WHEN the general lines of the agreement reached at The Hague on January 20 regarding non-German reparations were published, many people, accustomed to German reparation figures, must have rubbed their eyes at the trifling sums involved. Given a German annuity of $500,000,000, it was difficult to understand why Hungary should pay one of only $2,000,000, even if this were going some time later to increase to $2,700,000; or Bulgaria one of about the same size. And Austria was excused from all further payments on reparation account! The answer is that there had been much cancelling-out.

ATTEMPTS TO EXECUTE THE REPARATION CLAUSES OF THE TREATIES

Germany, in spite of the restitution of Alsace and Lorraine and considerable losses of territory on her eastern borders, was left by the Treaty of Versailles in an economic position that did not exclude the possibility of large reparation payments. The Treaties of St. Germain and Trianon, on the other hand, left Austria and Hungary to share between them the name of the old Dual Monarchy, and gave the bulk of its territory to other states. Indeed, the inheritance of the Dual Monarchy was a thing to be avoided. The Austrian Delegation to the Peace Conference, with this in mind, claimed that the new Austrian Republic had no more to do with the former Monarchy, held to be responsible for the war, than had the new Czechoslovak Republic. The treaties, however, made Austria, Hungary and Bulgaria liable for shares of a total reparation charge to be assessed upon Germany and her former allies, collectively, by the Reparation Commission, which was further to distribute the charge between the debtor states, to assess the value of state property in the territories ceded, and to set it off against the reparation charge laid upon each debtor state. Thus, when Austria and Hungary observed that it was unjust to saddle them with the old Monarchy's reparation liability, they were told that they might hope to see their effective charge reduced to negligible proportions; indeed, theoretically, they might find themselves, when all scores had been settled, with creditor balances.

In the meantime, however, the Reparation Commission had a prior lien on all their assets. In these circumstances, the national credit of the debtor states sank out of sight. That of the Eastern creditor states was hardly more promising. Czechoslovakia and Poland, who had no prospect of substantial reparations, risked having themselves to make substantial payments (1) to the debtor states on account of state properties in the ceded territories, and (2) to the principal Powers in redemption of Liberation Bonds representing a contribution to the cost of freeing their territory. As for the Eastern countries which had, as sovereign states, actually taken part in the war on the winning side -- Serbia (now grown into Jugoslavia), Rumania and Greece -- they naturally considered themselves not less entitled to reparations than the Western Powers, and pointed to treaties which recognized their right to a share in a total to be made up, in proportions later to be specified, by Germany and her late allies, and which gave no authority to withhold reparation from any creditor state on the ground that the debtor states geographically nearest to it were not in a position to pay.

The Reparation Commission on April 30, 1920, found that the total reparation liability of Germany and her allies was $33,000,000,000. It never did apportion this charge, nor did it assess state property in ceded territories. Hope of knowing their fate, for Austria, Hungary and Bulgaria, as well as for the Eastern creditor states, remained as remote as before.

Bulgaria, preferring a hard bargain to prolonged uncertainty, negotiated in 1921 a settlement of her own, a scale of payments which, starting with a small annuity, rose to one of $8,000,000. This scale had in due course to be revised as exceeding Bulgaria's capacity, but the relief afforded by it during the opening years enabled the country to arrest the depreciation of its currency at a much higher point than any other of the debtor states, and to reattain financial stability with less foreign aid (and control).

If uncertainty still prevailed as to what the debtor states were to pay, the creditor states did come to an agreement among themselves as to the percentages according to which anything recovered in respect of reparations was to be shared. At Spa, in 1920, it was agreed that, subject to a priority granted to Belgium during the opening years, in recognition of her special claims, German payments should be distributed as follows:

France 52 percent
British Empire 22 "
Italy 10 "
Belgium  8 "
Japan  0.75 "
Portugal  0.75 "
Rumania, Jugoslavia, Greece and
  other Powers entitled to reparation  6.5 "

Then percentages were altered, in response to demands made by the British Empire, Italy and others, under the Hague agreements of August 1929.

Further, the Spa agreement distributed payments to be received from Austria, Hungary and Bulgaria as follows:

France 26 percent
Italy 25 "
Greece 12.7 "
British Empire 11 "
Rumania 10.55 "
Jugoslavia 10 "
Belgium  4 "
Japan and Portugal  0.75 "

A significant point stands out in connection with these agreements: the Eastern creditor states were induced to put up with small percentages in German reparations by the prospect of larger shares in Austrian and Hungarian payments. A relation was thus created, in fact if not in law, between what Italy, Greece, Jugoslavia and Rumania could hope to receive, and what Austria, Bulgaria and Hungary could be made to pay. This must be borne in mind, in fairness to the creditor states, neighbors of Austria and Hungary, when the course of Eastern reparations is being studied. It goes far to explain why, a few months after the Reparation Commission was formally constituted in Paris (January 1920), an Austrian Reparation Commission came into being in Vienna, closely modelled on the Paris Commission, complete with a Delegate and a Deputy-Delegate for each creditor state, heading in each case a national delegation with its General Secretary and Assistant General Secretary and other officers, to say nothing of an Interallied General Secretary and his Assistant General Secretaries, and various technical services staffed by experts, the whole of course amply supplied with secretaries and typists. This body went on for a year, holding plenary sessions, turning out reports, for all the world as if there were any prospect of getting payments from Austria, until the position was realized by the leading statesmen of the chief Powers, gathered together in London in March 1921, when the Austrian Commission was hastily abolished and its powers transferred to the Commission in Paris. If it did nothing else, this experiment prevented any similar error from being committed in Hungary. There, the Reparation Commission never had more than a small office staffed by a few technical officers without representative capacity.

RECONSTRUCTION OUTSIDE THE TREATIES

The reductio ad absurdum of the reparation thesis as applied to Austria made it clear to Western minds that Austria would eventually be let off altogether, and suggested that it would be wise to treat Hungary in the same way. The Eastern creditor states could not be expected to take so detached a view, for they had only recently been offered relatively high percentages in Austrian, Bulgarian and Hungarian payments in compensation for vanished hopes where Germany was concerned. The matter was delicate; the only course seemed to be to leave it alone for a time. But it soon became obvious that something would have to be done to save the debtors from utter ruin: the Austrian and Hungarian currencies continued to fall, and relief credits placed at Austria's disposal by some of the Western Powers were swallowed up without bringing about any lasting improvement. Hungary, an agricultural country, was better off than Austria, which was now unable to buy sufficient supplies from abroad, with the result that her urban population fell into a state of want nothing short of an international scandal.

At this juncture, Austria appealed to the League of Nations for assistance, and by 1923 a scheme had been approved for putting her finances on a sound basis. Its main feature was a long-term loan to enable the currency to be stabilized and the budget balanced, under the control of a Commissioner General appointed by the League. Now, the Reparation Commission had a prior lien on all Austria's assets. The Reparation Commission had to be induced to relinquish this lien, in order that suitable assets might be offered as security for a loan. The reluctance and misgivings of the Eastern creditor states were overcome by keeping the lien in existence, while suspending its operation for 20 years, the currency of the loan. Thus Austria was freed of reparation payments for 20 years, and was able to give securities for a loan, which further enjoyed the guarantee of the leading European Powers. As for the Eastern creditor states, they were allowed to hope that if the reconstruction scheme succeeded and Austria became solvent, they might obtain from her some of the reparation payments which had so far eluded pursuit. The loan of $100,000,000 was successfully issued in half-a-dozen countries, and the League reconstruction program went smoothly ahead. From the moment the loan was secured, indeed from the moment when it became likely to be secured, the currency steadied. Confidence quickly returned, goods and services were revalorized. The success that attended the scheme from the start far exceeded the expectations of its authors.

It had not been in operation many months before Hungary in her turn applied to the League. Here, the problem was in some respects simpler than it had been in Austria, in others more difficult. Hungary exports food, and therefore the establishment of a healthy balance of payments appeared practicable. The difficulty was more of a political nature. Although the framers of the Peace Treaties had been unwilling to admit new Austria's claim that she had nothing to do with the old Monarchy, as time went by the world relented towards this peaceable, unresentful and sincerely republican little state. With Hungary the case was different. No Hungarian representative ever asked favors for his country on the ground that it was not identical with pre-war Hungary. Nor was there any change in the form of government. On the contrary, the Hungarian ministers plenipotentiary who presented themselves in ex-enemy capitals after the resumption of diplomatic relations came in the name of a Royal Hungarian Government and established themselves in Royal Hungarian Legations. Visitors to Budapest, even if they did not understand the words which, in large letters over many public buildings, proclaimed them to be Royal Hungarian this, that and the other, were met at every turn by reproductions of the Sacred Crown of Hungary, and by countless evidences that, to Hungarian minds, the new order was an iniquity imposed by force on a prostrate enemy, which might at any time be reversed by another turn of fortune's wheel.

It is not to be wondered at that the Eastern creditor states thought twice and thrice about it, and that there was never any question of getting for Hungary terms as easy as Austria's. In order to win assent to a 20 years' suspension of the reparation lien -- and thus to get a loan of $50,000,000, half as much as Austria obtained -- Hungary had to agree to reparation payments during those 20 years: an average annuity of $2,000,000 was set, about 25 cents per annum per capita of population, provision being made for suspension of transfer if it should be shown to be imperiling the stability of the currency.

As in the case of Austria, the text of the agreement contained no indication as to what was to happen afterwards. The Hungarian Government's own view was that its reparation liabilities would be entirely discharged by the 20 annuities. Had Hungary not had to agree, tacitly, not to press its own claims to reparation in connection with the Rumanian occupation of Hungary in 1919? If the Hungarians had demanded explicit recognition of this view in the text, the negotiation, difficult enough at the best, would undoubtedly have failed. In the circumstances, the Hungarians were advised by their friends not to insist. Some believed that the entire reparation question would be disposed of long before the 20 years were over; they very likely told the Hungarians so, and encouraged them on that ground not to demand a definite assurance. Thus a misunderstanding was sown which cropped up when the final settlement was being negotiated in 1929--1930.

The Hungarian reconstruction scheme, also under the control of a Commissioner General appointed by the League, went into operation in the spring of 1924. The loan, which unlike the Austrian one was not guaranteed by foreign governments, met with marked success, and two years later the League Council was able to state that financial stability had been attained, and to remove budgetary control. Without attempting, in this article, to follow the course of German reparations, a passing reference may be made to features in the Hungarian scheme which were shortly afterwards incorporated in the Dawes Plan: (1) a loan to permit currency stabilization and budgetary equilibrium; (2) satisfaction to the creditors by a provisional annuity within the capacity of the debtor state; (3) provision for suspending transfer of the annuity in case transfer threatened the currency stability of the debtor state (the celebrated "transfer clause" which figured so largely in subsequent reparation history); and (4) deferring of the fixation of the total reparation liability until financial stability should have been definitively attained.

The rapid success of the League reconstruction schemes in Austria and Hungary revived the credit of both countries. Their currencies became stable, their budgets balanced. It can readily be understood that the Eastern creditor states should have felt embitterment when they saw Austrian and Hungarian issues, state, municipal and private, successfully appearing on European and American markets which remained closed to them because their currencies had not been stabilized, their budgets had not been balanced, and they had undefined liabilities weighing on them. They were naturally determined not to surrender the only pledge that had been left to them: the final and as yet undefined reparation liability of Austria and Hungary. It represented not so much a prospect of obtaining payments from Austria and Hungary as a means of forcing their claims upon the attention of the chief Powers.

THE OPTANTS

The Treaty of Trianon establishes no connection between reparations and the optants' claims, but it proved impossible in practice to settle the one problem without the other, and a bare outline of the issue must be traced here. The Treaty provides (Article 250) that Hungarians possessing properties, rights or interests in territories ceded by Hungary, and opting for Hungarian nationality, are to be protected from liquidation without full compensation. For this purpose Mixed Arbitral Tribunals are set up, consisting in each case of three members: one Hungarian, one representative of the other state concerned and one neutral. If one of the states concerned withdraws its member, the Council of the League is to complete the Tribunal, thus permitting it to function. When, in the course of execution of a general measure of land reform, under which the large estates in Rumania were distributed among small holders, the property of Hungarian optants in Transylvania was so distributed along with the rest, the optants had recourse to the Mixed Arbitral Tribunal. The Rumanian case was that Article 250 did not apply, and that the Tribunal was incompetent. The framers of the Treaty, it was represented, could never have intended to preclude Rumania from carrying out a land reform; and this would be precluded if all the big landowners had to be compensated at full commercial rates, for clearly if this were done for the Hungarian owners, it could not be refused to the others. When it appeared that the neutral member considered the Tribunal competent, the Rumanian member was withdrawn.

The League Council therefore had to consider a Rumanian protest against the optants' attempt to lay their claims before the Mixed Arbitral Tribunal, and a Hungarian demand that the Council discharge the duty laid upon it by the Treaty and complete the Mixed Arbitral Tribunal by appointing a member to the place vacated by the Rumanian.

The optants controversy remained for some six years on the Council's agenda, and baffled many attempts at settlement. Rumania stated that it would mean national ruin to admit the Hungarian case; rather than admit it she would withdraw from the League. Hungary, on the other hand, pointed out that the Treaty of Trianon contained one solitary clause advantageous to Hungary; she declined to give up her right, in maintaining which she considered that she was defending the principle of arbitration. Hungary further showed that a great number of claims having nothing whatever to do with the operation of the Land Reform Act were waiting to be dealt with by the Mixed Arbitral Tribunals, and that if the Tribunals were not allowed to function the justice promised by the Treaty to Hungarian nationals having property, rights or interests in the ceded territories was as good as denied, and the door opened to wholesale confiscation. To this the Rumanians replied that to admit the Hungarian claim would be to set up a régime of capitulations in favor of the optants. The optants, in the Rumanian view, should be satisfied with the protection offered to them by the Rumanian courts; any suspicion cast on the impartiality of these was a national insult.

The nearest approach to an offer to compromise was a Rumanian suggestion that the optants should be compensated out of Hungarian reparation payments. However, as the Rumanian share in the annuities which Hungary had agreed to pay up to 1943 amounted to a mere fraction of the total value of the optants' claims, this suggestion was unacceptable to Hungary. And, in the meantime, Czechoslovakia and Jugoslavia, who also had land reform measures to put into execution, were anxiously waiting to see how they could proceed without walking into the hornets' nest into which Rumania had stumbled.

THE SETTLEMENT

When the Hague conventions, negotiated on the basis of the Young Committee's recommendations of June 1929, had fixed Germany's total reparation liability and laid down the steps by which it was to be discharged, the way was open for the disposal of the Eastern reparation problems. Indeed, the German settlement itself was conditional upon agreement on the Eastern questions. The consent of certain Powers to it had been given subject to their receiving certain payments out of the Eastern pool.

With this huge issue at stake, negotiations started at The Hague on January 3, 1930, and resulted on January 20 in the signing of a series of conventions. These, with supplementary agreements signed in Paris on April 28, settled the Eastern reparations and optants questions, together with many others, abolished the Reparation Commission, and restored their full financial sovereignty to Austria, Hungary and Bulgaria.[i]

Among the three debtor states, Austria's case presented the least difficulty. She had been excused from reparations for 20 years. On the other hand, she had received, before the League took her affairs in hand, relief credits from the chief Powers, and these relief credits ranked reparations. Austria had agreed in 1928 to a schedule of payments lasting 40 years to discharge this debt: an annuity starting at $1,400,000 and rising to $3,700,000. It was generally recognized that this burden was as much as she should be asked to assume. These relief credit payments do not go into the reparation pool.

Bulgaria's affairs gave the negotiators more trouble, for in 1921 she had agreed to a scale of reparation annuities rising to $8,000,000, and had made full payments accordingly until the last couple of years, when she had been allowed to defer part of the annuity. It had become clear that the 1921 schedule far exceeded her capacity, and agreement was finally reached on 36 annuities starting at $2,000,000 in 1931 and reaching a maximum of $2,500,000 in 1950, the provision being maintained that transfer might be suspended in case the currency were menaced.

All this was child's play compared to the Hungarian question, which appeared to be insoluble up to the last moment. The formula on which, to every one's astonishment, agreement was reached by exhausted negotiators at 5 o'clock on a January morning, was a somewhat elastic one. It had the sovereign merit of binding the parties together pending the threshing out of details during long weeks of subsequent discussions in Paris.

No sooner had the Hague parleys started than the misunderstanding referred to above as to Hungary's reparation liability loomed up. The Hungarian Government considered that its reparation debt would be entirely discharged by the payment of the 20 annuities, ending in 1943, to which it had agreed in connection with the League's reconstruction scheme. Count Bethlen, who led his delegation (and who had been Prime Minister of Hungary uninterruptedly since 1921) stated that in 1924 he had received verbal assurances that if Hungary would agree to the proposed annuities, she would not be asked to pay more. He added that he had nothing in writing, and mentioned no names. The formal position was that no one, in 1924, had it in his power to make Hungary any promise as to her final reparation charge. Hungary had been offered a 20 years' respite subject to her paying certain annuities. If, in making up her mind whether to accept or reject the proposal, Hungary had been influenced by individual expressions of opinion, that was Hungary's business.

The creditor states insisted that Hungary must make payments after 1944, and up to 1966. Moreover, on the strength of a Hague resolution recommending that all financial questions left pending should be disposed of, it was urged that the optants controversy should be dealt with at the same time. The states bordering on Hungary said they could not talk figures, where Hungary was concerned, as long as the danger subsisted that damages of unknown magnitude might be found against them by the Mixed Arbitral Tribunals. If Hungary insisted on strict application of the Treaty, they added, well and good. Let the Reparation Commission, kept alive for Hungary's exclusive benefit, proceed to assess Hungary's liability, deduct the value of state properties in ceded territories, and notify Hungary as to how she was to discharge her debt, with the prospect of allowing the general lien established by the Treaty to continue until the debt should have been entirely paid off. And let Hungary prosecute the optants' suit before the League Council. If, however, Hungary wished to avail herself of a last opportunity to get rid of the cumbrous Treaty procedure, and to negotiate an agreement on commonsense lines, she must give up her legal position based on the Treaty, and consent to discuss reparations and optants together. The Eastern creditor states could negotiate only if Hungary, on behalf of her optants, relinquished the right of appeal to the Mixed Arbitral Tribunals for the future.

This deadlock was resolved by an ingenious compromise, under which each side maintained its formal position, while each made considerable concessions in practice. The scheme is necessarily intricate in its details, which would require, in order to make them comprehensible, explanations running far beyond the scope of this article. The texts themselves are of course easily available. The essence of the compromise is that Hungary agrees to pay an annuity of $2,700,000, in liquidation of all Treaty charges (prewar debts excepted), after 1943 and until 1966, while Czechoslovakia, Jugoslavia and Rumania consent to the continuance of the Mixed Arbitral Tribunals, enlarged by two neutral members, and all the Powers concerned collaborate in constituting two funds out of which the awards given by the Tribunals to Hungarian optants are to be paid: Fund "A" for the agrarian optants, i.e., those whose property was liquidated in connection with Land Reform; and Fund "B" for the others. All Hungary's payments after 1943 are devoted to these funds, together with certain payments made by Rumania, Czechoslovakia and Jugoslavia; the shares of Belgium, France, the British Empire, Italy, Japan and Portugal in Hungarian payments up to 1943; a further contribution to be made by France and Italy (40 percent each) and Great Britain (20 percent).

The nominal capital of Fund "A" is roughly $44,000,000; that of Fund "B" $20,000,000. The first pays interest at 4 percent; the second for a dozen years at 3 percent and then at 4 percent; and both are to be amortized by 1966. The nominal value was arrived at on the basis of Hungary's estimation of the value of the properties in question, after certain deductions in respect of restored properties had been made. There are provisions for issuing bonds secured by these funds, so as to enable optants who have received favorable judgments to obtain cash.

Thus, in effect, the creditor Powers have not only foregone all Hungarian reparations after 1943, but have abandoned to Hungary a part of her payments up to 1943 and are making further contributions to the funds to satisfy her optants.

Hungary has maintained her points of principle: (1) no reparations after 1943 (for her payments then are in satisfaction of other claims and charges, and be it remembered that these claims in fact existed, and ran into very large figures); (2) maintenance of the Tribunals; and (3) liquidation of Hungarian property in the ceded territories to cease.

Czechoslovakia, Jugoslavia and Rumania are freed from the prospect of being condemned by the Tribunals to pay unknown awards, the extent of their contribution to Funds "A" and "B" being already fixed.

Further points of the settlement are the wiping out of all claims in respect of state properties in ceded territories, and the remission of all Liberation Bonds except Czechoslovakia's; in discharge of this debt Czechoslovakia undertakes to pay 37 annuities of $2,500,000 each, to be distributed between France, Great Britain, Italy, Belgium, Japan, Portugal and Greece in such a way that France and Italy each receive rather over 30 percent, Greece 17 percent and Great Britain 13 percent.

The reparation payments of Bulgaria and Hungary (those up to 1943 only, in Hungary's case, being considered reparation payments) are distributed as follows:

Bulgarian payments Hungarian payments
Greece 76.73 percent 76.73 percent
Rumania 13 " 13 "
Czechoslovakia  1 "  1 "
Jugoslavia  5 "  2 "

The balance goes to the other creditor Powers as provided by the Spa and subsequent percentage agreements.

The claims made on Hungary and by Hungary lay at the heart of the Eastern reparations problem. When Count Bethlen presented the Hague settlement to the Hungarian Parliament, he was attacked on the ground that he had committed the country to paying its own optants: an unfair criticism and an ill-informed view. However, the violence with which it was expressed may be taken as a measure of the difficulties he had to contend with. It was fitting that the man who, in the face of much opposition at home, took Hungary to the League and executed the League's reconstruction program, should have negotiated a settlement, towards which Hungary made her fair contribution, of problems which had for years baffled the Reparation Commission, the League and the chief Powers. All the parties to the settlement are to be congratulated on it, and most of all the country which had most at stake.

[i] The agreements reached at Innsbruck and Prague on the pre-war public debt of the old Monarchy were of course not affected by the Hague settlement.

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  • ROY ALL TYLER, Deputy-Commissioner of the League of Nations in Hungary 1924--26; author of several economic and archaeological works
  • More By Royall Tyler