The Young Plan is the settlement of 1929–1930 that replaced the Dawes Plan as the framework for Germany's First World War war reparations. Drafted by a committee of financial experts chaired by the American businessman Owen D. Young, it lowered the total Germany owed, stretched payments out until 1988 and ended the system of foreign officials supervising German public finances. To collect and distribute the money, it created a new institution in Basel, the Bank for International Settlements (BIS).
The plan was the second attempt to make the reparations bill workable. The first, the Dawes Plan of 1924, had set rising annual payments without fixing a final total or end date. The Young Plan supplied both, but it lasted barely two years before the Great Depression stopped payments.
Young Plan in plain terms
Imagine a household that owes a large sum after losing a court case, with an outside administrator sitting at the kitchen table checking every bill. The family keeps paying, but resents the arrangement and has no idea when it will end. The Young Plan was a renegotiation of that kind: the creditors agreed to a smaller total, a fixed schedule of yearly instalments and a clear final date, and the administrator left the house.
In return, part of each year's instalment became untouchable: it had to be paid whatever happened. The rest could be delayed if times turned hard. A new shared bank was set up to receive the money and pass it on to the countries owed, much as a court-appointed trustee collects and divides a settlement.
Background
The Treaty of Versailles left the amount of reparations to a Reparation Commission, which in 1921 fixed a headline figure that Germany could not realistically pay. Missed deliveries led France and Belgium to occupy the Ruhr in 1923, and the German currency collapsed in hyperinflation. The Dawes Plan restored order with a foreign loan and a schedule of annuities overseen by an Agent General for Reparation Payments in Berlin.
By 1928 the scheduled Dawes payments had reached their full level, and much of the money Germany paid out was in effect being recycled from American lending to German borrowers. The Agent General, S. Parker Gilbert, pressed for a final settlement, and the creditor governments agreed to appoint a new committee.
Negotiation and terms
The committee of 14 experts met in Paris from February to June 1929. Its report was then taken up by governments at two conferences in The Hague, in August 1929 and January 1930, and the agreements were signed on 20 January 1930. The Reichstag approved them in March 1930, and the plan took effect in May 1930, backdated to 1 September 1929. Its main features were:
- A schedule of annuities running until 1988, averaging about 2 billion Reichsmarks a year, a lower annual burden than under the Dawes Plan at its peak.
- A split of each annuity into an unconditional part, which had to be transferred in foreign currency in all circumstances, and a larger conditional part that Germany could postpone for a limited period during a slump.
- The end of foreign controls, including the Agent General and the pledging of German railway and industrial revenues.
- A new international loan to Germany in 1930, known as the Young loan, issued as bonds in several countries.
In a parallel agreement, France undertook to withdraw its troops from the Rhineland by 30 June 1930, five years ahead of the treaty timetable.
The Bank for International Settlements
The plan's most lasting result was the BIS, founded in Basel in May 1930. It acted as trustee for the reparation annuities and for the Dawes and Young loans, receiving German payments and distributing them to creditor governments. The experts also intended it to be a meeting place for central banks, which is the role it kept after reparations ended. Its link to German payments made it controversial in the 1930s and 1940s, but it survived to become the forum for central bank cooperation it is today.
Political opposition
Many Germans saw any acceptance of reparations as acceptance of war guilt. A nationalist alliance led by Alfred Hugenberg, with Adolf Hitler's party as a partner, forced a referendum in December 1929 on a "Freedom Law" that would have rejected the plan and threatened officials who signed it with prosecution. Only about 14 percent of eligible voters backed it, far short of the majority required, but the campaign gave the Nazi party national exposure and respectability among conservative voters.
Collapse and legacy
The plan was built on the assumption that capital would keep flowing into Germany and that world trade would keep growing. Both failed after 1929. As banks failed across Central Europe in 1931, the Hoover Moratorium suspended reparations and inter-Allied war debts for a year. German authorities responded to the run on their currency with exchange controls, and the gold standard world broke apart. At the Lausanne Conference in July 1932 the creditors agreed to cut the remaining obligation to a final sum that was never paid, ending reparations in practice.
The Young loan bonds outlived the plan. Germany stopped servicing its foreign bonds during the 1930s, and the arrears were dealt with in the London Agreement on German External Debts of 1953. The last payments linked to these bonds were made on 3 October 2010. Economists still cite the Young Plan in debates about how much a country can transfer abroad without a matching trade surplus, the classic "transfer problem", and as an example of how unpaid debt owed between governments can end in sovereign default or political settlement rather than repayment.