How The Treaty Of Versailles Affected The German Economy

1349 words - 6 pages

The purpose of this essay is to investigate and explain how the Treaty of Versailles affected the German economy. I find this subject relevant since it is a big event in European history.
During the years after the First World War Germany had a lot of debts and faced a lot of reparation costs. Even though the meaning of most of the peace treaties was to encourage the world economy, re-build cities and maintain peace, not a lot of these goals were fulfilled.

The First World War was a military conflict that included a lot of countries around the world. The war started at June 28, 1914 and lasted until November 11, 1918. The war was played out between the great ...view middle of the document...

The colonies Germany had in both Africa and the Pacific had already been occupied by the Allies (Entente).
Apart from the demands written above, Germany had to surrender most of its merchant fleet, its navy, large quantities of arms and ammunition, 5000 locomotives, 150000 railroad cars, 5000 motor trucks and some other commodities.
In addition to monetary demands Germany also had to agree to the “war guilt” clause, which declared that Germany accepted “the responsibility of Germany and her allies for causing all the loss and damage... as a consequence of the war...”.
The amount that Germany would have to pay in reparations/indemnity was not decided during the negotiations in Versailles. The Entente had until May 1, 11 months after the signing of the treaty, to decide on an amount. The reason for the late decision was that the European countries within the Entente had war debts to each other and to USA. The Europeans assumed that all these loans would be annulled when the war ended but that wasn’t the case for USA. They regarded the loans as commercial propositions and wanted full repayment. Because of this France and Great Britain demanded that Germany should pay reparations not only for the damage to civilians but also but also the entire cost incurred by the Allied governments in prosecuting the war (an indemnity). The eventual solution for this disagreement became such as Germany would have to pay as much as the Allies thought they could possibly extract. The Reparations Commissions informed that the amount would be 132 billion gold marks (33 billion USD). To get an idea of how much money this was for Germany it should be mentioned that the total amount of the German national income was less than 16 billion USD in 1920.7

The Inflation
In 1922 the value of the German Mark started to drop as an effect of the Allies urge to collect the reparations. The pressure of paying became too hard and the Germans had to stop the payments later that year. As a result of this French and Belgian troops occupied the Ruhr area and tried to push German mine workers to give them coal. To compensate the workers and owners in Ruhr, the German government started to print a lot of money. In turn, this resulted in that the already ongoing inflation got a push in the wrong direction.
In 1914 the German Mark was valued at 4,2 to the dollar. At the end of the war it was valued at 14:1, in 1922 it had gone down to 493:1 and in 1923 it had dropped as far down as 17 792:1. Later in 1923, when the last official transaction went through, the mark had dropped to 4 200 000 000 000:1, at this point the Mark was actually worth less than the paper it was printed on. At this stage the German government demonetized the Papiermark and replaced it...

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