by Adam Tooze
Their reaction was telling. Although he certainly relished France’s second victory over Germany, Poincaré, like Clemenceau before him, was above all concerned to found French security on an Anglo-American alliance. Despite the fact that Germany was prostrate at France’s feet and a strategy of disintegration was being weighed in Paris, Poincaré never delivered the coup de grâce. It was obvious that separatism had little or no support in Germany. Poincaré was wary of the self-interested business schemes of Stinnes and his French counterparts in heavy industry. He did not want to see the French Republic reduced to the plaything of the interest groups that the Weimar Republic had become. After Hitler’s coup attempt it was clear that France risked finding itself face to face with an enraged nationalist dictatorship.46 But finally and most importantly, it was clear that any open attack on German sovereignty would end France’s hope of building a new alliance with Britain and the United States.
Rejecting both the ultra-aggressive advocates of Rhineland separation and the Adenauer-Stinnes proposal for a bilateral Franco-German deal, Poincaré agreed to allow committees of experts including prominent Americans to reconsider Germany’s reparations payment schedule. The pill was sweetened by misleading hints from London that Washington might be on the point of permitting war debts to be discussed.47 In fact, no such deal was ever on offer. The French for their part, despite threats from the US, vetoed any discussion of the reparations total. The questions put to the expert committees were indirect: How could reparations be made compatible with stabilizing the German budget and the German currency? Unlike in 1919, the American government would not be officially present in Paris, but the State Department chose the two US delegates who would chair the main expert committees. Charles Dawes, the leader of the delegation, was a Republican banker from Chicago who on the basis of his war record was considered to be friendly to the French. He was seconded by Owen D. Young, a Wilsonian internationalist, who as chairman of General Electric had close links to Germany through its sister corporation, AEG. As Hughes advised the US Embassy in Paris, the choice of Dawes and Young was in part decided by the fact that despite their interest in Europe, neither of them had ever advocated cancellation of inter-Allied war debts.48
The plan that came to bear Dawes’s name was worked out in the early months of 1924. It was based on the idea that since Germany had evaporated away its internal debt, if it imposed taxes equal to those of its neighbours then it should be able to generate a cash surplus with which to finance its reparations obligations.49 The fact that for every debtor relieved by the German inflation there was also an offsetting financial loss was not part of the calculation. Nor did the obvious damage that German productive capacity had suffered during the Ruhr occupation and the hyperinflation enter into the narrowly financial discussions. The Dawes Plan did, however, recognize what was a key problem, the destabilizing effect on the currency markets of exchanging huge quantities of Reichsmarks for dollars. In future, a resident reparations agent would see to it that Berlin’s transfers did not unduly destabilize the markets. Funds that could not be safely exchanged would be held on account in Germany, in the name of the creditors. The Dawes committees were not authorized to modify the final reparations total set by the London ultimatum in May 1921. But they did specify a new payments schedule, which by stretching the payments until the 1980s considerably lightened the burden on Germany. After weeks of haggling, Young managed to persuade the French to accept an annuity rising to 2.5 billion Reichsmarks after a grace period of five years.50
Given the fact that Germany was on the point of total collapse, this benign outcome is most surprising. France’s willingness to accept the Dawes Plan is even more so. But once Anglo-American experts took charge of the discussion, the result was to a degree predictable. It was all the more so given the dramatic shift in the complexion of British politics. Ahead of the Genoa Conference in 1922, Lloyd George had warned Poincaré of the mounting anti-European mood amongst the opposition Liberals and Labour Party in Britain. In 1923 the combination of the Ruhr crisis and the Corfu incident confirmed his worst fears. Across the entire spectrum of British party politics, a latter-day Wilsonian conception of the Anglo-American role in international affairs came to the fore. In retrospect, to many on the liberal left Britain’s entanglement in European affairs through the Entente with Russia and France came to seem a disastrous mistake. The July crisis of 1914, Versailles, and now the Ruhr crisis were the predictable consequences. To bring stability, Britain and the Commonwealth should stand offshore, shoulder to shoulder with the United States, helping through the good offices of the League of Nations and the sound counsel of experts to calm the violence of the continent.
This was natural terrain for both the Liberals and the Labour Party. It was also a conception strongly favoured by the Dominions and thus agreeable to many in the Tory Party. As they had made clear during the Chanak crisis, the empire had no taste for intervention.51 The outcome of the snap general election held on 6 December 1923 confirmed this new British mood. The Tory Party suffered a disastrous defeat. The big winners were the Asquithian Liberals, the men of Keynes’s disposition who since 1916 had favoured a compromise peace, precisely because they, like Wilson, wanted to avoid any unnecessary entanglement between Britain and either Europe or America.
But the party that actually took office in December 1923 was the Labour Party, a composite of middle-class socialists, radical liberals and a phalanx of organized labour, headed by Ramsay MacDonald, who as an out-and-out Wilsonian had during the war suffered insults and political ostracism for his support of a ‘peace without victory’.52 Including the Prime Minister, the first Labour cabinet included 15 ministers who were members of the Union of Democratic Control (UDC), the British pressure group that had corresponded on intimate terms with Wilson as he devised his first peace programme over the winter of 1916–17. Then it had seemed as though it would take the overturning of the existing political order in Europe to achieve their goal. For Downing Street to be occupied by the Labour Party was not a revolution. But it was certainly a political upheaval of dramatic proportions.
As Lloyd George had warned, the new mood in London had serious implications for France. Throughout 1923 Ramsay MacDonald had denounced France’s pursuit of reparations as a will-o’-the-wisp. Germany’s surrender in the Ruhr was for him the strangulation of a ‘broken and disarmed’ country by a ‘well-armed and powerful country’, not a ‘success’, but a triumph for ‘evil’.53 The only route to peace, he confided to his diary, was to ensure that France was ‘reasonable’ and ceased ‘her policy of selfish vanity’.54 Philip Snowden, Labour’s first Chancellor of the Exchequer, spoke of the Ruhr occupation as the attempted ‘enslavement’ by France ‘of sixty or seventy million of the best educated and most industrious and most scientific people’. E. D. Morel, the UDC activist who had turned his muck-raking instincts against the ‘Black Horror on the Rhine’ allegedly perpetrated by Senegalese troops, now inveighed against France’s effort ‘to tear the lungs and heart out of the living body of Germany’.55
In France, Poincaré over the winter of 1923–4 was still riding a wave of patriotic enthusiasm, but the currency markets were not confident that France could continue the occupation of the Ruhr in the face of British and American opposition.56 By December 1923 the pre-war exchange rate of 5.18 francs to the dollar was no more than a fond memory.57 During the Ruhr occupation the franc had depreciated more than 30 per cent, reaching 20 to the dollar. In early January 1924 Poincaré won a huge vote of confidence in the French Chamber of Deputies. But the parliamentarians were more hesitant when it came to fiscal consolidation. There was no majority for austerity.
Finally on 14 January, just as the delegations were assembling in Paris to begin the Dawes Plan negotiations, the French stock exchange was gripped by a ‘grande peur’.58 Fearing a collapse of the Bourse, Poincaré demanded decree powers to push through the necessary budget cuts and tax increases. The parliamentary major
ity that had sustained the Ruhr intervention ruptured. The left denounced Poincaré’s call for decree powers as an attack on the Republican constitution and demanded a heavy levy on capital, not on wages.59 Unconvinced by this display, the markets let the franc slide from 90 against the pound early in the year to as little as 123 francs to the pound. To the American ambassador Myron Herrick, Poincaré admitted that he feared the franc might follow the mark ‘into oblivion’.60 But Washington was not sympathetic. As one State Department official noted, ‘the franc has fallen very opportunely and the result has been a great increase of reasonableness in this country’.61
On 29 February Poincaré agreed to end the Ruhr occupation in exchange for guarantees of German good behaviour. As a quid pro quo he wanted American support, and he got it. J. P. Morgan was given State Department approval for a $100 million credit. Pressured by the American move, the Bank of England chipped in a short-term loan. This double commitment allowed the Bank of France to pull off a remarkable recovery. Buoyed by the sudden influx of dollars and sterling the franc surged, inflicting substantial losses on bearish speculators. For the Poincaré government this was a triumphant defensive stand, a Verdun financier. But Morgan’s loan was for no more than six months. Its renewal on a long-term basis was conditional on an effort by the French Chamber of Deputies to stabilize the country’s finances fully. Six weeks later, on 11 May, the French electorate recovered its balance. Recoiling from the nationalist emotion of November 1919, it restored the left-republican majority that had been the norm before the war. The Cartel de Gauche (Cartel of the Left) government claimed victory. Poincaré, now excoriated as the architect of futile brutality in the Ruhr, resigned.
The new government, headed by Edouard Herriot of the left Radicals, the grouping that Clemenceau had once called home, came into office with a programme of progressive social reforms, including an extension of the eight-hour day, public sector unionization and income tax increases.62 The Socialists gave their backing in the Chamber of Deputies, though they refused the responsibility of government. In foreign policy, Herriot reaffirmed the principles of internationalism upon which the likes of Léon Bourgeois had long insisted as essential to French republicanism. Paris hoped this would please London and Washington. There would be no more of Poincaré’s aggression. But with Poincaré also went the calm in the financial markets. Within days of the left taking office, the franc resumed its alarming slide. The evidence suggests that this was a ‘natural’ adjustment to the overvaluation achieved by Poincaré. But to the French left it could not but seem that Herriot was being crushed against a mur d’argent (wall of money).
To make matters worse, over the summer of 1924 the full consequences of the design of the Dawes Plan dawned on the Herriot government. Under the terms of the plan, the process of reparations settlement was to be lubricated by a large international loan headed by Wall Street. However, the loan was not to go to London or to Paris, but to the government of Germany. Both British and American banks had demonstrated their willingness to lend to France, even under distressed circumstances. Lending to Germany was a novel proposition and for Jack Morgan certainly a distasteful one.63 But the State Department was insistent. The result was to split the coalition between the Entente and Wall Street established in 1915. To establish Germany as a viable borrower required Morgan’s to insist on priority for its bondholders over the claims of the French government. Investors needed to be assured that in case of reparations default, France would not send its troops back into the Ruhr. Not only was French fiscal policy subject to the scrutiny of financial markets, its foreign policy would be as well.
Of course, taming French foreign policy was the aim of the State Department. But the structure of the Dawes Plan allowed the American government to vanish into the background. As Secretary of State Hughes put it to the German ambassador Otto Wiedfeldt on 2 July 1924, Washington would neither guarantee the Dawes Plan nor could it assume responsibility for any loan to Germany. Any such commitment ‘would arouse partisan controversy in the United States and engender a destructive legislative-executive struggle over the control of foreign policy. The US government . . . could play a much more constructive role by rendering disinterested advice, helping to reconcile European positions, and encouraging the mobilization of private capital . . .’64 Hughes was actually in Europe in the summer of 1924 but not in his capacity as Secretary of State. He travelled as a member of a delegation of the American Bar Association. His advice to the American ambassador to Britain, Frank B. Kellogg, was nevertheless unambiguous: If the French government were to demand the right to impose military sanctions on Germany, ‘you might then say that while you could not speak for the Government of the United States . . . on the basis of your knowledge of views of American investment public, that under those conditions the loan could not be floated in the United States’.65
The Herriot government thought it had reason to expect solidarity from its comrades in the British Labour Party. But given the Wilsonian orientation of MacDonald, the effect was rather the reverse. There were expressions of barely contained excitement in Downing Street as the ‘French militarists’ were humbled by the plunging franc.66 On 23 July 1924 Prime Minister Herriot and his Minister of Finance, Étienne Clémentel, the one-time advocate of inter-Allied economic integration, were reduced to pleading with J. P. Morgan to accept the retention of at least basic elements of the Versailles Treaty. The Reparations Commission must retain the right to declare default. To ensure German compliance French troops must stay in the Ruhr for at least two further years.
Over the weeks that followed, Herriot was forced to concede both points. At Young’s suggestion, the commission remained nominally sovereign in deciding German default. But when considering any such case the Americans would have the right to send a delegate to join the commission. Any decision to declare a default would have to be unanimous and would be referred to an arbitral commission, chaired by an American. In the unlikely case that sanctions were agreed on, the financial claims of Dawes creditors would have absolute priority. Behind the scenes more direct forms of pressure were applied. In August 1924 with anxiety again mounting about the franc, Paris appealed to J. P. Morgan to renew the $100 million loan granted in March. Morgan’s made clear that it was willing to do so, but only if France pursued a determined fiscal consolidation combined with a ‘peaceful foreign policy’. Again the bankers got their way. Under an American-brokered compromise, France agreed to withdraw from the Ruhr within a year.
Of course, the rescue of German democracy from the crisis of 1923 was a very real achievement of transatlantic diplomacy and it demanded sacrifices from all sides. Gustav Stresemann is often described as a Vernunftrepublikaner and it is probably true that he remained a monarchist at heart. But if Vernunft is taken to imply merely cynical calculation, this does not do him justice. The Vernunft that came to the fore in the battle to stabilize the Weimar Republic was ‘reason of state’ in a fuller sense. On 29 March 1924, when he addressed the national conference of the German National People’s Party (DNVP) in Hanover, Stresemann pointed out that it would be the easiest thing to become the most popular man in the country by joining Hitler in demanding that Germany should march with the Kaiser’s ‘black white red banner across the Rhine’. But such populism would be profoundly irresponsible.67 The ‘cry for a dictator’ was the worst ‘political dilettantism’.68 The right wing of his party, the heirs to the National Liberals of Bismarck’s day, might be attracted by the idea of marginalizing the SPD and making common cause with the radical nationalists of the DNVP, all the more so when the latter ran the Social Democrats close in the May 1924 general election, emerging as the second party in the Reichstag. But in the midst of the delicate Dawes Plan negotiations, Stresemann rejected any such move. The pan-German rhetoric of the DNVP, laced with liberal doses of anti-Semitism, was not suitable ‘for export’.69 Only a responsible Republican politics could preserve a minimum of order at home and working relations
with Britain and the United States.
But German stabilization was not built on Stresemann’s skilful politics alone. It required painful spending cuts and tax increases. This was where the question of dictatorship became truly pressing. To break out of the deadlock of the interest groups that had impelled the inflation, the government, with SPD support, had invoked the presidential powers of Friedrich Ebert.70 The deflation they imposed after November 1923 was savage and brought huge cuts both in public sector staffing and real wages. But it was not one-sided. In real terms the Reich’s tax take quintupled between December 1923 and the New Year. The German business community never reconciled itself to the Republic’s high level of social spending. But this balancing was deliberate. Like Stresemann and the austere Finance Minister Hans Luther, Hjalmar Schacht, the dynamic banker brought in to head the Reichsbank after the debacle of hyperinflation, was committed above all to restoring the authority of the German state, both within and without. For Schacht the Reichsbank was the ‘one economic power position from which the state is in a position to successfully fight the assault of the special interests’.71 After years of corporate excess and disastrous inflation, ‘the German business community’ would have to learn, he insisted, ‘to obey, not to command’.72