TSR Wiki > Study Help > Subjects and Revision > Revision Notes > History > Economic Consequences of WW1 and Reparations
- There was a massive direct cost to all nations involved in WWI
- The opportunity cost of all the resources used to destructive ends
- There was a change in the financial center of the world (from Europe and G.B. to the USA) since European nations became debtor nations
- A fall in European living standards (European countries had to cut down on imports)
- Increase in USA’s economic strength
- Decrease in international trade (lack of a stable currency)
- Worldwide markets shrunk
- Established trade patterns were disrupted
- Intense hatred between the two sides meant that is was (in the short term) impossible to reestablish previous trading patterns.
- Few saw beyond the short term, therefore most politicians sought revenge, and not the recovery of the defeated states (this was also the result of popular opinion)
The Reparations Problem
- Division amongst the allies on this topic
- The Germans did not believe such reparations could ever be paid (especially with its post-war losses)
- Countries relied on reparations to finance reconstruction and the delaying of reparation payments meant the delaying of the reconstruction process
Major Developments 1921-1933
- Genoa Conference (1922) — world economic conference
- Prosperity could only be restored if recovery plans included all countries (inter dependence of countries)
- The conference failed
- The USA refused to attend
- French did not admit the Russians/Germans
- Germans & Russians had a revolution of their own
- The occupation of the Ruhr (1923)
- German workers refused to cooperate
- The French and the Belgian intervened but the cost of intervention outweighed any benefits made by the seizure of German goods.
- The German Economy collapsed — there was high inflation & it was unable to pay reparations
- There was social unrest in Germany (led to the rise of movements like the fascists) however, a coup led by Hitler and General Ludendorff failed
- Britain refused to support France/Belgium
- The Dawes Plan (1924)
- End of occupation of the Ruhr
- Two year moratorium of German reparation payments
- International loan for Germany
- Introduction of an annuity basis on reparations
- Financial controls imposed on Germany
- The Young Plan (1929)
- The total sum owed by Germany was cut down by 25%
- Annual payments fixed to run until 1966
- In the event of financial difficulties a part of the payment could be deferred for up to two years
- 1/3 of payments could be made in kind
- International controls (established by Dawes Plan) were abolished
- Bank for International Settlements established
- International loan made to Germany ($200 million)
- October 1929: Wall Street Crash
- 1931: Germany stops reparation payments
- 1932: Lausanne conference: fixed reparation payments very low
- 1933: Hitler became chancellor
Evaluation of Reparations
- Could Germany afford them?
- Keynes criticized reparations. He later admitted he might have underestimated Germany’s ability to pay reparations.
- Some argued that there was a lack of will in Germany to pay for reparations
- Some argue that Hitler spent more on rearmament (in a short time) then the total revised reparations payments
- How much did Germany actually pay?
- Estimations point to $9 billion but she receive $8 billion in loans
- Reparation payments did little to help the recovery of the allies
- Reparations contributed to inter-war period tensions
- Britain and France linked war debts and reparations and refused to pay war debts until reparations were paid to them
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