Economical Aspect: The Dawes Plan

                                                                                           Charles G. Dawes

After the Great War, Germany had real difficulties paying the reparations agreed in the Treaty of Versailles; such the debt was set at almost 20 billion marks.

As it was expected the German government failed keeping up with the payments in 1923. The result of this made French and Belgian troops occupied the Ruhr. This was followed by massive inflation and the growth of unemployment in Germany.

Charles G. Dawes, an American banker, was asked by the Allied Reparations Committee to investigate this problem. His report was published in April, 1924. He proposed a plan for organization annual payments of reparations on a fixed scale. He intended to find a solution for the collection of the German reparations debt.

The Dawes Plan was the result of negotiations between Germany and the United States government and it was accepted by Germany and the Allies in 1924, therefore it prevent an international crisis.

He also recommended the reorganization of the German State Bank and the increase of foreign loans. So this large reduction in reparations payments was accompanied by a loan of $200 million from the US government which would allow for heavy investment in the German infrastructure.

On the other hand, some German politicians like Adolf Hitler and Alfred Hugenberg attacked the Dawes Plan because it did not reduce the reparations total payment. They also disliked the idea that foreigners would have control over Germany’s economy.

The plan involved paying reduced payments until 1929, when the situation would be re evaluate. The reparation payment should begin at 1 billion marks for the first year and should rise over a period of four years to 2.5 billion marks per year.

Associated to this agreement, there was the introduction of the new Reichsbank and the replacement of the old German Mark with the Rentenmark. The Dawes plan also provided for the slow but sure removal of French and Belgian troops. And that the German Reichsbank be reorganized under Allied supervision, and that the sources for the reparation money should include transportation, excise, and custom taxes.

Initially, the Dawes Plan was a great success. The money was stabilizing and inflation was under control. The large loans of U. S. and this investment resulted in reduce of unemployment. Germany was able to achieve their obligations under the Treaty of Versailles for the next five years.

Although German business picked up and reparations payments were made on time, it became obvious that Germany could not continue those huge annual payments any longer.

The Wall Street Crash created problems for the German economy. The reason why a new commission was created and another banker took control, Owen Young. The Young Plan was the replacement in 1929.