Reparations

I INTRODUCTION

Reparations, payments that a victorious power seeks from the defeated side to compensate for costs or damages incurred during a war. United States President Woodrow Wilson applied the term reparations at the end of World War I to differentiate the Allies’ demand for restitution for civilian damages from the older concept of indemnity. Money indemnities, as distinguished from simple booty, emerged with the Thirty Years’ War (1618-1648), then became prevalent in the settlements of the French revolutionary and Napoleonic wars (1792-1815). In 1871 the Prussians under Prince Otto von Bismarck imposed an indemnity of 5 billion francs (then about $1 billion) on the defeated French. At the time this seemed an extraordinarily heavy sum, but the French paid it off within a few years.

II WORLD WAR I

Because the term indemnity had acquired a punitive and discredited connotation, Wilson and the Allies resorted to the concept of reparations. The defeated Germans accepted the obligation of reparations payments when they signed the Armistice of November 11, 1918. To justify Germany’s obligation to pay, the Allies included in the peace treaty what became known as the war-guilt clause, stating that Germany accepted sole responsibility for causing the war. This aroused intense nationalist bitterness in Germany. The treaty also required provisional payments in kind and cash of 20 billion gold marks ($5 billion) and established a Reparations Commission, which by 1921 was to calculate a full bill and propose a multiyear schedule of payments. The Reparations Commission subsequently made a total assessment of 132 billion gold marks ($33 billion), which the Germans accepted only under duress.

Between 1919 and 1924, successive international conferences discussed the problems arising from reparations. After an initial cash payment of $250 million in September 1921, the hyperinflation of the mark led the Germans to seek repeated postponements until French troops occupied (1923) the German industrial region of the Ruhr in an attempt to enforce payment. This recourse proved extremely costly to both sides and finally induced Paris and Berlin to accept the American-arbitrated Dawes Plan (named after US Vice-President Charles G. Dawes) in 1924. Under this scheme, the payment term was to be lengthened with annual instalments gradually increasing; and in fact, private American loans during the 1920s more than made up the balance-of-payments deficit that transfer of reparations entailed.

In 1929, when Germany faced an increase in annual payments that might again threaten the value of its currency, the modified Young Plan (named after the American lawyer and financier Owen D. Young) was substituted for the Dawes Plan. With the onset of the Great Depression, however, all payments became difficult. In 1931, US President Herbert Hoover proposed, and the French were constrained to accept, a one-year moratorium both on German reparations payments and on the war debts owed by the Allies to the United States. A year later at the Lausanne Conference, with world commerce near collapse, remaining reparations were reduced to negligible amounts.

Reparations imposed after World War I caused widespread resentment in Germany, which contributed towards the rise of the Nazis in the 1920s and 1930s.

III WORLD WAR II

During World War II, the Allies again agreed to impose reparations on a defeated Germany. Instead of annual payments, however, reparations totalling $20 billion would be extracted from the enemy’s factories and capital plant. At the Potsdam Conference (July 1945) it was arranged that each of the occupying powers would take three-quarters of its reparations from the respective German zone it was to administer. The remaining amount was to be provided by transfers among zones—a provision that soon led to intense wrangling between the Americans and the British on one side and the Soviets on the other. With the issues of the Cold War driving apart the USSR and the United States, the reparations settlement broke down at the April 1947 conference of foreign ministers—a fact that contributed to the final partition of Germany. The Soviets extracted their reparations from East Germany, and West Germany made some further payments to the former Western allies. After 1948 these payments were indirectly replaced by Marshall Plan aid (see European Recovery Programme); the Federal Republic of Germany that emerged in 1949 did recognize some continuing reparations obligations, however, including more than $700 million to the state of Israel for the Nazi persecution of European Jews. Japan and other Axis powers also paid about $1.4 billion in aggregate reparations.