Germany finally pays off its First World War debts

Published on Tuesday 28 September 2010 16:07

THE First World War will finally end for Germany on Sunday, with the last payment of nearly £60 million of a £22 billion debt imposed for starting "The War to End all Wars".

The reparations were set by the Allied victors - primarily Britain, France and America - as both compensation and punishment for the 1914-18 war which at the time was the bloodiest conflict in history.

Most of the money was intended to go to Belgium and France, whose land, towns and villages were devastated by the war, and to pay the Allies some of the costs of waging it.

The initial sum agreed upon for war damages in 1919 was 226 billion Reichsmarks, later reduced to 132 billion. In sterling at the time, this was the equivalent of 22bn.

Point 2.1.1.6 in the German Federal Budget for 2010 shows that the remaining portion of the debt will be cleared on Sunday. The bill would have been settled earlier had Adolf Hitler not reneged on paying reparations during his time in power.

Hatred of the settlement agreed at Versailles, which crippled Germany as it tried to shape itself into a democracy following defeat in the First World War, was of significant importance in propelling the Nazis to power.

West Germany, formed after the defeat of Hitler in 1945, took on responsibility for most of the outstanding principle and interest, settling the bill in 1983.

However, there was a clause in the so-called London Debt Agreement of 1953 stating that interest on multi-million-pound foreign loans taken out in the Weimar Republic era - to pay off the reparations bill - should be repaid if Germany was ever reunited. Payments on this interest began again in 1996.

"On Sunday the last bill is due and the First World War finally, financially at least, terminates for Germany," said Bild, the country's biggest selling newspaper.

Most of the money goes to private individuals, pension funds and corporations holding debenture bonds as agreed under the Treaty of Versailles signed on 28 June, 1919. The German government did not reveal how the money will be disbursed, but it is understood that it is transferred to a holding account before being sent to the relevant bond and debt holders.Most of these are American and French.

With the signing of the Versailles accord, Germany accepted blame for the war which cost nine million people their lives.

Article 231 of the peace treaty - the so-called "war guilt" clause - declared Germany and Austria-Hungary responsible for all "loss and damage" suffered by the Allies during the war and provided the basis for reparations.

France, which had been ravaged by war - its farmlands devastated by battles, industries laid waste and some three million men dead - pushed hardest for the steepest possible fiscal punishment for Germany.

The principal representative of the UK Treasury at the Paris Peace Conference, John Maynard Keynes, resigned in June 1919 in protest at the scale of the demands, warning correctly that it was stoking the fires for another war in the future.

"Germany will not be able to formulate correct policy if it cannot finance itself," he said.

When the Wall Street Crash came in 1929, the Weimar Republic spiralled into debt.

What the Bank of England calls "quantitative easing" today was started in Germany with the printing of money to pay off the war debt, triggering inflation to the point where ten billion marks would not even buy a loaf of bread.

Britain's last surviving veteran of the Great War, Harry Patch, died last July at the age of 111. Known as the last Tommy, he fought at Passchendaele in 1917 in a battle in which more than 70,000 British troops died.