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The Dawes Plan (as proposed by the Dawes Committee, chaired by Charles G. Dawes) was an initial plan in 1924 to resolve the World War I reparations that Germany had to pay, which had strained diplomacy following World War I and the Treaty of Versailles.
The occupation of the Ruhr industrial area by France and Belgium contributed to the hyperinflation crisis in Germany, partially because of its disabling effect on the German economy. The plan provided for an end to the Allied occupation, and a staggered payment plan for Germany's payment of war reparations. Because the Plan resolved a serious international crisis, Dawes shared the Nobel Peace Prize in 1925 for his work.
It was an interim measure and proved unworkable. The Young Plan was adopted in 1929 to replace it.
Background: World War I Europe
The initial German debt default
At the conclusion of World War I, the Allied and Associate Powers included in the Treaty of Versailles a plan for reparations to be paid by Germany. Germany was required to pay 20 billion gold marks, as an interim measure, while a final amount was decided upon. In 1921, the London Schedule of Payments established the German reparation figure at 132 billion gold marks (separated into various classes, of which only 50 billion gold marks was required to be paid). Meanwhile, the industrialists of Germany's Ruhr Valley, who had lost their factories in Lorraine (Germany had seized Lorraine in 1870 and it went back to France after WW1), demanded hundreds of millions of marks as compensation from the German government. Despite having large obligations under the Versailles Treaty, the German government paid the Ruhr Valley industrialists for their losses. This contributed significantly to the hyperinflation that followed.
During the first five years after WW1, coal was scarce in Europe. France sought coal for its steelmakers from Germany. But the Germans needed coal for home heating and for their own steel industry, having lost many of their steel plants in Lorraine to the French. As a means of protecting their own growing German steel industry, the German coal producers—whose directors also sat on the boards of the German state railways and German steel companies—began to leverage high costs though shipping rates on coal exports to France.
In early 1923, Germany defaulted on its war reparations payments and German coal producers refused to ship any more coal across the border. In response to this, French and Belgian troops occupied the Ruhr River valley inside the borders of Germany in order to compel the German government to continue to ship coal and coke in the quantities demanded by the Versailles Treaty, which, Germany which characterized as onerous under its post war condition (60% of what Germany had been shipping into the same area before the war began).
This occupation by the French military of the Ruhr, the centre of the German coal and steel industries outraged the German people. They passively resisted the occupation, and the economy suffered, contributing further to the German hyperinflation.
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To simultaneously defuse this situation and increase the chances of Germany resuming reparation payments, the Allied Reparations Commission asked Dawes to find a solution fast. The Dawes committee, which was urged into action by Britain and the United States, consisted of ten informal expert representatives, two each from Belgium (Baron Maurice Houtart, Emile Francqui), France (Jean Parmentier, Edgard Allix), Britain (Sir Josiah C. Stamp, Sir Robert M. Kindersley), Italy (Alberto Pirelli, Federico Flora), and the United States (Dawes and Owen D. Young, who were appointed by Commerce Secretary Herbert Hoover). It was entrusted with finding a solution for the collection of the German reparations debt, which was determined to be 132 billion gold marks, as well as declaring that America would provide loans to the Germans, in order that they could make reparations payments to the United States, Britain and France.
Main points of the Dawes Plan
In an agreement of August 1924, the main points of The Dawes Plan were:
- The Ruhr area was to be evacuated by foreign troops
- Reparation payments would begin at one billion marks the first year, increasing annually to two and a half billion marks after five years
- The Reichsbank would be re-organized under Allied supervision
- The sources for the reparation money would include transportation, excise, and customs taxes
- Germany would be loaned about $200 million, primarily through Wall Street bond issues in the United States
The bond issues were overseen by consortium of American investment banks, led by J.P. Morgan & Co. under the supervision of the US State Department. Germany benefitted enormously from the influx of foreign capital. The Dawes Plan went into effect in September 1924. Dawes and Sir Austen Chamberlain shared the Nobel Peace Prize.
The economy of Germany began to rebound during the mid-1920s and the country continued with the payment of reparations—now funded by the large scale influx of American capital. However, the Dawes Plan was considered by the Germans as a temporary measure and they expected a revised solution in the future. In 1928, German Foreign Minister Gustav Stresemann called for a final plan to be established, and the Young Plan was enacted in 1929.
Results of the Dawes Plan
The Dawes Plan resulted in French troops leaving the Ruhr Valley. It provided a large capital influx to German industry, which continued to rebuild and expand. The capital now available to German industry functionally transferred the burdens of Germany's war reparations from German government and industry to American bond investors. The Dawes Plan was also the beginning of the ties between German industry and American investment banks.
The Ruhr occupation resulted in a victory for the German steel industry and the German re-armament program. By reducing the supplies of coal to France, which was dependent on German coal, German industrialists managed to hobble France's steel industry, while getting their own rebuilt. By 1926, the German steel industry was dominant in Europe and this dominance only increased in the years leading to WWII.
- World War I
- World War II
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Media related to Dawes Plan at Wikimedia Commons