In May of 1922, the reparations commission, over French objections, granted Germany a moratorium for the remainder of the year, since it had become obvious that the payments were resulting in the collapse of the mark, and creating an extremely difficult transfer of payments problem.
In August, British foreign secretary Balfour suggested a general settlement be made to end "the economic injury inflicted on the world by the present state of things." He proposed that the US, which had not demanded a share of reparations payments, cancel the debts owed by European goverments, which amounted to over US$10 billion. In return, Britain would abandon further claims against Allied countries indebted to Britain and all further claims to reparations. If the US refused, then Britain would have to insist on receiving enough from her debtors to pay the US. The US insisted that reparations and inter-Allied debts were unrelated issues.
That same month, in London, the French demanded a series of "productive guarantees" as a condition of the moratorium on German debt. Included was the appropriation of 60% of the capital of German dyestuff factories on the Rhine, and the exploitation and contingent expropriation of state mines along the Rhur. When Britain refused the scheme, France rejected the moratorium.
In December, Britain offered in addition to cancel French and other allied debts even if she had to repay her US loans. Since the reparations France expected from Germany were greater than her loans from Britain, France refused. In December, in response to a minor delay in timber deliveries, the reparation commission, on the motion of the French representative, declared Germany in default. On January 9, Germany was declared in default on deliveries of coal.
On January 11, troops from France and Belgium began the occupation of the Rhur. The German government urged passive resistance on her people and recklessly inflated the mark to offset the expense of supporting idle workers and compensating their employers. By the end of September, German paper marks were worthless, but the damage was not limited to Germany. The French franc fell by 25%. Britain secured a promise of American cooperation to avert "the complete economic and financial collapse of the world."
In April of 1924, under the chairmanship of an American, Charles Dawes, the Reichsbank was reorganized under allied supervision. Germany was to receive a foreign loan of 800 million gold marks. Reparations payments of 1 million marks were to be made annually, increasing over 5 years to 2.5 million. The loan was subscribed in Europe and the US. |
