Reparations were the payments required by the Treaty of Versailles, by which Germany had to pay to repair all the damage of the war.
To the victors, it seemed fair. Germany had caused – and in Clause 231 had accepted the blame for – the war. So German should pay for the damage. In addition, to fight the war, the French and British had borrowed money which they would be repaying for a long time. Why shouldn’t Germany pay out too?
The first problem, however, was that it was very difficult to work out the cost of the damage the war had done. France wanted a very high figure. Wilson and Lloyd George wanted less. In 1919, reparations of £1 billion were suggested. During 1920, the figure was raised to £4½ billion, and then to £12½ billion! Eventually, in April 1921, the League of Nations agreed a sum of £6.6 billion – in installments, until 1984 – and defeated Germany had to agree to pay.
Even at the time, economists like JM Keynes said that reparations would ruin, not only Germany, but the world economy.
Germany had lost her richest farmland (West Prussia) and the Saar coalfields. Its economy had been damaged by the war. It couldn’t stand large payments of gold leaving Germany every six months. In July 1922, there was an economic crisis, and Germany was granted a six-month delay in payments. But when the German government failed to make its January 1923 payment, French and Belgian troops invaded the Ruhr, and began to take in kind what they were owed. German miners in the Ruhr refused to work for the French and went on strike, which created hyperinflation. German began to fall apart, and there were revolutions in the Rhineland and (led by Adolf Hitler) in Bavaria. In the meantime, because they weren’t getting German reparation payments, Britain and France defaulted on their loans to America.
The Allies realised that they would have to do something about reparations. In April 1924, an American banker called Charles Dawes prepared the Dawes Plan, which gave Germany longer to pay, allowed Germany to pay only what it was able, and arranged to give Germany a £45 million loan to get its economy going.
For five years, this worked well, and Germany prospered. But reparations were still a burden, and in 1929, Germany began to slide into the Depression of the thirties. By the Young Plan of 1929, the allies reduced the total amount of reparations, and gave Germany until 1989 to pay them.
Finally, as the economic crisis got worse, and Germany fell into chaos, at Lausanne in July 1932, the Allies agreed to suspend all reparations indefinitely (it was too little, too late; and it still didn’t stop Germany turning Nazi).