Briefing Paper - German Reparations and the Treaty of Versailles

Assignment Part A: Briefing Paper Scenario 3: German Reparations and the Treaty of Versailles

The purpose of this paper is to address the demands of Ruritania with regards to the extensive reparation payments they seek from Mandrika, following their recent victory in the conflict that has consumed both nations over the last 4 years. This will be achieved through a close analysis of the impact of the reparation payments enforced on Germany at the end of the First World War, with specific focus on their short and long term economic and political implications. After brief consideration of the variety of scholarship on the matter, this report will then conclude with some brief recommendations over the best actions to be taken to prevent the mistakes of Versailles from happening again.

The Treaty of Versailles was signed on the 28 June 1919 and marked not only the end of the Great War but also the highly contested peace conference that followed. Although there were 440 articles within the treaty itself, the key focus here lies with article 231 which outlined the acceptance of guilt for starting the war and the consequential reparation payments Germany would have to pay to the victor countries.^[1] According to the terms of the treaty, initially, Germany was to pay around 20 billion gold franks until a total was finally reached in 1921.^[2] The London Payment of 1921 plan concluded that Germany was to pay a total of 132 billion gold francs, however, crucially of which they were only required to pay 50 billion gold francs, which equated to around $12.5 billion dollars.^[3] The use of this trivial information rests then not with the facts and figures but the subsequent impact of these terms upon the economic and political system of Germany in the years that followed and more importantly how this can then be applied with retrospective judgment to the current case of Mandrika and Ruritania. Despite all of its implications, the treaty ultimately failed at securing lasting peace in Europe and this must be considered throughout the report.

The application of heavy reparations upon Mandrika has the potential to cause detrimental damage to their economy in the short run. Even at the time of the treaty leading economists recognized the potential for economic collapse, none more so than Keynes, who specifically highlights the negative economic implications that could result from the inevitable loss of sovereignty of the German government at the hands of the treaty.^[4] The period of hyperinflation that crippled the Weimar Republic in early 1920’s is the premier example of the immediate impact of the reparation payments on the German economy. At its peak between June and November in 1923, the sheer scale of hyperinflation can be seen in the average monthly change of wholesale prices, around 32,700% during the period.^[5] Howard Ellis provides a strong argument for the link between reparations and the unprecedented levels of inflation that followed, describing how there was a high level of excess demand for foreign exchange to pay reparations.^[6]  This caused the mark to heavily depreciate against other currencies, dramatically increasing the prices of imports that then raised general price levels in Germany.^[7] This is a view, more recently, shared by David Felix who also shines light on the French invasion and brief occupation of the Ruhr industrial region, as a result of missed payments, which he estimates cost the German’s around 3.5 billion gold francs alone.^[8] The short run implications of high levels of reparation payments can therefore be seen to have had a detrimental effect on a defeated nations economy, preventing them from properly recovering, rebuilding and adjusting back to peace after years at war. These implications must be accounted for with regards to the case of Ruritania and Mandrika, whereby a balance must be found in order to secure lasting peace.