War I and the validity of the Versailles Peace Treaty. 42

  Occupation of the Ruhr coalfields netted the Allies 900 million goldmarks, but Germany did well, too. The mark had been rapidly depreciating since the war, partly because the Weimar government wanted to avoid budgetary and currency reform, but mainly because that way it could escape reparations. As the German government financed the resistance to the Ruhr occupation from an entirely empty treasury, hyper-inflation resulted. The hyper-inflation of 1923, a nightmare for the bulk of the German population, was brought about not by reparation costs or the Ruhr occupation, as the government claimed, but by Germany’s deliberate decision to undermine the reparation demands and to dismantle the mountain of debts caused by the war. Hyper-inflation netted Germany 15 billion goldmarks held by foreign investors in German bank accounts. Against this, Germany had paid less than 1.5 billion goldmarks in cash reparations up to 1923. Furthermore, the inflation took care of war bond obligations totalling around 60 billion goldmarks, and reduced other state debts to zero. Sections of big business also profited from the collapse of the German mark, and so did people who owed money. 43

  The Ruhr occupation also spelt the end of the London Schedule of Payments. In 1924, the United States placed itself in charge of reparations and other aspects of post-war Europe with the introduction of the Dawes Plan. Washington’s renewed interest in Europe was caused by a growing concern over the loss to America of overseas markets. American producers of wheat, pork, cotton, tobacco, and other commodities were suffering severely from the economic instability of the old world. 44 An international committee chaired by American banker and U.S. vice-president Charles Dawes reduced the overall reparation amount and scaled down the annual payments to one billion goldmarks for 1924–25. 45 This amount was to increase each year to 2.5 billion by 1928–29. In return for Germany’s introducing a program of currency stabilisation and austerity, a consortium of American lenders arranged substantial loans to Germany (totalling, in the end, 12 billion goldmarks) to meet initial reparation payments and to provide a stimulus for the economy.

  Germany paid the first Dawes Plan instalment mainly from the American loan, but asked for renegotiation before the 2.5 billion reparations threshold was reached. The resulting Young Plan, which further reduced Germany’s commitment, was cut short by the world Depression that began in September 1929. Three more years of futile international wrangling followed before reparations met their de facto death at the Lausanne Convention of July 1932.

  Altogether, Germany had paid between 20 and 21 billion goldmarks in reparations. Of the approximately 7 billion goldmarks paid in cash, 2 billion were paid by Germany itself. The remainder was paid out of loans from the Dawes and Young Plans. Cash reparation payments for the 13 years of the Weimar Republic amounted to 0.91 per cent. The gross burden on the German economy for the same period was 2.72 per cent. 46 This was scarcely an insurmountable economic strain on the Weimar economy.

  Even these loans were later repudiated by Hitler. But the Nazis did not have the final word. When the ‘Thousand Year Empire’ met its end after twelve years, the United States, in the post-World War II settlement, insisted that $100 million still be paid for the Dawes loan bonds. This was a fraction of the approximately $3.5 billion U.S. losses incurred during the Weimar years. The story of the reparations part of the Treaty of Versailles ended on 3 October 2011, when Germany made its last payment.

  In the end, the burden of paying for the damage done by the war had to be met by the victors. They had to pay for the reconstruction of devastated regions, the pensions of disabled veterans and war widows, and their own debts. I can find no better summary of this sad aspect of twentieth-century history than the conclusion of the American reparation expert Sally Marks:

  In addition to reinforcing German economic superiority, the history of reparations generated a vast bureaucracy, a mountain of arcane documents, much bitterness, endless propaganda [and] more than its share of historical myths, … It is evident that Germany could have paid a good deal more if she had chosen to do so, particularly since she paid little out of her own considerable resources. But Germany saw no reason to pay and from start to finish deemed reparations a gratuitous insult. Whether it was wise to seek reparations from Germany is arguable, although the consequences of not seeking them would have been far-reaching, as the failure to obtain them proved in time to be. Certainly it was unwise to inflict the insult without rigorous enforcement. In the last analysis, however, despite the fact that reparations claims were intended to transfer real economic wealth from Germany to the battered victors and despite the financial complexity of the problem, the reparations question was at heart a political issue, a struggle for dominance of the European continent and to maintain or reverse the military verdict of 1918. 47

  Winners and losers

  The United States did well out of both the war and the peace. It seized twice as many merchant ships as it had lost, and sequestrated $425 million worth of German property. American business benefited from fortunes made during the war by the Allies’ demand for foodstuffs, raw materials, and ammunition, and banks profited from big loan operations to facilitate business. 48 In the Paris negotiations, the United States claimed six billion goldmarks, of which it eventually received 400 million. 49 Its war debt, by contrast, was relatively low. The war left the United States in a class of its own, as the leading world power economically and politically.

  The United Kingdom’s position was different. To its advantage, the German naval
threat had been eliminated, and some overseas possessions had been added to its empire. There is a popular textbook claim, sometimes making its way into academic literature, that Britain also benefited from ridding itself of a major trade competitor. This was not the case. The German economy recovered faster and more strongly in the inter-war period. 50 Before the war, Britain had been a firm supporter of the global system of free trade, which, it hoped, would be restored as soon as possible. This support, as will be shown below, greatly guided her policies in the 1920s, to the detriment of France and the benefit of Germany. No one in British politics or industry contemplated taking out continental Europe’s largest industrial nation.

  Britain’s post-war economic performance was dismal. Its share of global industrial production sank by a third (from 14.1 to 9.4 per cent), while that of the United States rose from 35.8 to 42.2 per cent. Key British industries such as textiles, coal, and steel suffered a substantial decline after the war, as did shipbuilding. Formerly the pride of British industry, shipbuilding employment figures declined 4.6 per cent, and the tonnage produced fell by 2.7 per cent per annum. 51

  On paper, Britain was a creditor state, but the bulk of this debt was owed by tsarist Russia (which had ceased to exist) or by countries on the verge of bankruptcy. The British government had also made commitments to support its war victims (veterans unable to work and dependents of fallen soldiers) and its unemployed, without foreseeing the persistence of long-term unemployment in the years after the war. With no reparations coming in, it soon became clear that British economic life faced grave difficulties post-war. As Trevor Wilson correctly remarks, the victory, far from enhancing Britain’s position in the world, constituted a burden that its economy could not sustain.