The Last Payment

We're not sure if it will help Germany's bond rating--or its international reputation--but the Berlin government is preparing to settle a long-standing debt.

According to the UK Telegraph, Germany will make its final payment today on the war reparations imposed by the Versailles Treaty that formally ended World War I. With a transfer of roughly $70 million, Germany will settle the $22 billion bill imposed for starting the conflict, which killed 10 million soldiers.

Reparations were a key component of the Versailles Conference. Britain and France, bled white by the war, were determined to make Germany pay. The U.S. delegation, led by President Woodrow Wilson, suggested a more conciliatory approach, but it was rejected by British Prime Minister, David Lloyd George, and French leader Georges Clemenceau.

Having suffered two million military and civilian dead in the war, Mr. Clemenceau was determined to weaken Germany politically and militarily, and prevent it from threatening France again. Lloyd George was widely quoted as saying "We shall squeeze the German lemon until the pips squeak" (actually it was Sir Eric Campbell-Geddes, Minister of Transport, but the British Prime Minister was only slightly more forgiving).

Collectively, Lloyd George and Clemenceau supported an original reparations bill of $226 billion Reichsmarks, which was later reduced to $132 billion (about $438 billion in 2010 dollars). Reparations were paid in a variety of forms, including minerals--France got control of Germany's coal-rich Saar Basin for a number of years; intellectual property (Germany lost the trademark on Aspirin), and limited currency exchanges. Realizing that huge monetary exchanges could lead to hyper-inflation, the Allies preferred to take most of their payments in tangible goods, further crippling Germany's economic recovery. Under a modified repayment plan German reparations would continue until 1988.

The Treaty--and its repayment provision--was bitterly criticized in Germany, which was not allowed to participate in the negotiations. Germans referred to the pact as the Diktat, because the terms were offered on a take-it-or-leave-it basis. Germany's first democratically-elected government reluctantly signed the treaty, after the Army Commander, Field Marshal Paul von Hindenburg said his troops could not stop the Allies if they decided to settle the matter militarily.

But did Versailles erase any hopes for German economic recovery and democratic government in the post-war era? Many historians endorse that position, but others, including Dr. Gerhard Weinberg of the University of North Carolina, argue the Versailles Treaty was quite lenient, noting that Germany remained largely intact as a political entity, and the defeated nation largely escaped military occupation--a sharp contrast to Germany's fate after World War II.

British military historian Corelli Barnett believes Versailles was "extremely lenient" compared to the terms Germany was considering when it was on the verge of winning the war. He also said the peace agreement was little more than a "slap on the wrist" compared to the Brest-Litovsk Treaty that Berlin imposed on a defeated Russia in 1917.

Whether Versailles was harsh or fair, it produced seething resentment in Germany, hastened the collapse of the Wiemar Republic, and ushered in the Nazi era. In that regard, perhaps the best assessment of the treaty that ended the "War to End All Wars" was delivered by Marshal Ferdinand Foch, the Supreme Commander of Allied Armies in the latter stages of World War I.

Foch, who favored a much harsher punishment of the Germans, famously declared: "This is not a peace; it is an armistice for 20 years." World War II began 20 years and three months after the negotiations at Versailles ended.