THE MYTH OF CRIPPLING GERMAN REPARATIONS

The Allies supposedly demanding their pound of flesh

Everyone knows about Germany's requirement to pay reparations for the damage caused by its aggression in WWI, and most people assume, without any knowledge of the numbers, that this imposed an intolerable burden on Germany that basically pushed it towards Hitler and WWII. In fact it has become a meme that WWII was basically caused by the Reparations clauses of the Treaty of Versailles.

But do the actual numbers of the amounts agreed and the amounts paid bear this out?

According to the post-war treaties Germany was required to pay 132 billion gold marks (US$33 billion). This is estimated to be 47,312 tonnes of gold. (2790 gold marks were equal to 1 kilogram of pure gold = 47,311,827 kilograms of gold = 47,312 tonnes of gold)

However, between 1919 and 1932, Germany paid less than 21 billion marks (US$5.2 billion) in reparations before the issue was dropped in the financial chaos of the Great Depression. Yes, the Germans got away with paying just 15.9% of their Versailles obligations before WWII. That was just 7,523 tonnes of gold or just 112 grams per German!!!

Meanwhile, the UK clocked up around £6.3 billion (US$29 billion) in WWI debt, the vast bulk of which would have to be paid off. Yes, the Germans actually got off with paying less than a fifth of Britain's WWI debt in Reparations. So much for what the bleeding-heart liberal economist John Maynard Keynes called "The Cathaginian Peace"!

Now, let's also look at WWII, a war that caused even greater devastation to the Continent of Europe. How much did Germany have to pay for that?

Well, first of all, as a losing power that had its entire government removed and its territory divided into two states, Germany had its slate more or less wiped clean. All of its government debts were basically forgiven, and instead the Western section received US$1.4 billion in direct aid from the US government as part of the Marshall Plan. 

The UK also received Marshall Plan aid of US$3.2 billion, but, as one of the "winning" powers, was fully expected to pay the total of its WWII wartime debt obligation of £21 billion (US$84 billion). Remember, it already had  a WWI debt of £6.3 billion (US$29 billion) that also wouldn't be paid off for decades.

The meme

After WWII, Germany, having caused immensely more chaos, death, and destruction than in WWI, was hit with even softer reparations. The question was raised at the Yalta Conference in February 1945, at which it was decided that this time German reparations would not be paid in money, but instead by the transference of industrial assets, raw materials, and forced labour from German POWs. The amount agreed was supposed to be worth US$23 billion. 

This was a little over two-thirds of the amount Germany was expected to pay after WWI. But what was actually collected? 

This is hard to estimate, but it seems that the Allies soon backtracked and moderated their demands, placing much more focus on German recovery. The Soviets too soon changed their tune, seeking to curry favour with the East German population. By 1948 the British and Americans had repatriated the vast majority of the POWs they were using as labour, while France followed by 1949. 

Germany possibly ended up paying a higher proportion of its reparations than in WWI, but it seems unlikely that even half the US$23 billion mentioned at Yalta was actually extracted. 

In fact, it seems post-WWII West Germany was treated so generously and had so little debt holding it back that its economy soon took off like a rocket. This lead the West German government to voluntary enter into "cosmetic" agreements to pay reparations to various groups to "improve" its international image. 

Typical of this was 1953 London Agreement on German External Debts, which addressed the so-called "unpaid debts" of Versailles. But instead of agreeing to pay the full outstanding amount of 111 billion gold marks (US$27 billion) straight away, it was agreed that Germany would only pay 15 billion Deutsche Marks (a measly US$3.5 billion), and only once West Germany and East Germany were united.

When this amount was finally paid off in 2010, the percentage of the original amount agreed at Versailles nudged up from 15.9% to around 26%, leaving 74% perpetually unpaid. 

Around the time of the London Agreement, Germany also agreed to pay Israel and the World Jewish Congress 3.45 billion Deutsche Marks (US$821 million) for the costs of "resettling so great a number of uprooted and destitute Jewish refugees" and to compensate individual Jews, via the Conference on Jewish Material Claims Against Germany, "for losses in Jewish livelihood and property" resulting from Nazi persecution.

If we divide this by the number of Jews supposedly killed by the Nazis (6 million), this gives us a derisory figure of US$136 per Jew. Not much is it?

Financially Germany did surprisingly well out of the wars, especially compared to its main European rivals, Britain which was lumbered with a debt mountain that it couldn't back out of, and the Soviet Union, which was devastated and lost tens of millions of its people, both in the Communist take over and the German invasion. 

Germany's balance sheet is far from "Carthaginian": 

• Total WWI reparations finally paid: US$8.7 billion (26% of the original amount agreed by Germany and the Allies)
• Reparations decided at Yalta: US$23 billion (generously estimated one half collected - probably a lot less) 
• Compensation to Israel and World Jewish Congress: US$821 million
• Minus direct aid under the Marshall Plan: US$1.4 billion

This gives a total of US$19.621 billion for both World Wars, which works out at a paltry figure of around 17% of Britain's WWI and WWII debt. As for Germany's domestic war debt, money that it had raised from German investors to fight its wars, all this "magically disappeared," either in 1923 when the German state willfully created hyperinflation, or in 1945 with the total collapse of the Nazi state. 

No wonder Post-War Germany quickly became the economic powerhouse of Europe, while debt-laden Britain started to lag behind!