Dawes Plan
Encyclopedia
The Dawes Plan was an attempt in 1924, following World War I
for the Triple Entente
to collect war reparations
debt from Germany
. When after five years the plan proved to be unsuccessful, the Young Plan
was adopted in 1929 to replace it.
included in the Treaty of Versailles
a plan for reparations to be paid by Germany
. The amount of these initial payments was reduced from 269 to 226 billion German Gold Marks in 1921 but in 1923 Germany defaulted
on its ability to deliver further amounts of coal and steel. In response to this, French
and Belgian
troops occupied the Ruhr River valley
inside the borders of Germany. This occupation of the centre of the German coal and steel industries outraged the German people, who, in response, passively resisted the occupation, thus leading to a further strain on Germany's economy, significantly contributing to the hyperinflation
that followed.
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, Frederico Flora), and the United States
(Dawes and Owen D. Young). 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 Britain and France.
The Dawes Plan did rely on money given to Germany by the US. The German economic state was one in which careful footing was required, and the Dawes plan was of the nature that only with the unrelated help of loans from the US could it succeed.
The plan was accepted by Germany and the Triple Entente and went into effect in September 1924. Although German business rebounded and reparation payments were made promptly, it became obvious that Germany could not continue those huge annual payments for long. As a result, the Young Plan was substituted in 1929.
, stabilized the currency
, and brought increased foreign investments
and loans to the German market. However, it made the German economy dependent on foreign markets and economies, and therefore problems with the U.S. economy (e.g. the Great Depression
) would later severely hurt Germany as it did the rest of the western world, which was subject to debt repayments for loans of American dollars
.
After World War I, this cycle of money from U.S. loans to Germany, which then made reparations to other European nations, which then used the money to pay off their debts to America, locked the western world's economy on that of the U.S.
Dawes was the recipient of the Nobel Peace Prize
in 1925, in recognition of his work on the Plan.
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
for the Triple Entente
Triple Entente
The Triple Entente was the name given to the alliance among Britain, France and Russia after the signing of the Anglo-Russian Entente in 1907....
to collect war reparations
War reparations
War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...
debt from Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
. When after five years the plan proved to be unsuccessful, the Young Plan
Young Plan
The Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
was adopted in 1929 to replace it.
The initial German debt default
At the conclusion of World War I, the Triple EntenteTriple Entente
The Triple Entente was the name given to the alliance among Britain, France and Russia after the signing of the Anglo-Russian Entente in 1907....
included in the Treaty of Versailles
Treaty of Versailles
The Treaty of Versailles was one of the peace treaties at the end of World War I. It ended the state of war between Germany and the Allied Powers. It was signed on 28 June 1919, exactly five years after the assassination of Archduke Franz Ferdinand. The other Central Powers on the German side of...
a plan for reparations to be paid by Germany
World War I reparations
World War I reparations refers to the payments and transfers of property and equipment that Germany was forced to make under the Treaty of Versailles following its defeat during World War I...
. The amount of these initial payments was reduced from 269 to 226 billion German Gold Marks in 1921 but in 1923 Germany defaulted
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
on its ability to deliver further amounts of coal and steel. In response to this, French
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and Belgian
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
troops occupied the Ruhr River valley
Occupation of the Ruhr
The Occupation of the Ruhr between 1923 and 1925, by troops from France and Belgium, was a response to the failure of the German Weimar Republic under Chancellor Cuno to pay reparations in the aftermath of World War I.-Background:...
inside the borders of Germany. This occupation of the centre of the German coal and steel industries outraged the German people, who, in response, passively resisted the occupation, thus leading to a further strain on Germany's economy, significantly contributing to the hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
that followed.
The Barclay School Committee is established
To simultaneously defuse this situation and increase the chances of Germany resuming reparation payments, the Allied ReparationsWorld War I reparations
World War I reparations refers to the payments and transfers of property and equipment that Germany was forced to make under the Treaty of Versailles following its defeat during World War I...
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
Emile Francqui
Emile Francqui was a Belgian soldier, diplomat and business man. Being an orphan, he was sent to the military school when he was 15 years old...
), France (Jean Parmentier, Edgard Allix), Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
(Sir Josiah C. Stamp, Sir Robert M. Kindersley), Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
(Alberto Pirelli, Frederico Flora), and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
(Dawes and Owen D. Young). 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 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 Allied occupation troops.
- Reparation payments would begin at “one billion marks the first year, increasing to two and a half billion marks annually after five years" (Merrill 93)
- The ReichsbankReichsbankThe Reichsbank was the central bank of Germany from 1876 until 1945. It was founded on 1 January 1876 . The Reichsbank was a privately owned central bank of Prussia, under close control by the Reich government. Its first president was Hermann von Dechend...
would be reorganized under Allied supervision. - The sources for the reparation money would include transportTransportTransport or transportation is the movement of people, cattle, animals and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations...
ation, excise, and custom taxes.
The Dawes Plan did rely on money given to Germany by the US. The German economic state was one in which careful footing was required, and the Dawes plan was of the nature that only with the unrelated help of loans from the US could it succeed.
The plan was accepted by Germany and the Triple Entente and went into effect in September 1924. Although German business rebounded and reparation payments were made promptly, it became obvious that Germany could not continue those huge annual payments for long. As a result, the Young Plan was substituted in 1929.
Results of the Dawes Plan
The Dawes Plan provided short term economic benefits to the German economy. It softened the burdens of war reparationsWar reparations
War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...
, stabilized the currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
, and brought increased foreign investments
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
and loans to the German market. However, it made the German economy dependent on foreign markets and economies, and therefore problems with the U.S. economy (e.g. the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
) would later severely hurt Germany as it did the rest of the western world, which was subject to debt repayments for loans of American dollars
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
.
After World War I, this cycle of money from U.S. loans to Germany, which then made reparations to other European nations, which then used the money to pay off their debts to America, locked the western world's economy on that of the U.S.
Dawes was the recipient of the Nobel Peace Prize
Nobel Peace Prize
The Nobel Peace Prize is one of the five Nobel Prizes bequeathed by the Swedish industrialist and inventor Alfred Nobel.-Background:According to Nobel's will, the Peace Prize shall be awarded to the person who...
in 1925, in recognition of his work on the Plan.
World War I
- The Young PlanYoung PlanThe Young Plan was a program for settlement of German reparations debts after World War I written in 1929 and formally adopted in 1930. It was presented by the committee headed by American Owen D. Young. After the Dawes Plan was put into operation , it became apparent that Germany could not meet...
(replaced the Dawes Plan in 1929) - Triple EntenteTriple EntenteThe Triple Entente was the name given to the alliance among Britain, France and Russia after the signing of the Anglo-Russian Entente in 1907....
- World War IWorld War IWorld War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
World War II
- Industrial plans for GermanyIndustrial plans for GermanyThe Industrial plans for Germany were designs the Allies considered imposing on Germany in the aftermath of World War II to reduce and manage Germany's industrial capacity.-Background:...
- Morgenthau PlanMorgenthau PlanThe Morgenthau Plan, proposed by United States Secretary of the Treasury Henry Morgenthau, Jr., advocated that the Allied occupation of Germany following World War II include measures to eliminate Germany's ability to wage war.-Overview:...
, 1945–47 - Marshall PlanMarshall PlanThe Marshall Plan was the large-scale American program to aid Europe where the United States gave monetary support to help rebuild European economies after the end of World War II in order to combat the spread of Soviet communism. The plan was in operation for four years beginning in April 1948...
, 1948–51 - Agreement on German External DebtsAgreement on German External DebtsLondon Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany on one part and on Belgium, Canada, Ceylon, Denmark, the French Republic, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan,...
, debt agreement, 1953