Tackling the debt

The Treaty of Versailles imposed large reparation payments on Germany.

A new financial plan

The Young Plan was drafted in August 1929 and ratified in 1930. It was presented by the committee chaired (1929-30) by American industrialist Owen D. Young, founder and former chairman of Radio Corporation of America (RCA) and member of the Rockefeller Foundation's board of trustees at the time. Young had also been a representative in a previous war-reparations restructuring agreement, the Dawes Plan of 1924.

The Inter-Allied Reparations Commission set the German reparation sum at 132 billion gold marks in theory, but 50 billion gold marks in practice. Following the implementation of the Dawes Plan in 1924, it became clear that Germany would not willingly meet the annual payments over an indefinite period. 

The Young Plan reduced future payments by approximately 20%. Although the theoretical total was 112 billion Gold Marks, which was equivalent to approximately $27 billion in 1929 (US$ 126 billion in 2023) over a 58-year period ending in 1988, few expected the plan to last much longer than a decade.

Furthermore, the Young Plan divided the annual payment, which was set at two billion Gold Marks (US$473 million), into two parts: one unconditional part, equal to one-third of the total, and a postponable part, equal to the remaining two-thirds, which would incur interest and be financed by a consortium of American investment banks led by J.P. Morgan & Co.

The Wall Street Crash

The Wall Street Crash of October 1929 occurred between agreement and adoption of the plan, with two major consequences:

• The American banking system was forced to withdraw funds from Europe and cancel the loans that made the Young Plan possible. 
• The drop in imports and exports had an impact on the rest of the world - almost two-thirds of global trade had vanished by 1933. 

The Smoot-Hawley Tariff Act established a new trade policy. The latter was influenced by nationalism and the economic policy that was implemented. In Germany, unemployment reached 33.7% in 1931 and 40% in 1932.

Under these conditions, US President Herbert Hoover issued a public statement proposing a one-year moratorium on payments. By July 1931, he had gathered support for the moratorium from 15 countries. 

The Wall Street Crash of 1929 and the ensuing impact on Germany resulted in a one-year moratorium on payments.

Mediadrumimages/topfoto

However, the moratorium did little to slow Europe's economic decline. A major banking crisis gripped Germany. At the Lausanne Conference in 1932, a final attempt was made. Representatives from the United Kingdom, France, Italy, Belgium, Germany, and Japan gathered here to reach an agreement. By that point, it was clear that the deepening depression had rendered Germany unable to resume reparations payments. Therefore, it was agreed:

• It is not necessary to press Germany for immediate payments.
• To reduce debt by nearly 90% and require Germany to prepare for bond issuance. This provision was on the verge of being repealed, reducing Germany's obligation from $32.3 billion to $713 million.
• The delegates also agreed informally that these provisions would be ineffective unless the US government agreed to cancel the Allied governments' war debts.

Delegates at the Lausanne Conference in 1932.  

The Lausanne Conference, 1932 by Original photograph: (1932) Photograph | photovintagefrance (abebooks.com)

Hoover made the obligatory public statement about the lack of any connection between reparations and war debts, but the United States Congress rejected the Allied war debt reduction plan in December 1932, which technically meant that war reparations and debt reverted to the debt reduction previously granted to Germany by the 1929 Young Plan. The system, however, had failed, and Germany did not resume payments.

By 1933, Germany had made only one-eighth of the reparations required under the Treaty of Versailles, and the United States had effectively paid "reparations" to Germany due to the repudiated American loans. The plan ultimately failed not because the US Congress refused to support it, but because it became obsolete with Hitler's rise to power.

Opposition in Germany

The German constitution requires the Reichstag to hold a vote on a proposed law if 10% of the country's eligible voters sign a petition in support of it. If the Reichstag votes against the bill, it will be automatically put to a national referendum. It would become a law if fifty percent of the people voted in favour of it.

The Reichstag - where laws in Germany were voted on and enacted - pictured in 1930. 

LeMO object - Reichstag, around 1930 (dhm.de)

On 16th October 1929, the Liberty Law proposal was officially introduced. To gather signatures, the National Socialists and other groups held large public rallies. The government was opposed to the Liberty Law and held protests against it. However, the coalition was successful in gathering enough signatures to bring the proposal before the Reichstag.

The bill was defeated by a vote of 318 to 82 in the Reichstag. Voter turnout was only 14.9% in the subsequent popular vote on 22nd December, the Liberty Law referendum, despite the fact that 94.5% of the votes cast (13.8% of registered voters) were in favour of the proposed law.

Although the Liberty Law was not passed in 1929, the campaign for it was instrumental in bringing Hitler and the National Socialists into the political mainstream. Following the defeat, Hitler denounced Hugenberg, claiming that the defeat was due to his poor leadership. Hugenberg and many other nationalists were quickly overshadowed by the National Socialists. After gaining power, Hitler would enact most of the proposals of the Liberty Law by decree.

Assessment

Others argued that the plan imposed too much burden on the German people and did not adequately address the root causes of the country's economic problems.

The onset of the Great Depression in 1929 made it difficult for Germany to meet the terms of the Young Plan, and the issue of reparations remained a source of tension between Germany and the Allied Powers throughout the 1930s.

Like many countries, Germany was severely affected by the Great Depression. Long queues became a familiar sight in the Weimar Republic.

Why Did The Great Depression Cause Unemployment In Germany - YEMPLON (apklas.com)

Despite these criticisms, the Young Plan was seen as a significant step towards the stabilization of the German economy and helped towards the eventual resolution of tensions between Germany and the Allied powers.