198: Versailles Pt. 15 - Reparations

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The most discussed feature of the German treaty was the details of the expected reparations.

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Hello everyone and welcome to History of the Great War episode 198, Reparations. Thank you James and Christian. Donation from Steve. This is the second episode dealing strictly with the creation of the treaty that would be given to Germany at the conference. This episode will revolve around one topic, reparations. There was never a discussion about whether or not the Germans would have to pay reparations, they would certainly have to. As Lloyd George would say “Somebody had to pay. If Germany could not pay, it meant the British taxpayer had to pay. Those who ought to pay were those who caused the loss.” Even though everyone agreed that Germany would have to pay, that was basically the end of their areas of easy agreement. Reparations would be an incredibly challenging and complicated topic for the Allied leaders to come to a consensus on. There were so many questions that would have to be answered: What were the total damages to France, Belgium, and the other countries? What was the total debt between all of the Allied countries? How much had the war cost in total? Even if all of those questions were properly and accurately answered, and they would eventually be calculated, it then had to be determined how much of those numbers Germany should be expected to pay. Once that number was determined, the Allies then had to determine if Germany could actually pay the full bill, and if they did not pay the full amount, who should get the most money? Who should get their money first? Which type of damage was the most important? France and Belgium had suffered the most physical damage to their countries that would have to be repaired, but the British had spent vast sums of money, which was also harmful to the future of the country. Then there were also a whole list of economic questions that made the considerations almost endless. Just as an example, Germany had been a powerful economic force before the war. It had also been a very important trading partner for almost every country at the conference. At what point did it make more sense to reduce reparations so that Germany could rebuild their economy to get the gears of European trade moving again. In the long run that would have the most benefit for the other countries of Europe, the only problem was that it would also help the Germans as well, instead of punish them. These are just some of the questions that would have to be answered at the conference if they wanted to determine the final terms that would be presented to Germany.

Before we get into the discussions among the allies at the Conference, lets talk about some of the German expectations. After singing the armistice in November 1918 there was an understanding within the German government that there would be some amount of reparations. They knew that they would have to pay for the damage caused by the German armies during the war, and that it would probably require tens of billions of German Marks. While this was certainly a lot of money, it was nowhere close to even the lowest position of the Allies. Reparations were different than some of the other treaty clauses because they were felt by all Germans, it was not just the people of Silesia, or the Rhineland, or some other piece of territory on the borders. Reparations touched everyone, and because of that it was easy for then to cause problems for the German government. But there was an understanding of having to pay, even for the citizens of the country. Reparations were just part of losing a war, but the scale of the reparations was much higher than any previous conflict.

Just like the other points of discussion contained in the German treaty the informal discussions about the specific reparations number began far before the official conversations on the Supreme Council started. That official conversation would being on April 5th, and it would be on that day that Clemenceau would present his plan for what he believed Germany should pay. The top level number was massive, far larger than any other number that had bee informally discussed up to that point. It contained not just the money to repair the damaged countries but also contained enough money to pay for all of the pensions for all of the soldiers and war widows in the Allied armies. Clemenceau also pushed for two important clauses to be attached to reparations. The first was that there should be no limit on how long the Germans would have to pay and no limit to the overall amount, because of course interest would be collected on the debt. He desired these clauses because if the reparations were high enough a combination of never ending payments and constant interest accrual could cripple Germany for a very long time, which was precisely what the French were hoping to accomplish

When Wilson first learned of the numbers that Clemenceau was requesting he was somewhat incredulous. This would be the start of several days during which Wilson played perhaps his most successful game of brinksmanship at the conference. He met with all of the high level American delegates and made it clear that they would have to convince the British and French to be far more reasonable in their demands. He would then cable the US Treasury and tell them to prepare to stop extending financial credits to the other allied countries. Finally, he sent orders to his ship to return to Brest because he was preparing to return to the United States. All of this was done in a way to guarantee that the British and French would learn of Wilson’s orders. While he was talking a big game, after only a few days Wilson’s confrontational stance melted away and he would slowly remove his once stringent objections to basically everything in the initial French demands, other than the actual number. So what prompted the American President to change his mind so drastically? Well, it was probably the League of Nations. This was a critical time for Wilson and his dreams for the League and so it is very likely that during this time he was being more accommodating on French reparations demands to ensure that they stayed in support of the League. According to Adam Tooze in The Deluge: The Great War, America, and the Remaking of the Global Order this was actually what was happening, Tooze would say “The consensus among recent historians is that the deals struck in the first ten days of April, some of them dubious in the extreme and seen even by Wilson admirers as mistakes, were driven almost solely by the president’s determination to keep the creation of the league moving forward.”

The easy part of the reparations discussions revolved around damage estimates. Of all of the things that the Allies wanted to use the reparations to achieve, fixing the damages done by the German armies in the countries that they invaded was the easiest piece to agree on. A commission was created to determine the amount, and there was a good amount of data to gather before a final number could be determined. In northern France and Belgium large swaths of the countryside had been completely destroyed, some of this was incidental to the fighting, but some of it was done on purpose by the German armies. The best example of this was the scorched earth destruction that had occurred in 1917 when the Germans had retreated to the Hindenburg Line. There was also many instances of the Germans taking French industrial goods and dismantling entire factories and shipping them back to Germany to help with the war effort. These types of damages had been done to Belgium as well. All of this damage had to be repaired and rebuilt by the French and Belgian governments and so they used those costs as the first item that they sought reparations for. The total estimates were around $40 billion, a very large sum at the time.

That number strictly involved physical damages to the countries. During the conference several countries, most importantly Belgium, tried to get foreign loans included in the estimated war damages. During the war the Belgian government had continued to fight the war for over four years, during this time their only option was to borrow from other countries to pay for their army, and these loans would come primarily from the British. Because of this debt figure the Belgians asked that it be included in their share of reparations and that their share be paid first. This last bit ran into resistance. With such a large reparations number, and with no guarantee that it would be paid back quickly, many governments were concerned that it might be years or even decades before they got all of their money. For very large debt loads like what the Belgians had, and the desperate need to rebuild their country, this was very problematic. The Americans were quick to give support to putting the Belgians first in line, but the British and French strongly resisted. For the French it was simply a matter of wanting their damages to be repaid equally quickly. For the British it was due to trying to recoup some of the massive amounts of money that they had poured into their own efforts to fight the war. Because of this the British would always push for the reparations to be split out equally at all times, so that they could start to be paid back for their own costs and for all of the loans they had provided to other countries. They were also concerned that if they were pushed back in line they may ever see their money. Eventually a deal would be reached with Belgium, they would not get absolute priority, but they would get a large lump sum right at the beginning, about $500 million, and then they would receive a percentage of all future payments.

While the Belgians were very concerned about the status of their war debt, they were certainly not the only ones. The British were even more concerned. Here was the problem, if you took war debt to be at the same level of priority as reparations designed to repair physical damage then the British would get a good portion of the war reparations, and the United States would get a similarly large sum. The reason for this was due to the fact that the British had essentially financed the war for the first three years. The French alone owed the British 3 billion dollars, then of course the British had also spent a huge sum on their own army. The British then also owed 4.7 Billion to the United States, and the French owed 4 billion. If the Europeans were not careful they would just end up shipping a bunch of the reparation money off to the United States. This led to the European leaders, anytime that Wilson or an American complained about the reparations numbers, to say that if the Americans would just forgive all of the debt owed to them, then the reparations could be much smaller. Eventually the British and French would agree to a percentage arrangement, and sort of ignore talking about specifics. The early agreement would be that the British would get 30% of the reparation changes, 50% would go to France, and everybody else would get 20%. This would be very close to what would turn into the final number.

Another hotly debated issue for reparations was whether or not the pensions of soldiers and their families would be included in the number. Wilson was initially firmly against this idea, and stuck to his original position that reparations should only be put in place to resolve the damage done by unlawful acts like invading other countries. Trying to bring Wilson over to agreeing that reparations should include pensions was very important to many countries, there were a lot of wounded soldiers, and millions of war widows and family members. The British delegation, and specifically Lloyd George and Jan Christian Smuts eventually found a way to convince Wilson to agree to include some pensions. This was their line of reasoning: Everybody agreed that reparations should include damages done to civilians. There was very little argument with including these damages. There was one large group of civilians that were effected by the war, the wives, children, and families of soldiers that had been injured or killed during the war. It seemed only fair that they be included in the numbers, because they would have to be financially compensated for their sacrifices. Once Wilson agreed to include these pensions the estimated reparations total doubled almost overnight.

All of these various discussions were leading up to one thing, trying to find a number for reparations. The dollar figure was very important but it would not be arrived at during the conference. The reason for this was due to concerns from the British and French that their countries would not like the number that was going to be arrived at. As one American would write “will relieve Great Britain and France from their troubles of making public the small amount they are to get from reparations because both Prime Ministers believe their government will be overthrown if the facts are known.” This was the final recognition from the Supreme Council members that the number would never be large enough for public opinion. There was just too large of a gap between what people thought that the Germans should pay and what the leaders were comfortable trying to make the Germans pay. To delay the announcements of a precise number a commission was created that was tasked with setting the final total, taking both the desires of the allies and the ability of the Germans to pay. In 1921 the final number would be set at 132 billion gold marks, which was 6.6 billion pounds, owe 33 billion US dollars. These would be paid in many ways, there were scheduled cash or gold payments but there was also a large list of exports that Germany would have to supply the Allies. This included items like coal, coke, chemical dyes, and other items that Germany had exported to other countries during the war.

Even with that number 132 billion, finally determined, remember in 1921, there was still concern, or maybe a realization that Germany would not be able to pay it all off in a timely manner. To try and hide this fact from the people in the Allied countries the reparations were structured in a very specific way, involving three tiers, A, B, and C. A tier would be 12 billion, B tier would be 38 billion, so about 50 billion gold marks combined. This was the number that the Allied governments actually expected the Germans to pay. The rest was dumped into the C tier, which the leaders did not expect Germany to ever actually pay, but had to be maintained as part of the total amount of reparations to appease public opinion. This goes a long way to explaining why the leaders were so concerned with making sure they got their money early, instead of being pushed back to the end of the line. In reality maintaining this charade would not work out in the favor of the Allies at all. In France many politicians and the people believed that Germany was getting off far too eay, even with the number being set at 132 billion. In Britain there was concern that they were not getting properly compensated for their part in the war, and that France was getting too much. In Germany, well they used the very large number as a propaganda peace, and they would turn it into a rallying point against the entire treaty.

After the war the Weimar government would institute very low nationwide taxes, an arrangement forced upon them by German conservative leaders. While there was this pressure from the right to maintain a low tax rate, from the left there was pressure to provide benefits for veterans and their families and to subsidize public needs, especially in making sure that people had food. Instead of picking one or the other the first few years of the new Weimar government saw them choosing both, this would lead to years of deep deficit spending. So how does this tie into reparations? Well, part of the reason that the German leaders did not resist the idea of deficit spending was because they knew, right frim the time that the armistice was signed, that even if they saved money, or raised taxes to bring in more revenue, a good portion of it would disappear into reparation payments. By 1921 two thirds of the German budget would be deficit spending. This is a really good and more obvious example of how the German government, from 1919 to 1932 would actively try to get out of paying any reparations. Unlike the French after the Franco-Prussian war, who had taken a very proactive stance and paid off their reparations bill very quickly, in just 2 years, the German actions were the exact opposite. They would drag their feet for over a decade, paying at little as they could get away with, and this would force the Allies to make some hard decisions in the years after the war.

One of the interesting developments to come out of the reparations being applied to Germany was that it allowed the central government in Berlin to continue to have much of the power that it had been able to consolidate during the war. Before the war the federal government in Germany, based in Berlin, had been very dependent on the German member states for financial support. This relationship would be very important for things like the Naval Arms race between the British and Germans before the war. However, the relationship between the central Reich government and the other German states would change during the war, and then also immediately afterwards. After the war, the presence of such a large set of reparations would prevent the power from then being taken back by those same member states. This provided an important consolidating influence inside Germany.

One thing that was considered at the Conference, although perhaps not considered enough, was the fact that Germany may not pay the reparations bill at all. There was always the consideration that the reparations might have to be extracted from the country by force. The first provision built around this possibility was the Allied occupation of the Rhineland for 15 years after the war, and then also some bridgeheads over the Rhine river. These areas were basically used as collateral to insure payment. However, this would prove to not be sufficient. What is obvious in hindsight, although was not as readily apparent in 1919, was that occupying parts of Germany to try and extract payment gave just about everybody possible excuse for the militaristic factions within Germany, on both sides of the political spectrum, to try and gain more support among the German people. These were the groups that were the most likely to actively resist the continued payments of reparations. They would find support for these policies in many areas of Germany and it is easy to see why. The German people were being asked to pay reparations while experiencing military extortion after a way in which many Germans did not necessarily feel that they were truly beaten. The Weimar government, seeing the views of the German people, did everything they could to resist paying more reparations, but they did not do it through active violence and protest but instead through delay and deferment. The French, seeing very clearly that the Germans were paying far below the expected amounts, would try to find a way to force the Germans to pay. Eventually this would require them to lay down their trump card, military action originating from the Rhineland. They would move from the Rhineland into the Ruhr, precipitating the Ruhr crisis which began on January 9, 1923. This would be the last chance for the French to assert their position, and for that they needed the support of their wartime allies, and they would not get it. Eventually the Crisis would end in a negotiating settlement between the French and Germans, but the damage had been done to both countries. It displayed that Germany could no longer easily resist the French, but more importantly it displayed for the world that the French did not have the unconditional support of the British.

We are now reaching far past the end of the war, and of the Paris Peace Conference, but it is worth taking just a bit of time to discuss the rest of the story of reparations. There would be two reorganizations of the German reparations repayment plan, I would compare them both to refinancing a mortgage or student loans. The first of these was the Dawes Plan in 1924 and the second was the Young Plan in 1928. In both cases the goal was to bring down the annual payments that were expected from the Germans so that they had a better chance of actually paying them. The Dawes plan would bring down the yearly total to 2.5 billion gold marks, down from 3 billion, and then the Young plan would bring it down to 2 billion. At 2 billion it represented roughly 2.5% of Germany’s GDP. Even at this reduced number the Germans never quite paid the entire sum for a year, although that was mostly just an easy way for the government in Berlin to show their displeasure with reparations in general. In the late 20s the German government would spend no small amount of time trying to get out of reparations entirely. This would lead to the Young plan which had widespread support within the German government. Unfortunately there were some radical groups, especially on the extreme right of the German political spectrum that used this as an opportunity. There was always a good amount of popular discontent with the reparations and groups like the Nazis used the support of the other parties for the Young plan as an easy way to gain support. Of course, we all know how that ends in the 1930s, a story for a different day.

The Dawes and Young plans were far in the future for the leaders in Paris who were trying to determine the terms that would be provided to Germany. By mid-April the specific terms that would be given to Germany were mostly determined and therefore a message was sent to the government in Berlin. They were told to send a delegation to Paris, and it was to arrive no later than April 25th. The Germans had been waiting for this day since they had signed the armistice in November 1918 and since that time there had been a group within the government preparing for the negotiations. They used all of the information that they could glean from unofficial sources to try and determine what was happening at the Conference. Using this information they produced a large amount of material that they could pull from in the negotiations, enough to fill a train which would follow the delegation to Paris. Unfortunately for all of the low level government officials that put all of the work into generating this material the Germans would not have the chance to use it. After they arrived they would be left alone for a week, during this time they took some meetings and of course prepared for what they expected to be some very high stakes negotiations. They believed that everything they said was being listened to during these meetings, so everything was done to music. Then on May 7th they were handed the peace terms, they were told that they only had two weeks to submit any of their comments on them, these comments would be in writing and there would be no face to fact negotiations. Join me next episode for Germany’s reaction.