War Reparations
War reparations are payments a defeated state is required to make to the victors for losses and damage caused by a war. They are usually fixed by treaty or by a commission, and are paid in money, goods or services over many years.
Also called: reparations · war indemnity · German reparations · Versailles reparations
Reparations are a claim between states, set out after the fighting ends. The best-known modern case is Germany after the First World War. The Treaty of Versailles of 1919 established the liability, and in 1921 the Reparation Commission fixed the bill at 132 billion gold marks, which the US State Department's historians put at about US$31.5 billion at the time.
The schedule was renegotiated repeatedly because Germany could not, or would not, pay it as written. After France and Belgium occupied the Ruhr in 1923 over missed deliveries, the Dawes Plan of 1924 cut the annual payments and arranged a foreign loan. The Young Plan of 1929 reduced the total again and added a further loan. The Hoover Moratorium of 1931 paused intergovernmental debt and reparation payments for a year, and the Lausanne Conference of 1932 effectively ended reparations.
The bonds sold to private investors to fund the Dawes and Young loans outlived the reparations themselves. The 1953 London Agreement deferred interest arrears for 1945 to 1952 until German reunification, and the last of the funding bonds issued for those arrears matured on 3 October 2010.
The economic difficulty is the transfer problem: a government can tax its citizens in its own currency, but the creditor wants gold or foreign exchange, which the country has to earn through a trade surplus. That is a balance of payments question as much as a budget one, and it is why reparations are discussed alongside hyperinflation and sovereign debt.
In practice
Reparations are not the same as restitution (returning specific property that was taken) or repatriation (bringing money or people home). The German bonds that matured in 2010 settled interest owed to private bondholders under the 1953 agreement, not reparations owed to the Allied governments.
Learn more on Money Wiki
This page gives the short answer. Money Wiki has a longer guide to War Reparations, with more detail and background.
Commonly confused with
| Term | How it differs |
|---|---|
| Restitution | Restitution returns specific assets, such as looted art or confiscated property, to their owners. Reparations are a general money obligation between states for war losses. |
See also
- Transfer ProblemThe transfer problem is the difficulty a country faces in converting a large payment owed abroad from its own currency into foreign exchange. Raising the money at home is one task; earning the foreign currency to deliver it is another.
- Balance of PaymentsThe balance of payments is the statistical record of all economic transactions between a country's residents and the rest of the world over a period. It is split into the current account, the capital account and the financial account.
- HyperinflationHyperinflation is an extremely rapid and accelerating rise in prices, conventionally defined as inflation above 50 percent a month. Money loses value so fast that people stop holding it and switch to goods or foreign currency.
- Odious DebtOdious debt is a doctrine holding that a state should not be bound to repay debt that a previous regime incurred without the people's consent and against their interests, where the lenders knew this. It is an argument, not settled international law.
- Gold StandardA gold standard is a monetary system in which a currency is defined as a fixed weight of gold and the issuer promises to convert its notes or deposits into gold at that price, tying the supply of money to the stock of gold.