Dawes Plan: What It Was, Why It Was Developed, Relationship with Plan Young and Consequences

It is known as Dawes Plan to the temporary economic relief plan presented in 1924 by the United States, Belgium, France and Great Britain. It was addressed to Germany during the period following the First World War (1914-1918) and the Second World War (1938-1945).

The plan was designed because Germany, after its defeat in the First World War, was punished by the Treaty of Versailles. In this treaty, economic sanctions were proposed that obliged it to pay the countries attacked during the Great War.

Charles Dawes

Its name is due to the fact that the commission to elaborate the plan was presided over by the American financier Charles Dawes. At that time, he was the director of the Budget Office of the United States.

Context

At the end of the First World War all European countries had been in complete ruin. The number of deaths throughout Europe amounted to some ten million human beings. The number of people with disabilities was approximately seven million and the seriously injured were around fifteen million.

Those killed and injured increased the economic and social crisis that hit Europe after 1918 and increased during the decade of the twenties. The vast majority of the dead and injured were men of productive age.

In addition, years of bombing and military outposts during the four years of the great multinational conflagration destroyed labor camps and industrial facilities. This left almost all European countries in a deep situation of productive chaos.

What was the Dawes Plan?

The Treaty of Versailles raised the payment of sanctions by Germany to the countries attacked. These payments were very heavy for the demolished post-war German economy. Therefore, Germany was not canceling those impositions.

The plan was to make the payments on an annual basis. It also proposed a reduction of the quotas and more amplitude in the dates between payments; in this way the German country was given time to complete the amounts to be paid.

In this context, Germany tried to renegotiate the conditions of payment of the debts imposed by the Treaty of Versailles. Faced with these attempts, France responded negatively. It even went further and invaded, with the help of the armies of Belgium, productive German areas.

The region that was functioning as the economic restructuring center of Germany was the Ruhr mining area. From there the German nation executed a project of economic reactivation through mining extraction and export.

In 1924 a Germany burdened by the weight of war debts requested the moratorium of payments. By then, since November 1923, the United States, Great Britain, Belgium, Italy and a reticent France were working on the corrective plan for these war reparations: it was the Dawes Plan and was presented on April 9, 1924.

Why was it made?

The objective of the Dawes Plan was to facilitate the economic improvement of Germany so that it could pay the debts to the European countries.

Thus, those countries could pay the debts to the United States of America, in addition to moving Germany away from the sphere of influence of the nascent international power, Russia, and its project of Union of Soviet Socialist Republics, USSR.

The core of the plan was the credit that Germany would receive for its economic recovery: eight hundred million marks. On April 16, 1924 the government of Germany agreed and accepted the plan. In London, in August of that same year, the Dawes Plan came into force.

The Crack of 29, the Great Depression

The entire Dawes Plan system functioned as a self-powered structure, a permanent recycling. The United States had served as a lender and supplier of manufactures to the European countries of the Entente since 1917.

The debt of the victors in the First World War was very high and it was very expensive to pay. Having been defeated, Germany had to pay a very high amount of money to those countries that won the war.

After the war, the United States - through its banking system - would provide Germany with a way to pay the winning countries of the Great War; then these could pay the United States their debts. It was the ideal plan: everyone won.

However, there was the financial crisis in the United States, from 1928 to the so-called Crack of the 29, with the abrupt fall of the Stock Exchange and the accelerated deterioration of the US banking system.

This forced the cessation of the loans and financing from these banks that gave life to the Dawes Plan. He also condemned the system that worked by self-recycling the European / American economy. The plan was canceled.

Relationship with the Young Plan

In its place, the Young Plan would take the stage, which took the witness from where the Dawes Plan remained and provided other mechanisms that would seek to disperse the agreements that would be achieved following the economic conditions of a given country.

When no more financial resources came to Germany - and therefore to Europe - the money received by these countries amounted to some eight billion dollars for credits. It was the year 1930.

The gold standard as a governing canon for the economy of nations added more accessions each time, at the time of the fall in supply and demand that caused the severe financial crisis. This system dragged the banking institutions of Europe in its fall.

As this system made it clear that it was not guaranteed, there was a need to reform the financial reparation conditions that would be imposed on Germany, with new payment guarantees, with new terms (until 1988) and with new payment percentages.

Thus, when the Allied Reparations Committee met in Basel (Switzerland) in August 1929, the Young Plan was signed. As an adjustment to the Dawes Plan, the payment deadline would no longer be open, but it would set specific dates and stipulate shorter-term actions.

Consequences of the Dawes Plan

The most relevant consequences were the departure of the French forces from the German Ruhr region and the payment of one billion annual marks that, over a period of four years, ended up gradually transforming into two thousand five hundred million.

It was also a remarkable consequence of the international supervision of the German Central Bank, the Reichsbank. The plan was governed by the slogan:"business, not politics".

References

1. Kitchen, M. (1992) The interwar period in Europe , Madrid, University Alliance,
2. Lozano Cámara, Jorge J. (2004). Dawes Plan. Recovered in: claseshistoria.com
3. MLA style: Charles G. Dawes - Biographical. Nobelprize.org. Nobel Media AB 2014. Retrieved from: nobelprize.org
4. Mosley, L. (1974) , The failure of democracies , Barcelona, ​​Caralt.
5. Walters, F.P. (1971), History of the League of Nations , Madrid, Tecnos.