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Home: IB: History: Causes, Practise and Effects of War: Economic Consequences of WW1 and Reparations

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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 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

Could Germany afford them?
Keynes criticized reparations. He later admited 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 rearmement (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