The Dawes Plan (1924)
What was the Dawes Plan?
In response to Germany's escalating economic crisis, the Allied Reparations Commission, consisting of representatives from the United States, Britain, France, Italy, and Belgium, convened to address the issue of reparations. The committee was led by Charles Dawes, who proposed a plan that would allow the German economy to recover whilst it paid a limited reparation figure.
(Left) Charles G Dawes, who served as Vice-President of the United States under President Coolidge from March 4, 1925 to March 4, 1929.What agreements were made under the Dawes Plan?
Agreements on the payment of reparations:
The Dawes Plan reviewed Germany’s economic capacity and a new schedule was agreed. The reparation payment in the first year was set at one billion gold marks; gradually rising to 2.5 billion gold marks each year until the reparations had been paid.
An international committee consisting of representatives from the Allied powers was established to ensure the signatories (i.e. Germany) complied with the reparation payments in its financial and economic policies.
The provision of loans:
An international loan of 800 million gold marks was agreed to stabilise the German economy and assist Germany in paying the initial sum of reparations. These loans were primarily sourced from American banks and investors.
The recommendation of economic reforms
The Dawes Committee recommended economic reforms to improve the stability of Germany’s economy, including increasing its industrial productivity, enhancing tax collection and reducing public expenditure.
What impact did the Dawes Plan have?
On the one hand, the Dawes Plan had a positive impact as it provided short-term successes for Germany.
The influx of international loans under the Dawes Plan successfully stabilised Germany's economy and coupled with the new currency (the Rentenmark), it helped to reduce the effects of hyperinflation.
Germany experienced a period of economic growth in the mid-1920s known as the 'Golden Twenties' as a result of the agreements on the payment of reparations and new loans. This period saw industrial production rise and unemployment rates fall.
Internationally, the Dawes Plan improved Germany's foreign relations and fostered better diplomatic relations that allowed for Germany to be gradually re-integrated into the international community. This also involved the attraction of significant foreign investment (e.g. the US) and an improved export market. These all facilitated economic growth and development for Germany.
On the other hand, while the Dawes Plan was beneficial in the short term, there were significant limitations in the long run.
While the Dawes Plan provided short-term improvements that allowed Germany to make a (temporary) recovery, it did not resolve the underlying problem of the total reparation amount that Germany had to pay.
It also increased Germany's dependence on external financial markets, which is what led to its downfall.
The German economy was effectively hanging by a very thin rope– the US loans under the Dawes Plan– which essentially disguised the fragile and weak state of the economy. When these loans with withdrawn as a result of the Wall Street Crash in 1929, Germany was the hardest-hit country of the Great Depression.