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The Dawes Plan was an attempt following World War I for the Triple Entente to compromise and collect war reparations debt from Germany. The Dawes Plan (as proposed by the Dawes Committee, chaired by Charles G. Dawes) was an attempt in 1924 to solve the reparations problem, which had bedeviled international politics following World War I and the Treaty of Versailles.
The Allied occupation of the Ruhr industrial area contributed to the hyperinflation crisis in Germany, partially because of its disabling effect on the German economy. The plan provided for an end to the Allied occupation, and a staggered payment plan for Germany's payment of war reparations. Because the Plan resolved a serious international crisis, Dawes shared the Nobel Peace Prize in 1925 for his work.
It was an interim measure and proved unworkable. The Young Plan was adopted in 1929 to replace it.
At the conclusion of World War I, the Allied and Associate Powers included in the Treaty of Versailles a plan for reparations to be paid by Germany. Germany was required to pay 20 billion gold marks, as an interim measure, while a final amount was decided upon. In 1921, the London Schedule of Payments established the German reparation figure at 132 billion gold marks (separated into various classes, of which only 50 billion gold marks was required to be paid). However, by 1923 Germany had defaulted on its ability to deliver further amounts of coal, timber, and steel in line with its reparation quotas. In response to this, French and Belgian troops occupied the Ruhr River valley inside the borders of Germany. This occupation of the centre of the German coal and steel industries outraged the German people. They passively resisted the occupation, and the economy suffered, significantly contributing to the hyperinflation that followed in Germany.
To simultaneously defuse this situation and increase the chances of Germany resuming reparation payments, the Allied Reparations Commission asked Dawes to find a solution fast. The Dawes committee, which was urged into action by Britain and the United States, consisted of ten informal expert representatives, two each from Belgium (Baron Maurice Houtart, Emile Francqui), France (Jean Parmentier, Edgard Allix), Britain (Sir Josiah C. Stamp, Sir Robert M. Kindersley), Italy (Alberto Pirelli, Federico Flora), and the United States (Dawes and Owen D. Young, who were appointed by Commerce Secretary Herbert Hoover). It was entrusted with finding a solution for the collection of the German reparations debt, which was determined to be 132 billion gold marks, as well as declaring that America would provide loans to the Germans, in order that they could make reparations payments to the United States, Britain and France.
In an agreement of August 1924, the main points of The Dawes Plan were:
The Dawes Plan relied on capital lent to Germany by a consortium of American investment banks, led by the Morgan Guaranty Trust Company, under supervision by the US State Department. The German economic state was precarious. The Dawes plan was based on the help of loans from the US that were unrelated to the previous war.
The plan was accepted by Germany, which was in no position to refuse, and by the Triple Entente, and went into effect in September 1924. German business began to rebound during the mid-1920s and it made prompt reparation payments. Regulators subsequently realized that the German economy could no longer sustain the enormous annual payments, which the Allies had deliberately set at a crushing level. As a result, the Young Plan was substituted in 1929.
The Dawes Plan provided short-term economic benefits to the German economy and softened the burdens of war reparations. By stabilizing the currency, it brought increased foreign investments and loans to the German market. But, it made the German economy dependent on foreign markets and economies. As the U.S. economy developed problems under the Great Depression, Germany and other countries involved economically with it also suffered. The Allies owed the US debt repayments for loans.
After World War I, this cycle of money from U.S. loans to Germany, which made reparations to other European nations, who paid off their debts to the United States, locked the western world's economy into that of the U.S.