Young Plan - Subsequent Events

Subsequent Events

Between agreement and adoption of the plan came the Wall Street Crash of 1929, of which the main consequences were twofold. The American Banking system had to recall money from Europe, and cancel the credits that made possible the Young Plan. Moreover, the downfall of imports and exports affected the rest of the world. By 1933, almost two-thirds of world trade had vanished. A new trade policy was set with the Smoot–Hawley Tariff Act. The latter was influenced by nationalism and the adopted economic policy. Unemployment soared to 33.7% in 1931 in Germany, and 40% in 1932.

Under such circumstances, U.S. President Herbert Hoover issued a public statement that proposed a one-year moratorium on the payments. He managed to assemble support for the moratorium from 15 nations by July 1931. But the adoption of the moratorium did little to slow economic decline in Europe. Germany was gripped by a major banking crisis. A final effort was made at the Lausanne Conference of 1932. Here, representatives from Great Britain, France, Italy, Belgium, Germany and Japan gathered to come to an agreement. By that time it was clear that the deepening depression had made it impossible for Germany to resume its reparations payments. They agreed:

• Not to press Germany for immediate payments.
• To reduce indebtedness by nearly 90% and require Germany to prepare for the issuance of bonds. This provision was close to cancellation, reducing the German obligation from the original $32.3 billion to $713 million.
• It was also informally agreed among the delegates that these provisions would be ineffective unless the US government agreed to the cancellation of war debts owed by the Allied governments.

Hoover made the obligatory public statement about the lack of any connection between reparations and war debts, however in December 1932, the U.S. Congress rejected the Allied war debt reduction plan, which technically meant that the war reparations and debt reverted to the debt reduction previously granted Germany by the 1929 Young Plan. However, the system had collapsed, and Germany did not resume payments. Once the National Socialist government consolidated power, the debt was repudiated and Germany made no further payments. By 1933, Germany had made World War I reparations of only one eighth of the sum required under the Treaty of Versailles. The plan ultimately failed, not because of the U.S. Congress' refusal to go along, but because it became irrelevant upon Hitler's rise to power.

After Germany’s defeat in World War II, an international conference (London Agreement on German External Debts, 1953) decided that Germany would pay the remaining debt only after the country was reunified. Nonetheless, West Germany paid off the principal by 1980; then in 1995, after reunification, the new German government announced it would resume payments of the interest. Germany was due to pay off the interest to the United States in 2010, and to other countries in 2020. In 2010, Time magazine reported that Germany made "final reparations-related payment for the Great War on Oct. 3, nearly 92 years after the country's defeat by the Allies."

This agreement had been preceded by bitter diplomatic struggles, and its acceptance aroused nationalist passions and resentment. It also weakened, rather than helped, the advocates of a policy of international understanding.