The Rites Of Reparations

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From Germany’s point of view, which carried more weight as it regained international standing, the plan had other serious flaws. It set no limit on how many years the payments would run and by inference therefore left the original huge demand of 132 billion gold marks untouched. Moreover, it gave foreigners too much power over Germany’s internal affairs. So another commission of experts was convened in February of 1929, again headed by an American. This time he was Owen D. Young, chairman of the board of General Electric, a director of the New York Federal Reserve Bank, and a co-author of the Dawes Plan.

The Young Plan, produced by this commission, tried to balance the nationalism and economic capacity of the new Germany against realistically enforceable demands. It called for annual payments that would rise slowly from 1.7 billion marks in 1929 to about 2.4 billion in 1966, then taper back down toward 1.6 billion and end in 1988. Foreign controls would be abolished. A Bank of International Settlements in which Germany participated would handle the money. And the creditors offered to reduce Germany’s bill even further—provided that the United States would write off part of the Allied war debt!

Skeptics might have thought this last suggestion another way to get Uncle Sam to assume more of the cost of the war. However, the whole issue was soon moot in spite of the Young Plan’s adoption by both sides. The Great Depression struck Europe in 1931 and forced the suspension of both reparation and debt payments. Then Hitler came to power in 1933 and repudiated Germany’s obligations under the Versailles Treaty. Finally, in 1934, the European nations in debt to the United States formally went into default (except for Finland, which paid its full installment every year and was routinely and pointedly praised by U.S. lawmakers as a shining example).

There are historical precedents for making the aggressor pay damages. But they suggest that the process is neither simple nor risk-free.

And so, little was collected at great social cost, and thus ended the World War I reparations story. That of World War II is simpler in one sense, yet too complex for facile summary. In essence the Allies, correcting the mistakes of Versailles, recognized that a Germany totally wrecked by total war could yield no significant cash payments. A basic decision was made in 1945, therefore, to turn over hard goods and physical assets to the countries that Hitler had ravaged, even to the point of dismantling and transferring whole factories. Supposedly that would have the added benefit of weakening Germany as a future threat.

But the policy was applied unevenly by four separate occupying powers. The French squeezed their zone hard for occupying cost and reparations. The Russians looted theirs with a will, though in fairness they had suffered the most at Germany’s hands. The United States and Britain were more inclined to resist reducing their German “subjects” to starvation and nakedness, especially since the U.S. had to be the chief supplier of relief.

Most of all, the beginning of the Cold War changed the reparations picture. For both the Soviet Union and the Western powers, the economic rehabilitation of “their” Germany began to assume first priority. By 1954 all further claims for reparations had been withdrawn. Wes,t Germany, at least, and former German Axis partners negotiated separate agreements with individual nations claiming damages.

A similar pattern prevailed with regard to Japan. The Russians carried away substantial amounts of Japaneseowned machinery, rolling stock, and other capital equipment from their zones of occupation, without the justifications they could offer in Europe. The United States began with the intention of seizing and distributing elements of Japanese “excess” industrial capacity but soon discovered that after four years of blockade and bombing, there was little of it and that helping Japan recover made more strategic sense at the time. From 1949 on, reparations were no longer collected.

It is not yet clear what precedents will be followed in assessing Iraq, basically a country of a single asset, oil, whose price fluctuations are a life-and-death matter to most of the world’s economies. Any broad and long-lasting policy will also be endangered by the unpredictable storms of political change in the Middle East.

That is the very point. What seems ethically as clear as day about reparations turns out to be very cloudy when practically applied over time. But rain or shine, past experience suggests that (1) the issue will last for a long time, (2) Iraq will not finally pay all the costs of war and reconstruction, and (3) the great victory will be memorialized in federal budgets long after the yellow ribbons are put away.