Dawes Plan

Dawes Plan for Germany

With the country on its knees, something had to be done, but why was Germany in such a perilous position?

Treaty of Versailles (1919)

The post World War I treaty devised by the Allies forced crippling concessions upon Germany. They lost all their power FAST in the following ways:

Financial: war reparations payments (money to pay for the damage caused) totalling £6,600 billion. The Allied Reparations Commission were responsible for calculating the damage done to civilians and property of the Allies.

Acceptance of blame: Germany had to accept total responsibility for World War I.

Security: disarmament meant only 100,000 men were allowed in the German army. Limits on navy warships.

Territory: loss of German colonies, demilitarisation and occupation of the Rhineland by France for 15 years. This led to the Allied Occupation of the Ruhr (1923) (their industrial heartland) after failed reparation payments, paralysing the German economy further.

Hyperinflation

Fig. 1 - Berlin bank in 1923

Political Instability

The political uncertainty after the last Kaiser meant that until the Dawes Plan in 1924, Germany was a hotbed for extremist activity. Defeat and the resulting humiliation from the Treaty of Versailles left many Germans resorting to quick-fix ideas. Both sides of the political spectrum felt the shortcomings of their government and fury at their treatment at Versailles.

Left-wing parties such as the German Communist Party believed that the new constitution did not benefit ordinary workers. They regularly disrupted the German economy with strikes.

Right-wing parties such as the Freikorps (which was made up of high-ranking military figures from World War I) and the Nazi party signalled their intent to seize power through protests. The most audacious attempt came in the form of the Munich Beer Hall Putsch in 1923, where the Nazis tried to seize control of the Bavarian government.

Dawes Plan Definition

The Allied Reparations Commission calculated the damages of World War I as an astonishingly large amount, equating to trillions in today's money. This figure was unrealistic, and in 1923, as hyperinflation and the Occupation of the Ruhr unfolded, British, Italian and United States members of the Committee met to assess the situation with a more rational eye. They sought out the expertise of US banker Charles Dawes who proposed a plan to make the reparations more manageable. In addition, the German National Bank (Reichsbank) would accept United States loans to galvanise the economy. The US had emerged from World War I as a leading economic force, and their involvement was principally due to their desire for a peaceful Europe and economic growth.

Gustav Stresemann

The German politician who played the largest role in the implementation of the Dawes Plan was Gustav Stresemann. He was prominent in the Social Democratic Party and became the Chancellor of Weimar Germany in 1923. As Chancellor, he stopped resistance to the Occupation of the Ruhr and introduced a more stable "gold" mark, replacing the worthless paper one, to combat hyperinflation and save the German economy.

Fig. 2 - Gustav Stresemann

Foreign Minister

Stresemann's early success faltered when he lost the backing of his party after just three months. They perceived his reaction to the Munich Beer Hall Putsch in 1923 as too soft. He had a greater and longer-lasting tenure as Foreign Minister where under his stewardship Germany accepted the Dawe's Plan in 1924. Stresemann's politics were pragmatic. He was adamant that pride should be put to one side to steer his country through the crisis and pay its reparations.

After the Dawes Plan, Weimar Germany was once more a player on the international stage. Stresemann's greatest achievement was their entrance to the League of Nations in 1926. For this, he won a Nobel Peace Prize. In 1929, when the shortcomings of the Dawe's Plan were becoming clear, he negotiated another economic treaty, the Young Plan. He died soon after from a heart attack and would never be able to see its results.

Effects of the Dawes Plan

The Dawes Plan moderated the effects of the Treaty of Versailles. It proposed:

1. Withdrawal of French and Belgium troops from the Ruhr.
2. Reparations at a fixed yearly scale: 2.5 billion gold marks after the first year.
3. The United States brokered loans of $800 million for the German economy.
4. German National Bank (Reichsbank) was restructured by the Allies.
5. Expansion of the United States' influence on Europe led to an economic and cultural "Golden Age" for the Weimar Germany (1924 - 9) and an emphasis on Berlin.

Dawes Plan Positives and Negatives

Fig. 3 - Albert Einstein

Dawes Plan Significance

The Dawes Plan was an effective political tool and achieved much of what it set out to. Critical issues such as reparations, the Ruhr and hyperinflation were all tackled. It was also important for bringing Weimar Germany back to the negotiating table as an equal in the League of Nations. Symbolically, this was huge in the quest to maintain peace.

Ultimately, however, whilst it satisfied everyone's need to take a breath, it did not go far enough. The reparations payment total was still huge, and the German economy was heavily dependent on the United States. The Dawes Plan was temporary and only somewhat successful in the short term, but it failed to have a lasting impact. The creation of the Young Plan in 1929 to further address the issue of reparations confirms this. The Young Plan seemed like it addressed the flaws of the Dawes Plan. Unfortunately, no one predicted that the biggest economic crisis the world has ever seen would strike in the same year.