Dawes Plan

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At the conclusion of World War I the Allies imposed in the Treaty of Versailles a plan for reparations to be paid by Germany. The amount of these payments proved to be too great for the flagging German economy and in 1923 Germany defaulted and French and Belgian troops occupied the Ruhr in response. This occupation of the center of the German coal and steel industries both outraged Germany and put further strain on its economy.

To simultaneously defuse this situation and increase the chances of Germany resuming reparation payments, the Allied Reparations Committee asked Charles G. Dawes to find a solution to which all parties would agree.

The Dawes committee consisted of ten representatives, two each from Belgium, France, Britain, Italy, and the United States. It was entrusted with finding a solution for the collection of the German reparations debt following World War I, set at almost 20 billion marks. In an agreement of August 1924, the main points of The Dawes Plan were:

The Ruhr area was to be evacuated by Allied occupation troops.
Reparation payments would begin at 1 billion marks for the first year and should rise over a period of four years to 2.5 billion marks per year.
The German Reichsbank would be reorganized under Allied supervision.
Foreign loans (primarily from the United States) would be made available to Germany.
The sources for the reparation money should include transportation, excise, and custom taxes.

The plan was accepted by Germany and the Allies in the same year and went into effect in September 1924. Although German business picked up and reparation payments were made promptly, it became obvious that Germany could not long continue those huge annual payments. As a result, the Young Plan was substituted in 1929.

Results of the Dawes Plan

The Dawes Plan provided short term economic benefits to the German economy. It softened the burdens of reparations, stabilized the currency, and brought increased foreign investments and loans to the German market. However, it made the German economy dependent on foreign markets and economies, such that problems to come in America (e.g. the Great Depression) would directly and severely hurt Germany.

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