The Dawes Plan of 1924 was formulated to take Weimar Germany out of hyperinflation and to return Weimar’s economy to some form of stability. The Dawes Plan got its name as the man who headed the committee was an American called Charles Dawes.
The Treaty of Versailles had imposed huge reparation payments on Weimar Germany to pay for the damage caused by World War One. It soon became clear that Weimar Germany was simply incapable of paying out the instalments required by Versailles. This ended in 1923 with French and Belgian troops occupying the Ruhr – Germany’s most productive industrial area. The workers there went on strike which simply exacerbated Weimar Germany’s economic standing. By 1924, the country was in dire financial straits.
This left the victorious powers with a major problem. Did they let Weimar Germany economically implode on itself? Many in the UK and France would have got some sort of satisfaction out of this but it was not as simple as this. After 1918, Germany was no longer the enemy. The Russian Revolution and the subsequent murder of the ruling Romanov family in 1918 had pushed Russia to hold the title ‘Public Enemy Number One’. There was a very real fear that the ‘plague in the east’ would spread west. It was believed that if Germany was reduced to total impoverishment it might just provoke a German revolution that put a communist government in place. While Russia was in every sense on the periphery of Europe, Weimar Germany was at the very heart of Europe. So while many citizens of France, Belgium and the UK would have endorsed a policy of real punishment – letting Weimar Germany fall into rack and ruin – this was not a view shared by many politicians. Hence the desire to do what was possible to support Germany – even if World War One had been over for just six years.
The five nations represented on the Dawes Committee were USA, UK, Italy, Belgium and France. Each nation forwarded two experts in finance. There was an ulterior motive for finding some way to restructure Weimar’s economy. While it was obviously clear that Weimar could not hope to pay off her reparation payments in 1923/24, if the Dawes Committee could find some way to boost Germany’s economy, then in future years Weimar Germany should have been in a position when she could have started to make full payment.
The main points of the Dawes Plan were simple in their effort to re-float Weimar Germany’s economy.
The first major decision was that the Ruhr was to be returned to the full control of the Germans and that French and Belgian troops would pull out of the region as soon as was possible. The whole industrial zone had been wracked by passive resistance, which had led to Germany’s most important economic zone simply not working and producing the money it should have been producing. By removing French and Belgian troops from the Ruhr, the Dawes Plan had at a stroke removed the most grievous issue in the area.
Secondly, reparation payments were restructured to make them more ‘German friendly’. In the first year of repayment after the Dawes Plan, the maximum expected to be paid by the Allies was 1 billion marks. During this time, it was hoped and expected that Germany’s economy would pick up. Therefore it was decided that subsequent payments after the first year would be 2.5 billion marks.
A third decision to come out of the Dawes Plan was the restructuring of Weimar’s national bank, the Reichsbank, which would be supervised by the Allies. While this may have been interpreted as direct interference by outside powers, it was not an issue and the Weimar government accepted the terms of the Dawes Plan in September 1924.
Separate to the Dawes Plan, but vital in reinvigorating Weimar’s economy, the Americans agreed to loan Weimar Germany large sums of money that would be invested into the economy.
How important was the Dawes Plan? There is no doubt that Germany was in a very parlous financial situation in 1923. The Allies could have played the card of ‘you deserve everything you get’ but it would have served little purpose except public popularity. It could be argued that those governments involved played a risky game as the public was barely in a forgiving mood – after all, the largest Commonwealth War Graves cemetery at Tyne Cot had only been finished in 1922. But those involved had to look at the bigger picture –especially the worry that those who had nothing might look to communism to see them through. The involvement of USA also calmed a lot of frayed nerves – the world’s most prosperous and powerful nation being willing to invest in Weimar Germany must have been reassuring. But the main weakness of the Dawes Plan was simple – it was short term; hence the 1929 Young Plan. Its success also relied on Weimar Germany economically rallying, which was not guaranteed in 1924. Any economic disaster that occurred in the USA would have a dire knock-on effect on Weimar – as was seen in October 1929 with the Wall Street Crash.