War Debts, Reparations, and Financial Crisis
In his parting talk with Wilson on February 14 House had set down as one of the four essentials to the making of a preliminary peace "a decision on the amount of reparation to be paid and the length of time in which to pay it. " This matter, according to one of the Americans who dealt with it, "caused more trouble, contention, hard feeling, and delay ... than any other point of the Treaty of Versailles." 1.
The question of reparation by Germany for damages inflicted during the war had a vital bearing on the financial stability of all the powers. It affected the capacity of the Allied governments to redeem the loans made to them during the war by the Treasury of the United States. 2. The reparation settlement, moreover, would affect the ability of the defeated nations to pay for food and to revive their trade. The negotiators had for their guidance the principle accepted by Germany and the Allies at the time of the armistice. It had been agreed then that compensation would "be made by Germany for all damage done to the civilian population of the Allies and their property by the aggression of Germany by land, by sea, and from the air."
The vital question was not that of the total bill for damage, which obviously was far beyond the possibility of payment by any of the methods recognized by civilized states, but rather that of what sum could be collected. The answer involved the whole question of the economic treatment of the enemy.
Before 1914 Germany had been both the best customer and the best supplier of most of its neighbors. 3. A failure to provide for the revival of German industry would put the economic life of all Europe in jeopardy. If the German goose were to be plucked and bled ruthlessly as well, the prospect for reparation payments would be dim indeed. The delegates of the Allied powers at Paris would have to weigh contradictory considerations in dealing with this difficult question. They felt that they must build up Germany sufficiently so that she would be capable of producing revenues for her own support and also for the payment of adequate reparations ; and on the other hand they feared to permit the Germans to become so strong as to pose a threat of war or of dominance in trade. 4.____________________