The Young Plan

On 31 August 1929 the first session of a conference of the governments of Germany, France, Great Britain, Belgium, Italy and Japan ended in The Hague. Its participants signed a protocol adopting in principle a new scheme for the payment of German reparations, drawn up in Paris that spring by a committee of experts chaired by the American industrialist Owen D. Young. At the same time the victors agreed to withdraw their last troops from the Rhineland by 30 June 1930 at the latest, five years earlier than the date laid down in the Treaty of Versailles. The Young Plan was meant to settle the dispute over war reparations once and for all: for the first time it fixed how much Germany was to pay and for how long. Instead it became, in Germany, a symbol of “enslavement”, around which the far right and Adolf Hitler built their first great nationwide campaign, and it collapsed in the Great Depression less than two years later.

Popular accounts state that the plan set a sum of 26.35 billion dollars payable over 58½ years and that it was “finalised” on 31 August. Both statements need qualifying. On 31 August the governments accepted the plan only in principle, leaving the remaining contentious issues for a second session at The Hague. The agreements were finally signed on 20 January 1930, passed by the Reichstag on 12 March and came into force on 17 May 1930, with effect from 1 September 1929. The dollar figure corresponds roughly to the nominal total of all the instalments, about 112 billion marks. A sum calculated in this way, however, included interest for almost sixty years. The actual debt – the present value of those instalments – was about 36–37 billion marks. Payments were to run from September 1929 to March 1988, so indeed for about 58½ years, in 59 instalments.

Why a new plan?

The Dawes Plan, adopted in London in 1924, had ended the conflict over the Ruhr and for five years worked surprisingly well. Germany paid its instalments, but paid them largely out of the loans that had flowed in from the United States after 1924. The plan had two flaws, however, which everyone knew about. It did not specify how much Germany was to pay in total or when the payments would end, and 1928/1929 brought the first full annuity of 2.5 billion marks, which many experts considered beyond Germany’s means. From 1927 American bankers and the Agent General for Reparation Payments, Seymour Parker Gilbert, warned that the Reich was over-borrowing and asked who would have priority when the money ran out: private creditors or the states collecting reparations.

France, too, had its own interest. Since 1926 it had been bound by an agreement on the repayment of its war debts to the United States, but parliament refused to ratify it until it was certain that Germany would pay for it. Gilbert persuaded Paris to accept a “final settlement”: reparations were to be fixed at a realistic level and converted into bonds sold on the stock exchanges, and in return France was to withdraw its troops from the Rhineland early. The government in Berlin, under the Social Democratic Chancellor Hermann Müller, wanted above all to recover the Rhineland. The policy of understanding that the Foreign Minister, Gustav Stresemann, had pursued for years had already brought the Locarno Treaties, entry into the League of Nations and the evacuation of Cologne, but foreign troops were still stationed in Koblenz and Mainz. On 16 September 1928 in Geneva the six states concerned decided to set up a new committee of experts on reparations and at the same time to open talks on the Rhineland.

The Young Committee

The experts met in Paris on 9 February 1929 in the building of the Banque de France. They were chaired by Young, chairman of the board of General Electric, who in 1924 had already been one of the authors of the Dawes Plan. Alongside him the United States was represented by the banker John Pierpont Morgan Jr. France’s delegates included the Governor of the Banque de France, Émile Moreau; Great Britain was represented among others by the economist Josiah Stamp, who prepared most of the calculations; and Germany by the President of the Reichsbank, Hjalmar Schacht, and the industrialist Albert Vögler.

The talks very nearly ended in disaster. The creditors expected annuities of 2–2.5 billion marks, since that was what they needed for their own war debts to America. On 11 February Schacht offered 1.37 billion and made his offer conditional on political terms: the return of Germany’s colonies and help in recovering Polish Pomerania – the “Corridor”. The creditors rejected these indignantly, and short-term credits began to be withdrawn from Germany. The government in Berlin instructed Schacht to accept a compromise proposed by Young. Vögler, who would rather have broken off the talks, resigned on 23 May. The experts’ report was signed on 7 June 1929. The Germans called it the “New Plan”; the rest of the world, the Young Plan.

What the plan provided

Germany was to pay 59 annuities averaging about 2 billion marks. They were to rise quickly from 1.7 billion to more than 2 billion and, after 1966, fall to about 1.65 billion, since by then they would merely cover the victors’ war debts to America. Part of each annuity, about 600 million marks a year, was “unconditional” and had to be paid in foreign currency whatever the circumstances. Germany could temporarily postpone the remainder in a crisis. A separate document linked the level of reparations to the war debts: should the United States reduce its claims, the creditors were to pass the relief on to Germany.

In return Germany regained full control over its finances. Foreign supervision of the Reichsbank and the railways was abolished, as were the Reparation Commission and the office of the Agent General. Their tasks were to be taken over by a new bank in Basel, the Bank for International Settlements, which still operates today. The prosperity index, which would have raised the annuities in good times, was also dropped. Deliveries in kind, such as coal, were to cease after ten years. On the other hand, the transfer protection of the Dawes Plan was abolished: from now on it was Germany that was responsible for ensuring that money raised in taxes reached the creditors in foreign currency.

The Hague

The governments accepted the report in June, but a conference of politicians was still needed to, as it was put, “liquidate the war”. It met in The Hague on 6 August 1929. Unexpectedly, the most difficult partner proved to be not a Frenchman but the British Chancellor of the Exchequer in Ramsay MacDonald’s government, Philip Snowden. He considered that Britain was getting too small a share of the annuities and losing too much on German deliveries in kind, and demanded the equivalent of about 48 million marks a year more for it. He threatened that otherwise the whole plan would collapse, and clashed sharply with the French Finance Minister, Henry Chéron. The dispute dragged on for weeks. In the end the creditors reshuffled their shares among themselves, Germany gave up part of the savings it gained from the switch from the Dawes Plan to the new one, and Snowden got most of what he wanted.

Only then did the French Prime Minister, Aristide Briand, agree to a date for the evacuation of the Rhineland. The Allied troops were to begin leaving the second zone, around Koblenz, in September and to complete the withdrawal within three months. They were to leave the last zone, around Mainz, once the plan had come into force, and no later than 30 June 1930. France also gave up supervision of the Rhineland’s demilitarisation. The protocol of 31 August was the last great success of Stresemann, who had come to The Hague gravely ill. He died just over a month later, on 3 October 1929. The second session of the conference, from 3 to 20 January 1930, settled the technical issues and the dispute over whether the creditors could resort to sanctions again should Germany try to “tear up” the plan.

“Unto the third generation”

In Germany what people talked about most was not that the Young Plan had reduced the annuities but that it obliged the country to pay until 1988. Nationalists painted a picture of grandchildren born with a debt round their necks, and the slogan “you will slave unto the third generation” (Bis in die dritte Generation müsst ihr fronen) caught the imagination better than the experts’ calculations. The campaign was led by Alfred Hugenberg, leader of the German National People’s Party and owner of a large press empire and of the UFA film studio. In the summer of 1929 he set up the Reich Committee for the German Referendum against the Young Plan. Its members included the leaders of the Stahlhelm ex-servicemen’s league, Franz Seldte and Theodor Duesterberg, the head of the Pan-German League, Heinrich Claß, representatives of agricultural organisations and, at Hugenberg’s invitation, Adolf Hitler.

The committee drafted a “Law against the Enslavement of the German People”, known for short as the Freedom Law. In it Germany was to repudiate guilt for the war, demand the repeal of Article 231 of the Treaty of Versailles and refuse to accept any new obligations. Its most notorious provision, the fourth paragraph, added at the Nazis’ instigation, threatened the Chancellor and ministers who signed such agreements with prison sentences for treason. Between 16 and 29 October 1929 just over 10 per cent of those entitled to vote signed the petition for a referendum – exactly the number required. On 30 November the Reichstag rejected the bill by 318 votes to 82. In the referendum of 22 December 1929 just under 5.9 million people, or 13.8 per cent of the electorate, voted for the law, when half was required. President Paul von Hindenburg did not support the campaign, and on 13 March 1930 he signed the Young Plan laws.

Hugenberg lost, but Hitler won. His party, which had won only 2.6 per cent of the vote in the 1928 election, had for half a year stood shoulder to shoulder with respectable conservatives, and his speeches were printed in Hugenberg’s newspapers. Some Nazis, such as Gregor Strasser and the Berlin Gauleiter Joseph Goebbels, frowned on this alliance with “reaction”, but Hitler treated it in purely tactical terms. Soon after the referendum the NSDAP began winning local elections, although historians disagree over how much it owed to the campaign itself and how much to the deepening crisis.

The plan’s short life

Between the first and second sessions at The Hague, in October 1929, the New York stock market crashed and the Great Depression began. The hope of converting reparations into bonds sold to Americans collapsed. Only one Young Loan was successfully floated, and as the crisis deepened American banks began calling in their credits from Germany. In March 1930 the Müller government fell, and the new Chancellor, Heinrich Brüning, tried to keep up the payments by cutting spending and raising taxes while unemployment rose. The Nazis and the Communists attacked his cabinet as the “Young government”, responsible for “Young slavery”. On 14 September 1930 the NSDAP won 18.3 per cent of the vote and 107 seats. On 30 June 1930 the last soldiers had left the Rhineland, but nobody in Germany thanked France for it.

In June 1931, during the banking panic in Central Europe, the US President, Herbert Hoover, proposed a one-year suspension of all payments. The Young Plan thus survived little more than a year. In July 1932, at the Lausanne Conference, the creditors agreed to replace it with a final payment of 3 billion marks in bonds, but the agreement was never ratified, and Germany never paid that sum. By many estimates, Germany had paid about 20 billion gold marks since 1919, roughly one sixth of the sum fixed in 1921.

Significance

The Young Plan was the last attempt to solve the reparations problem by agreement and the high point of Stresemann’s policy. Germany regained full control over its economy and the last scrap of occupied territory, and five years after the evacuation of the Ruhr there were no longer any foreign soldiers on German soil. The plan, however, was built on the assumption that American credit would keep flowing, and that assumption collapsed within weeks. For France the early evacuation of the Rhineland meant the loss of its last guarantee of security and a turn towards defence behind the fortifications of the Maginot Line.

The most lasting consequence came from the campaign against the plan. It united the right, from conservatives to Nazis, around the claim that the Republic had sold the Germans into slavery, and it introduced Hitler into the circles that three years later helped him become Chancellor. By the time he came to power in 1933 reparations were gone, and it was the Depression, not the nationalists, that had ended them. Hitler nevertheless claimed the victory as his own and went on dismantling what was left of the Versailles order, right up to the war. The Young bonds, moreover, outlived him by many years: the Federal Republic of Germany serviced them under the London Agreement on German External Debts of 1953 and made the last interest payment on 3 October 2010.