THE London Conference, which was summoned with the purpose of bringing the Dawes Plan into operation and of determining the conditions of its execution, fulfilled its object; it culminated in the signing of the various agreements between the German Government, the Allied Governments and the Reparation Commission necessary to establish the new reparation régime in conformity with the Dawes Plan.

This new régime could not be imposed on Germany either by the Allied Governments or by the Reparation Commission. The peace treaty (and its provisions in this respect had again been defined by the letter under date of June 16, 1918, addressed to the German Delegation by M. Clemenceau) conferred no right upon the Allied Governments to intervene in the exercise of Germany's sovereignty in regard to the steps taken by the German Government to obtain the sums required for the payment of reparation. Neither was this right held by the Reparation Commission, which was merely authorized to fix the amount of reparation due, to draw up the schedule and the conditions of payment, to estimate Germany's financial resources and ability to make payment (and hence to exercise extensive supervision in this respect), to refer all cases of German default to the Allied Governments, and, finally, to interpret the reparation clauses of the treaty.

The plan set up by the treaty might no doubt have functioned satisfactorily if the reparation debt had been fixed at a low figure, if the debtor nation had been willing to pay, and if it had had a powerful government. Since none of these conditions was fulfilled the primary demands of the treaty itself remained unsatisfied. The depreciation of the German currency grew considerably worse and the schedule of payments drawn up by the Reparation Commission was soon suspended by a moratorium; no improvement having taken place in the situation at the expiration of this moratorium a further period of grace was demanded by the debtor. The most interested nations, for whom the payment of reparation was a vital necessity, occupied the Ruhr in order to take possession of real guarantees; the German Government retaliated by passive resistance, which led to the complete collapse of the German currency and brought the country perilously near to absolute social disintegration. The end of passive resistance, the introduction of the Rentenmark, and the wiping out of public and private debts made it possible for the German Government temporarily to restore budgetary and currency stability. These results, however, were obviously of a precarious nature and would no doubt have been destroyed by any large reparation payments on an unorganized basis.

Such was the situation when the Committee of Experts first met under the chairmanship of General Dawes, instructed by the Reparation Commission to devise a means of balancing the German budget and of stabilizing the currency. The committee's terms of reference indicated in themselves the two essential conditions that had to be realized before any large and continued reparation payments could become possible. In order to fulfil these conditions, the experts were obliged to recommend a very intricate organization which was in no way provided for by the peace treaty. In order to ensure monetary stability, they demanded that the exclusive right to issue notes be conferred upon a bank of issue controlled by the strictest regulations, and, in particular, that it be prohibited from making any advances to the state or to any political body whatsoever. The capital of this bank must be partly constituted by the floating of an external loan of 800 million gold marks. To ensure the balancing of the budget, the experts determined the revenues to be assigned to reparation; they then recommended the creation of a Reich Railway Company, which should be entrusted with the working of the railways and which should be encumbered with a debt of 11 milliard gold marks, representing far less than half the present value of the undertaking; they also recommended a capital levy, up to 5 milliard gold marks, on German industry in the form of individual and mortgage bonds, a levy which is less than the pre-war industrial debt that disappeared with the collapse of the mark. The experts provided for a two years' budget moratorium but designated the revenues which must, in the future, provide given funds and serve as security for the industrial and railway bonds; they organized the collection of controlled revenues under the supervision of agents appointed by the Reparation Commission. In order that the reparation payments should not affect the currency stability, they decided that Germany's liability must be considered as having been met by the payment of the prescribed sums in German currency, the duty of transferring these sums as far as possible without bringing about a fall of the currency being exclusively entrusted to a committee known as the Transfer Committee.

The obligations thus imposed on Germany by the Experts' Plan, and which define the general obligation assumed under the treaty, evidently required the formal acceptance of the German Government. Certain differences of opinion as to the manner in which this acceptance should be given having been settled, and unanimity having been reached on a report submitted by the legal advisers of the Conference, the Reparation Commission and the German Government signed an agreement in which the German Government undertook to take all the measures necessary for bringing the Experts' Plan into operation. The Reparation Commission, for its part, undertook to take all necessary steps for achieving the same object, in particular for facilitating the issue of a German loan, an essential factor in the Plan. The two parties also agreed to apply such further agreements as might be concluded between the German and the Allied Governments assembled at the London Conference. Finally, it was agreed to submit to arbitration any dispute arising out of the agreement itself or its annexes, the Experts' Plan, or German legislation introduced in execution of the Plan.

This agreement, however important it may be, did not complete the task undertaken by the London Conference. The execution of the Experts' Plan, in fact, involved a certain number of measures to be taken by the Allies vis-a-vis Germany and by the Allies among themselves, such as the restoration of Germany's fiscal and economic unity and the announcement of possible default and relevant penalties. Various details regarding the application of the plan also figured on the official agenda of the Conference and had to be settled without delay.

The most delicate of these questions was that concerning possible default. Two arguments were advanced. According to one, the provisions of the Dawes Plan were a new departure in so far as the Treaty of Versailles was concerned, and it was necessary to institute a special procedure to deal with defaults and penalties irrespective of the treaty provisions. According to the second argument, the Dawes Plan was an outcome of the treaty in accordance with a procedure provided by the treaty itself; once it had been accepted by Germany, there was no reason whatsoever to modify the rules concerning defaults, the announcement of which is entrusted by the treaty to the Reparation Commission, acting on a majority vote. The first of these arguments was upheld by those Powers which, being but little interested in reparation, were willing to accept the axiom that there would be no further default, and which in any case wished that such default could be declared only by a unanimous vote of the Commission; it was moreover supported by a body of public opinion which it was essential should cooperate if the loan on which the Dawes Plan was based was to be successful. The other argument was upheld by the Powers vitally interested in reparation, the public opinion of which took the view that the maintenance of the rights of the Reparation Commission under the treaty would be a safeguard.

The first compromise was only temporarily successful. It consisted in remedying the fundamental difference between the Reparation Commission as it existed and the Commission as conceived by the authors of the treaty, this difference being due to the absence of an official American member. As a result of this absence and owing to the Chairman's right to give the casting vote, France and Belgium combined could always hold the majority. It is to be noted, however, that no majority vote on any important question has ever been thus obtained. However this may be, a compromise was at first accepted by all the Governments. It was agreed that any declaration of default should be made by the Reparation Commission supplemented by an American citizen appointed unanimously by the Commission, or failing such unanimity, by the President in office of the Permanent Court of International Justice at The Hague. This compromise was soon found to be inadequate, and a deadlock seemed imminent when the French delegation proposed that the powers of the Reparation Commission be left intact but that, in the event of failure to obtain a unanimous vote, the minority should be entitled to submit the question at issue to the arbitration of an impartial Committee appointed unanimously by the Reparation Commission, or failing such unanimity, by the President of the Hague Court. The French delegation also proposed to extend this arbitration procedure to all disputes arising out of the application of the Experts' Plan. This proposal, which was accepted by the Governments, was, as far as default was concerned, embodied in an agreement concluded between the Allied Governments, and, as far as concerned disputes between the Reparation Commission and Germany regarding the interpretation of their agreements, the Dawes Plan and the laws passed in execution of the Plan, was embodied in an agreement concluded between the Allied Governments and the German Government. In the Inter-Allied agreement it was further prescribed that no penalties should be imposed on Germany under the treaty unless declaration was made, in the foregoing conditions, of flagrant default within the meaning of the Experts' Report. In this case the Governments, "acting with the consciousness of joint trusteeship for the financial interests of themselves and of others who will have advanced money upon the lines of the Plan," should immediately and conjointly determine "the nature of sanctions to be applied and the method of their rapid and effective application." Finally, the signatory Governments made declarations intended to safeguard, in all circumstances, the service of the 800 million goldmark loan necessary for the execution of the Dawes Plan.

An agreement with the German Government concerning measures to be adopted by all parties for the execution of the Dawes Plan was necessary; this agreement was signed in London. It provides for the voting of the necessary laws by the Reichstag, the instalment of the executive and controlling organizations, the final constitution of the Bank and of the Railway Company, the transfer to the trustees of certificates representing railway and industrial bonds, the conclusion of contracts guaranteeing the issue of a loan of 800,000,000 gold marks and the reëstablishment of Germany's fiscal and economic unity. It also fixes the dates of execution. Furthermore, measures applicable to the interim period are arranged, as well as amnesty measures designed in so far as possible to wipe out the past.

Under this agreement, the Dawes Plan is considered to be in operation as from the conclusion of the London Conference, without awaiting the subscription of the 800,000,000 gold mark loan which forms the very basis of the Plan. Consequently, the first year of operation began on August 15, 1924.

The question of the military occupation of the Ruhr did not appear on the agenda of the Conference; nor was it dealt with by the Committee of Experts, who considered that it did not come within their jurisdiction. It was inevitable, however, that it should be raised in London outside the Conference. By a letter to the Reich Chancellor, dated August 16, 1924, MM. Herriot, Theunis, and Hymans declared that if the London Agreements for the application of the Experts' Plan were carried out in the same spirit of loyalty and peace which underlay the discussions of the Conference, the French and Belgian Governments would proceed to the military evacuation of the Ruhr within a maximum period of one year. By a second letter of the same date, the Chancellor was informed that on the day following the definitive signing of the London Agreement the French and Belgian Governments would order the military evacuation of the Hoerde in the Dortmund zone and of districts outside the Ruhr occupied since January 11, 1923.

In addition to these agreements essential for the application of the Dawes Plan, the London Conference gave special consideration to the details of the report relating to deliveries in kind and the functioning of the Transfer Committee.

The Experts' Report calls attention to the fact that from a financial point of view deliveries in kind do not in reality differ from cash payments and that in the long run they cannot exceed the actual and exportable surplus of German production in relation to consumption without a resulting disturbance in exchange or the necessity of resorting to external loans. Considering, moreover, that deliveries in kind are prescribed by the treaty, that at the present moment they form an essential factor in the economic life of several Allied Powers, that if maintained within reasonable limits they may act as a stimulant to Germany's productivity and therefore contribute to increasing the surplus of the commercial balance, and that they may help to prevent this surplus being absorbed by foreign investments (thus facilitating transfer), the Committee recognizes the necessity of continuing deliveries in kind, while recommending that they be limited to Germany's natural productions and to exports which do not involve previous large importations of raw materials.

Moreover, the Experts' Plan completely changes the system of deliveries in kind. Under the treaty, deliveries in kind formed an obligation imposed on the German Government, which was to execute the orders of the Reparation Commission, placing them with German dealers whom it would reimburse. Under the Dawes Plan, the German dealers must be paid for deliveries in kind out of the funds accumulated to the account of the Agent for Reparation Payments.

In view of the very radical change which the Dawes Report has brought about in the idea of deliveries in kind, it was extremely desirable (in order to avoid any subsequent dispute) that the German Government should recognize that under the new régime deliveries in kind are released from all the restrictions as to kind, quantity and time provided for by the Treaty of Versailles. Such recognition was obtained in London in an agreement concluded between the German Government and the Allied Governments with the stipulation that the schedules were to be drawn up with due regard to Germany's productive capacity, to the conditions of her supplies of raw materials and to her internal requirements, in so far as was necessary for the maintenance of her social and economic life and taking into account also the restrictions laid down in the Experts' Report.

It will be remembered that the Transfer Committee was set up in order to meet the difficulty of determining in advance large external payments, it being obvious that no country can make external payments substantially greater than the credit balance of its accounts without incurring the risk of monetary depreciation. Three solutions were alone possible. It was possible to fix large sums, the payment of which would have constituted an absolute liability; this procedure would undoubtedly have led to the same results brought about since the coming into force of the Treaty of Versailles. Or it was possible to fix annual payments appreciably less than an anticipated surplus in the balance of accounts; the figures obtained by this means would certainly have been inacceptable to the reparation creditors, in addition to giving Germany an unwarranted advantage. The Dawes Committee decided to set aside these two solutions. It did not wish to fix the sums to be transferred on reparation account, it merely fixed those to be paid in German currency under this head, leaving a Transfer Committee, composed of five members under the chairmanship of the Agent General for Reparation Payments, to hand them over to the creditor countries. The Transfer Committee alone can decide what use is to be made of the sums received in German currency on reparation account; it must first assign them to payments to Germany on the account of creditor nations, thereby settling deliveries in kind and the costs of the armies of occupation; then, without affecting exchange conditions, it must convert the balance into foreign currencies. In so far as these conversions prove to be impossible, reparation payments will accumulate in Germany, first of all to the account of the Agent General at the Reichsbank. When the Reichsbank refuses to receive any further deposits, and in any case when the credit balance of the account reaches the figure of 2 milliard gold marks, the Transfer Committee must find other uses in Germany for the funds placed under its administration, it being understood that these funds must never exceed 5 milliard gold marks and that reparation payments must, if necessary, be reduced in order that this figure be not exceeded. The Transfer Committee is vested with sovereign powers in respect of all these functions; it must be constantly guided by its obligation to transfer the highest sums possible without, however, disturbing the stability of the German currency. The German Government and the Reichsbank have undertaken to facilitate the work of the Committee by every reasonable means within their power. In the event of concerted financial maneuvers, either by the Government or by any group, for the purpose of preventing such transfers, the Committee will take such action as may be necessary to defeat such maneuvers. In particular, it may decide that the reparation funds shall be allowed to accumulate without any limit and employ them in the purchase of any kind of property in Germany.

The London Conference made clear certain points as to the functioning of the Transfer Committee. One of the agreements signed there stipulates that if the Transfer Committee is equally divided as to whether concerted financial maneuvers have been set on foot, the question shall be referred to an independent and impartial arbitrator, who shall hear the views of each of the members of the Committees and decide between them. On all other questions, if the Transfer Committee is equally divided, the Chairman shall have a casting vote. Finally, if the funds at the disposal of the Agent-General for Reparation Payments are at any time accumulated up to the limit of 5 milliards of gold marks referred to in the Experts' Report, or such lower figure as may be fixed by the Transfer Committee, all decisions of the Committee concerning financial maneuvers may be referred by any member of the minority to an arbitral tribunal, whose decision shall be final. The arbitral tribunal shall consist of three independent and impartial financial experts, including a citizen of the United States of America, who shall act as Chairman.

The Experts' Plan provides that the Transfer Committee, on the instructions of the Reparation Commission and at the request of the creditor States, may, by debiting their accounts, transfer marks to private individuals for the purpose of making purchases in Germany, provided such reinvestment is not of a temporary character and provided the property concerned is of classes contained in a schedule agreed to between the Committee and the German Government. The London agreement decides that any disputes arising from the drawing up of the list are to be submitted to an arbitrator, if one of the parties so requests. Furthermore, the Allied Governments agree that no transfer of marks shall be made to private individuals unless the accumulated funds exceed the sum deposited with the bank of issue.

Lastly, the London Conference decided that if one of the Governments concerned (Allied or German) considers that there is any technical error in the operation of the Experts' Plan which may be remedied without affecting its basic principles, the necessary amendments may be made, either by agreement with the German Government and following a unanimous vote by the Reparation Commission, or, failing such agreement, by decision of the Committee of three independent and impartial experts chosen conjointly by the unanimous vote of the Reparation Commission and the German Government, or by the President of the Permanent Court of International Justice.

Such are the technical details of the decisions reached in London. The net result of the Conference has been to bring the Dawes Plan into operation. An economic solution has been found for the reparation problem, based on the good faith and sincere collaboration of all the parties concerned. The help of American citizens was enlisted for the operation of the Plan as well as in its preparation. This help affords all the parties concerned the most valuable guarantee of impartiality. At the proposal of the French Government, recourse to arbitration has been accepted as a means of settling any disputes which may arise. In this way perhaps the most important step since the Treaty of Versailles has been taken towards the economic revival and political pacification of Europe.

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  • JEAN PARMENTIER, financial adviser to the French Government, member of the Transfer Committee under the Dawes Plan
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