Dawes Plan Written By: Eric Floyd

In 1921, the international Reparations Commission was established to determine the scope of damages caused by Germany during World War I. An unrealistically high total of $33 billion was forced on the defeated nation, but it managed to make an initial installment payment in September 1921.

However, dire economic conditions in Germany led to default and the imposition of a moratorium by the creditor nations, which hoped that a temporary cessation of payments would allow the German economy to recover so that payments could be resumed. France decided not to wait for the the moratorium to expire and in January 1923, occupied the vital German industrial region in the Ruhr Valley in hope of extracting payment from what they regarded to be a reluctant debtor.

The United States had not been a party to the Versailles Treaty and, therefore, was not a recipient of reparations. Official government policy during the 1920s held that there was no relationship between Germany’s ability to pay reparations and the Allies’ ability to discharge their war debts to the U.S. However, the deepening economic crisis in Germany and international tensions created by the French invasion induced the Coolidge administration to try to impose some order on the growing chaos.

An international committee was formed with two representatives each from Britain, France, Italy, Belgium, and the United States. The American delegates were financier Charles G. Dawes, who headed the effort, and financier Owen D. Young. A report was issued in April 1924 that called for the following:

A series of financial reforms was to be implemented in Germany, including the backing of the mark with gold reserves as a means to stabilize the currency;

a variety of new taxes was to be introduced in Germany;

the reparation payment schedule was reworked to require annual installments that would increase from one billion gold marks due in 1924, to two and a half billion marks due four years later;

a massive series of loans was to be extended to Germany, many of them from the U.S.;

France agreed to evacuate its forces from the Ruhr.

The Allies and Germany accepted the Dawes Plan in August 1924, thus averting an international crisis. France consented to withdraw from German soil only because the troublesome issue of the total amount of the reparations bill was not mentioned and left for future determination.

Dawes was successful in removing some of the ambiguity from the reparations process, but not all of it. Germany was able to meet its obligations for a number of years, but that success was due in large part to the infusion of capital from the United States. Market panics and depression would later require that another effort at reforming the process be made.

Created By
Eric Floyd
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