World War I Finally Ends

This Sunday Germany will pay off the final installment of its World War I reparations.

At the end of the First World War, the belligerents got together in Paris for a Peace Conference and subsequently signed the Treaty of Versailles in 1919. The French pushed hard to squeeze Germany for all they had—and then some. The Germans had to accept guilt for the war and had to cough up 226 billion Reichmarks in reparations. The U.S. never got any money since the U.S. Senate shot down the treaty which meant we didn’t join the League of Nations either.

The countries that did get reparations already owed us so much, though, that we got money indirectly. The reparations figure was later cut back to 132 billion Reichmarks which is about $438 billion in today’s money. The Germans were allowed to pay off the debt with commodities like coal. They even gave up the trademark for aspirin which is why it’s spelled in lowercase today. The plan was to have Germany pay off all the reparations by 1988.

The problem was that Germany couldn’t pay off that much and by paying it off the debt was actually hurting its ability to recover. John Maynard Keynes thought the terms were so over-the-top that he resigned from the British Treasury. On top of that, right-wing nationalist parties were making hay of the Treaty’s harshness. They even started the myth that Germany had been “sold out” by Communists or Socialists or Jewish bankers.

Once the Great Depression started, everyone could see that the reparations could never be repaid. The Germans were so far behind on their repayments that it was turning into a joke. Hoover declared a moratorium. Then in the summer of 1932, Germany, Britain and France got together in Lausanne to agree to cancel the reparations. The U.S. didn’t go along. Interestingly, it was during the Lausanne Conference that the U.S. stock market reached its ultimate mega-bottom of 41.22 on July 8, 1932.

Once Hitler came to power, he stopped payments all together. After Germany was reunified, they promised to pay off their reparations by the 20th anniversary of reunification which is this Sunday.

Posted by on September 30th, 2010 at 2:29 pm

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