15

Footing the Bill

IN 1995, there was a faint echo of that most contentious issue in the German peace when a newly reunified Germany agreed that it would pay the interest still due on the loans it had received in the years between the wars to pay off the reparations imposed by the Treaty of Versailles. “The subject of reparations,” said Thomas Lamont, the banker who represented the American Treasury in Paris in 1919, “caused more trouble, contention, hard feeling, and delay at the Paris Peace Conference than any other point of the Treaty.”¹

Reparations helped to poison relations between Germany and the Allies, and among the Allies themselves, for much of the 1920s and 1930s. The issue facing the peacemakers was at once very simple and very complicated. Simple, because, as Lloyd George put it, “Somebody had to pay. If Germany could not pay, it meant the British taxpayer had to pay. Those who ought to pay were those who caused the loss.”² Complicated, because that involved drawing up the bill and working out how much Germany could actually afford. The very mention of reparations caused disagreements. Were they simply compensation for damages or were they really a disguised fine, an indemnity for war costs for the victors? Should these costs include uncollected taxes or earnings lost because of invasion, death or damage? Pensions to widows and orphans? Compensation for animals that had died when their owners fled? Were they in essence an acknowledgment by Germany and whichever of its allies could still be found of their moral responsibility for the whole catastrophic war?

France, Britain and the United States, which worked out the final agreement, had different needs and different views. The United States took a high moral line. It did not want anything for itself, but it expected the Europeans to pay back the money they had borrowed during the war. For the Europeans, reparations promised a way to pay off their debts and to reconstruct their societies. What should be included in the reparations bill therefore assumed great importance because it affected sharing out the spoils. France had suffered the most direct damage, Belgium the next most, but Britain had spent the most. There were also intense debates over the question of how much Germany could pay. If the figure were set too high, the German economy might collapse, which would not help British exporters. If too low, Germany would be getting away lightly; it would also recover more quickly, a prospect that worried the French. Getting clear figures was not easy then and since, because it was in almost everyone’s interest to exaggerate and obfuscate: in the Allies’, to exaggerate how much they were due, and in the Germans’, how much they were paying. Because the peacemakers could not agree on a final figure, the German treaty merely included a provision for a special commission, made up of Allied representatives, which would have two years to determine what Germany should pay. This understandably brought charges from the Germans that they were being asked to sign a blank check.

Although historians are increasingly coming to the conclusion that the burden was never as great as Germany and its sympathizers claimed, reparations remain the preeminent symbol of the peace made in Paris.³ While most of the 440 clauses of the Treaty of Versailles have long been forgotten, the handful dealing with reparations stand, in what is still the received view, as evidence of a vindictive, shortsighted and poisonous document. The new Weimar democracy started life with a crushing burden and the Nazis were able to play on understandable German resentment. Responsibility for the disastrous consequences, so the argument goes, begins with the peacemakers of 1919: the vengeful, grasping Clemenceau, the pusillanimous, vacillating Lloyd George and the pathetic, broken Wilson, who allowed himself, as John Maynard Keynes put it, to be bamboozled.

Keynes did not create the picture on his own, of course, but he painted it most persuasively and most persistently. A very clever, rather ugly young man, he had sailed through Eton and Cambridge, collecting prizes and attention. His membership in the Bloomsbury circle only enhanced his propensity to moral superiority. He was a terrifying subordinate because he never bothered to hide his contempt for virtually all his superiors. Keynes went to the Peace Conference as chief Treasury adviser. In The Economic Consequences of the Peace, written immediately after the German treaty was signed, he spoke, therefore, with his usual authority.

Wilson, said Keynes, was the victim of the Europeans’ grisly blindman’s buff. “He allowed himself to be drugged by their atmosphere, to discuss on the basis of their plans and of their data, and to be led along their paths.” Wilson betrayed his own principles, his country and the hopes of all those who wanted a better world. Lloyd George was the chief enchanter who had come out of the mists of the Welsh mountains to entice the good and the gullible into the swamps. “One catches in his company,” said Keynes in a piece he left out of the book, “that flavour of final purposelessness, inner irresponsibility, existence outside or away from our Saxon good and evil, mixed with cunning, remorselessness, love of power, that lend fascination, enthralment, and terror to the fair-seeming magicians of North European folklore.”⁴

Clemenceau, dried up, old and bitter, cared only for France and its security. Keynes had come to loathe the French and what he saw as their inordinate greed. He fought with their representatives over relief for Germany and over the loans France needed from Britain. The German representatives whom he met on the armistice commission were quite a different matter. In a memoir he wrote for his Bloomsbury friends he described the prominent Hamburg banker Carl Melchior as “exquisitely clean, very well and neatly dressed, with a high stiff collar . . . his eyes gleaming straight at us, with extraordinary sorrow in them, yet like an honest animal at bay.” Keynes’s declaration that he felt a sort of love for Melchior need not be taken too seriously. It was a rhetorical flourish for old friends who knew his complicated sexual past.⁵

The peacemakers appalled Keynes. They fretted about revenge while European civilization tottered on the brink of collapse.

In Paris where those connected with the Supreme Economic Council received almost hourly the reports of the misery, disorder, and decaying organisation of all Central and Eastern Europe, allied and enemy alike, and learnt from the lips of the financial representatives of Germany and Austria unanswerable evidence of the terrible exhaustion of their countries, an occasional visit to the hot, dry room in the President’s house, where the Four fulfilled their destinies in empty and arid intrigue, only added to the sense of nightmare. ⁶

What did they achieve in their gilded rooms? According to Keynes, a peace that completed the economic destruction done to Europe by the war. They were drawing new lines on the map when they should have been setting up a free trade area; they were haggling about the debts they owed one another when they should have canceled them all; and, the criticism that reverberated most in Germany, they imposed crippling reparations. Quoting extensively from his own memoranda written for the Peace Conference, Keynes argued that Germany could pay at the most £2 billion ($10 billion). Anything more would drive it to despair, and probably revolution, with dangerous consequences for Europe.⁷

While he was in Paris, Keynes produced a scheme to solve Europe’s economic problems and the problem of reparations in one neat, clever package. The European Allies needed to raise money, to repair war damage and to pay back their debts to each other and to the United States. The defeated nations would issue bonds for their reparations, but those bonds would be guaranteed by both enemy and Allied nations. The financial rivers would start to flow again and Europe’s nations would be linked together to their common benefit. Ultimately, all depended on the participation of the United States. While on paper Britain was still a creditor nation, and France had an overall debt of $3.5 billion, the reality was rather different. Both France and Britain had lent large amounts to Russia, which had defaulted on its debts, and to other Allies such as Italy and Rumania, which were in no position to start paying them back. Britain owed the United States $4.7 billion, and France owed it $4 billion as well as $3 billion to Britain. “The economic mechanism of Europe is jammed,” Lloyd George told Wilson in April 1919, when he forwarded Keynes’s memorandum. “A proposal which unfolds future prospects and shows the peoples of Europe a road by which food and employment and orderly existence can once again come their way, will be a more powerful weapon than any other for the preservation from the danger of Bolshevism of that order of human society which we believe to be the best starting point for future improvement and greater well-being.”⁸

The idea that the United States should use its financial resources to get Europe going again after the war had been around for some time in various forms. The French, deeply in debt to their allies and facing huge repair bills, were particularly enthusiastic about prolonging and strengthening Allied wartime economic cooperation. Their minister of commerce and industry, Etienne Clémentel, a hardworking, earnest man from a farming family, drew up an elaborate plan for a “new economic order,” where organization and coordination would replace wasteful competition, resources would be pooled and shared out as needed, and the whole would be directed by clever technocrats. When Germany had put its own political house in order, it too could be part of the new order, safely enmeshed in a strong organization. The scheme languished because of active opposition from the United States and indifference from Britain and was finally turned down by the Allies in April 1919. The effort bore unexpected fruit after the Second World War, when Jean Monnet, who had been Clémentel’s assistant in 1919, founded the economic organization that grew into the European Union.⁹

The British preferred to hint that the United States should cancel the interest on its loans for a few years. Alternatively, the whole expense of the war could be added up and the United States could take a large proportion. Lloyd George, with his enthusiasm for big ideas, preferred an even more dramatic solution, that of simply canceling all intra-Allied debts outright. The Americans, however, were determined not to let that happen. “I realize the efforts that are being made to tie us to the shaky financial structure of Europe,” wrote Wilson to the financier Bernard Baruch, who was one of his main advisers, “and am counting upon your assistance to defeat the efforts.” Most of his experts agreed, as did the Treasury in Washington. It was up to the Europeans to sort out their own problems; the more the United States helped them, the less likely they were to stand on their own feet. In any case, there was not much chance of Congress, dominated as it now was by Republicans, approving massive financial support for the Europeans. Keynes’s scheme was turned down flat like all the others, and he watched with increasing gloom as the peacemakers tried to move ahead on reparations.¹⁰

“There is no doubt,” said Lloyd George in reply to a worried query from a member of his cabinet in April, “it would be better to fix a sum if we could agree on the figure. The difficulty is first of all to ascertain it; the next is to secure agreement amongst the Allies as to the amount, and in the third place to secure an arrangement as to the proportions in which it is to be distributed. If you have any plan that will meet these three difficulties you will have solved the most baffling problem in the Peace Treaty.” Shortly after the opening of the conference the Supreme Council had set up a Commission on the Reparation of Damage, which was to look at the related questions of how much the enemy countries (which mainly meant Germany) should pay, how much they could pay, and how payment should be made. The subcommittee for the last point rarely met, but the other two subcommittees were in session day and night, producing little beyond mounds of paper. By the time Wilson left for the United States on February 14, the commission was deadlocked, with the Americans holding out for a relatively moderate figure and the British and the French demanding more. “They play with billions as children play with wooden blocks,” said a journalist cynically, “but whatever we agree to will largely be a figure of speech, for the Germans will never be able to pay such a vast sum.” The British were asking for £24 billion ($120 billion), the French for £44 billion ($220 billion); the American experts recommended £4.4 billion ($22 billion). ¹¹

The Americans also wanted to include a fixed amount in the treaty. This, their experts argued, would help to end the financial uncertainty that was holding back Europe’s recovery. The Europeans disagreed. As Montagu, one of the British cabinet ministers involved in the discussions, said: “If too low a figure were given Germany would pay out cheerfully and the Allies would get too little, while, on the other hand, if too high a figure were given, she would throw up the sponge and the Allies would get nothing.¹²

It is easy with hindsight to say that the victors should have been less concerned with making Germany pay and should have concentrated more on getting Europe going again. But after a war that had brought destruction on such a scale and shaken European society so deeply, how could political leaders speak of forgetting? In any case, public opinion would simply not allow them to do so. “Make the Hun pay,” said the British. “Let Germany Pay First,” said the posters covering the walls of Paris. ¹³

The European leaders saw danger even in assessing Germany’s capacity to pay, because the figure was bound to be lower than the public expected. The British and the French pointed out that it was very difficult to judge how much Germany—or whatever was to be left of it—would be able to pay. The country was in a bad way, its economy and its government equally shaky. The Germans could not provide reliable statistics, even if they had wanted to. Foreign trade had evaporated, and with it an important source of revenue. Government finances were in a mess. Taxes had been kept low for political reasons and the war costs had been paid for largely through the issue of huge amounts of war bonds and special notes. The plan had always been for Germany to settle accounts for the war when it had won and could transfer its costs to the defeated enemy. In the last year of the war this had in fact started to happen; the treaties of Brest-Litovsk with Russia and of Bucharest with Rumania had transferred control of huge resources to Germany. The Bolsheviks had also been obliged to start payments on an indemnity of $600 million. In the defeated Germany of 1919, conservatives protested loudly against any attempts to raise taxes or to default on government bonds, while the left pushed for benefits for veterans and widows and orphans, subsidized food and increased wages. The government meekly acquiesced to both, and Germany’s deficit climbed until, by 1921, it amounted to two thirds of the budget. There was little incentive to cut expenditures or raise taxes merely to pay reparations.¹⁴

Nor was it easy to determine the Allied bill. “In my poor country France,” said the French minister of the liberated regions, “there are hundreds of villages into which no one has yet been able to return. Please understand: it is a desert, it is desolation, it is death.” The American army engineer and his team of assistants who made what was probably the most detailed study of the war-torn parts of France and Belgium estimated in January 1919 that it would take at least two years to come up with a reliable estimate of the costs of repairing the damage. The British unkindly suspected their allies of inflating their claims, in Belgium’s case for more than its total prewar wealth and in France’s for about half. “Almost incredible,” said Lloyd George sternly. The more his allies claimed, of course, the less there would be for Britain.¹⁵

There was also much disagreement over what counted as damage. Wilson had said firmly that he would consider only restitution for damage done by unlawful acts of war and not for war costs themselves. His Fourteen Points had talked merely of “restoration” of invaded territories, and he had promised that there would be “no annexations, no contributions, no punitive damages.” When Germany had signed the armistice agreement, it had done so on that understanding. Germany would thus be liable for repairing the battlefields in France and Belgium but not for the money Allied governments had spent on, for example, munitions or feeding their soldiers. When Lloyd George tried to blur the line between reparations and indemnities, Wilson would have none of it: “Bodies of working people all over the world had protested against indemnities, and he thought the expression reparations would be sufficiently inclusive.”¹⁶

Lloyd George, optimistic as always, told his colleagues that he did not really think Wilson had ruled out indemnities. The British were concerned that, if Wilson stuck to his guns, the British empire would end up with compensation largely for ships sunk by the Germans. France would get the lion’s share, which, in the British view, it would probably waste with its usual inefficient financial management. The British also suspected that France was not trying very hard to repay its debts to Britain. As Churchill said severely, “France was going bankrupt as a nation, but the French were growing wealthy as individuals.” ¹⁷

Lloyd George tried persuasion with Wilson and then he tried threats. He might not be able to sign the treaty, he told him at the end of March 1919, unless some of Britain’s costs were included. Fortunately, Smuts had come up with an ingenious solution. He pointed out that, when the armistice had been arranged, the European Allies had stated, and the Americans had accepted, that Germany was liable for all damage done to civilians by its aggression. Therefore, reparations must include separation allowances for soldiers’ families, as well as pensions for widows and orphans. The effect was to double the potential bill. And this came from the same Smuts who four months earlier had warned Lloyd George against excessive claims, and who was to protest vigorously a month later that reparations would cripple Germany. High-minded, moralistic and clever, Smuts persuaded himself that he had not been inconsistent. In his own defense, he claimed that he had simply expressed an opinion shared by most of the legal experts at the Peace Conference. More revealingly, he wrote that, if pensions had been excluded, France would have got most of the reparations.¹⁸

Wilson listened to Smuts where he would not have listened to Lloyd George. The American experts thought the argument absurd and illogical. “Logic! Logic!” Wilson told them. “I don’t give a damn for logic. I am going to include pensions!”¹⁹ His decision in the end affected only the distribution of reparations, because the final figure was to be determined by what Germany could actually pay.

Although Wilson has been blamed for backing down, Lloyd George has been blamed even more for, as Keynes would have it, bamboozling the Americans and allowing the British public to dream of exacting huge sums from Germany. At best, he has been seen, as he was by many at the time, as a liberal who did not have the courage to be true to his principles. Certainly, he was not consistent. When Hughes of Australia first talked in terms of millions of pounds, Lloyd George pointed out that Germany could raise the sum only by expanding its manufacturing and dumping cheap goods on world markets. “It would mean that for two generations we would make German workmen our slaves.” What was more, it would damage British and imperial trade. Yet Lloyd George then turned around and made Hughes chairman of a committee packed with known hard-liners to draw up a preliminary estimate for the British government of Germany’s capacity to pay. The group—“altogether it was the oddest committee I ever served upon,” said Sir George Foster, of Canada—made little attempt to collect evidence but relied on personal impressions and wishful thinking; as Foster put it, “to make the Hun pay to the utmost, whether it leads to a generation of occupancy and direction, or not, and forgetful of the results otherwise.”²⁰

As the weeks went by and the numbers floated around, Lloyd George continued to vacillate. He argued for high reparations with Wilson and Clemenceau but then talked of moderation in his famous Fontainebleau Memorandum at the end of March. He opposed putting a fixed figure in the treaty on the grounds that it might be too low; then he swung round in June after the Germans complained and said perhaps the Allies ought to set an amount. He appeared to listen sometimes to Keynes and Montagu, both of whom were moderates, at other times to Lord Cunliffe, a former governor of the Bank of England, and a judge, Lord Sumner. The Heavenly Twins, as Keynes nicknamed them, were widely seen as the two bad men of the conference; “they always go about together and are always summoned when some particularly nefarious act has to be committed.” Lloyd George named the Twins as British representatives to the reparations commission but, when a special committee was set up in March to try to resolve the impasse, he chose Montagu. “When he meant to do business,” said an American, “he brought along Montagu and Keynes; when he was going to hedge he brought in Sumner and Cunliffe.” Keynes loathed his rivals. Lloyd George later claimed that he too was appalled by their lack of judgment. During the Peace Conference he disingenuously intimated to the Americans that, while he would prefer lower reparations, he could not get the Twins to agree.²¹

Both Cunliffe and Sumner believed they should get as good a deal as possible for their own country, but they were prepared to compromise— and to take direction from their prime minister. “We ought to act here like statesmen,” Sumner told his colleagues on the reparations commission, when he argued against piling on the costs. Both would have gone for a fixed amount in the treaty, and a lower figure, if Lloyd George had told them to do so. Why did he not? His vacillation damaged his reputation and caused much trouble with his colleagues in Paris. “I wish,” said Lamont, the American expert, “Mr. Lloyd George could tell us just what he finally wants, so that we could determine whether his ideas, and the President’s as we understand them to be, are in reality far apart or close together.” By exasperating the Americans, from Wilson on down, Lloyd George was putting at risk a relationship he considered of supreme importance. The problem was that he was not sure himself what he, or the British public, wanted. ²²

There was a side of him that wanted to see Germany punished. At his moral core—and he had one, despite what his enemies said—Lloyd George deplored war, and Germany had unleashed the worst one the world had ever seen. He also saw the issue as a lawyer. “By every principle of justice,” he told the British empire delegation, “by the principles of justice which were recognized as applicable between individuals, the Germans were liable for the whole of the damages and the cost of recovering them.” Since he was acting, in a sense, for Britain, he had to make sure that Germany’s other creditors did not inflate their claims. “That is an old device when claiming against a bankrupt estate.”²³

He was also, however, a statesman. He had been chancellor of the exchequer before the war, and he understood finance and trade. He knew that sooner or later the British would have to sell their goods to the Germans again. He did not want to destroy Germany. At the beginning of March, while the president was still in the United States, Lloyd George discussed reparations with House over lunch. He needed to provide, he told the American, “a plausible reason to his people for having fooled them about the question of war costs, reparations and what not. He admitted that he knew Germany could not pay anything like the indemnity which the British and French demanded.” Wilson, when he heard this on his return, was unsympathetic. He urged Lloyd George to resist demands for high reparations. “Nothing would be finer,” he said, “than to be put out of office during a crisis of this kind for doing what was right.” Lloyd George would have the consolation of knowing that posterity would think well of him. “I could not wish,” Wilson told him, “a more magnificent place in history.”²⁴

Lloyd George did not take this noble, and barren, way out. He was a politician, obliged to weigh what was just against what was practical. He also had to function in a world where the democratic voice of the people had to be heeded. The pressures on him in Paris were considerable. Parts of the liberal press were starting to talk of reconciliation, but the conservative papers were loudly demanding large reparations. Northcliffe had taken it upon himself to keep Lloyd George up to the mark. The press baron hinted darkly to the editors of the Daily Mail and The Times that the prime minister was under the sway of pro-German forces.²⁵

Lloyd George also found himself hemmed in, to a certain extent, by the December 1918 election. Promises to squeeze Germany hard—in one memorable phrase, “until the pips squeaked”—went over very well. He had produced ever larger notional bills for Germany. “We will,” he said, “search their pockets for it.” The last coalition manifesto before the vote stated simply: “1. Punish the Kaiser 2. Make Germany pay.” Many of the Conservatives who were elected in the resulting landslide were new to politics. “Hard-faced men who look as if they had done very well out of the war,” in the words of a leading Conservative, they saw their mission primarily as making the German pips squeak. In April, as he was arguing with Wilson, Lloyd George received a telegram signed by 370 members of Parliament asking him to remain true to his election speeches and “present the bill in full.” He rushed back to London and on April 16 demolished his critics with a tremendous speech in the House of Commons. He had no intention, he told his audience, of breaking his promises. They must not listen to an embittered, madly vain man—here he tapped his forehead significantly—but must trust to the world’s statesmen to do the best for humanity and peace. He left to loud cheers. Back in Paris he told the faithful Frances Stevenson that he had won “complete mastery of the House, while telling them absolutely nothing about the peace conference.”²⁶

Pressure came as well from the empire. While the Canadians, as on much else, took the American position, the Australians were for getting the maximum from Germany. Hughes loathed the Germans, whom he, like most of his compatriots, had long seen as the chief threat to Australia, and he thought the American objection to high reparations unprincipled and self-serving. As he told Lloyd George, a neutral United States had made great profits in the early stages of the war, while the British empire poured out its blood and treasure. Without a huge settlement from Germany, Britain would lose in the coming competition with the United States for world economic supremacy.²⁷

Lloyd George’s handling of the reparations issue was actually more successful than it appeared. By persuading Wilson to include pensions in reparations, he increased Britain’s share. By not mentioning a fixed sum in the treaty (for which there were sound technical reasons), he managed to keep public opinion at home and in the empire happy. (The impact on German opinion was another matter.) He also took out insurance of another sort when he privately urged a prominent European socialist to whip up a public outcry against treating Germany too harshly.²⁸ Finally, he managed to cast the French as the greedy ones, a role they have generally played ever since, with Louis-Lucien Klotz, the minister of finance, as chief villain.

Klotz, described by Clemenceau as “the only Jew I knew who knew nothing of finance,” is supposed to have said in answer to all questions about France’s future, “Germany will pay.” (In fact, he warned that German reparations should not be expected to pay for everything.) Clemenceau treated him contemptuously, as he did so many of his colleagues. Lloyd George found him merciless: “His mind and heart were so stuffed with bonds that he had no room left for the humanities.” Even Wilson was moved to a little joke about Klotz on the brain. Keynes has left a characteristically cruel sketch: “a short, plump, heavy-moustached Jew, well groomed, well kept, but with an unsteady, roving eye, and his shoulders a little bent in an instinctive deprecation” who tried to hold up food shipments to a starving Germany. Whatever Klotz did, though, he did as Clemenceau’s subordinate. If Klotz stood publicly for high reparations, that kept the French right from attacking Clemenceau for not being tough enough on Germany. In private, Clemenceau admitted that France would never get what it hoped for and he sent Louis Loucheur, his most trusted economic adviser, to talk to the Americans in confidence about more moderate terms. In their conversations, Loucheur made it clear that he personally saw no long-term advantage for France in driving Germany into bankruptcy.²⁹

Like Lloyd George, Clemenceau had to worry about public opinion. Most French took a straightforward view. Germany had invaded Belgium, violating its own solemn undertaking to protect its neutrality, and France, not the other way around. And almost all the fighting had been on Belgian and French soil. “Who Ought to Be Ruined?” asked a headline in the conservative Le Matin, “France or Germany?” ³⁰ Surely the aggressor and not the victim should pay for setting the damage right. The Americans might talk of the new diplomacy without indemnities or fines, but the old traditions where the loser customarily paid still ran strong. France had paid up in 1815, when Napoleon was finally defeated, and it had done so again after 1871. Both times Germany had collected; now it was going to pay out.

France, and Belgium, had argued from the start that claims for direct damage should receive priority in any distribution of reparations. Belgium had been picked clean. In the heavily industrialized north of France, the Germans had shipped out what they wanted for their own use and destroyed much of the rest. Even as German forces were retreating in 1918, they found time to blow up France’s most important coal mines. As Clemenceau said bitterly: “The barbarians of whom history spoke took all that they found in the territories invaded by them, but destroyed nothing; they settled down to share the common existence. Now, however, the enemy had systematically destroyed everything that came in his way.” Judging by captured German documents, it looked as though the Germans intended to cripple French industry and leave a clear field for their own.³¹

France and Belgium had hoped to include war costs in the final tally of reparations. Here Belgium, for once, was on firm ground: Wilson had made it clear that when he talked of Belgian restoration he meant all the harm done by Germany’s initial, and illegal, invasion in August 1914. The French case was weaker. Clemenceau, who did not want to antagonize the Americans when he needed their support on the other issues so crucial to France’s security, chose not to push this. He realized, although he did not say so publicly, that there was a limit to how much Germany could pay. Klotz admitted to the Foreign Affairs Commission of the French Chamber of Deputies that war costs would have produced a figure that even novelists in their wildest dreams would not come up with.³²

The French also realized that, since Britain had spent more on the war than France, including war costs would boost the British share of whatever the Germans finally paid. The French quietly changed tack, arguing that only direct damages—for their destroyed towns and villages, their flooded coal mines, their torn-up railway lines—should be included. That would give France about 70 percent of all German payments, Britain perhaps 20 percent and other claimants—Belgium, Italy, Serbia—whatever was left. After intense bargaining, the British insisted on 30 percent, with the French getting 50 percent and the remaining 20 percent shared out among the smaller powers. It took until 1920 to get a final agreement on 28 percent for Britain and 52 percent for France.³³

The French, it should be noticed, made the greatest concession. They were to follow a similar pattern on the total figure to be paid by Germany. Clemenceau, who always thought in terms of the overall settlement, may have set a high figure early on partly to persuade the Americans to consider the French proposals for continued Allied economic cooperation. At the end of February, when it was clear that the Americans were not interested, Loucheur came down to £8 billion ($40 billion), just over a quarter of what France had been demanding. Cunliffe, representing Britain, refused to go any lower than £9.4 billion ($47 billion). The British suspected that the French were siding with the Americans on a lower figure and leaving them to appear the most demanding. The picture painted so vividly by Keynes and others of a vindictive France, intent on grinding Germany down, begins to dissolve.³⁴

In the end, mainly because of British resistance, it proved impossible to agree on a figure for the treaty. At the end of March the Allied leaders, now meeting as the Council of Four, decided on the alternative of the special commission. The postponement, one of the American experts wrote in his diary, “will relieve Great Britain and France from their troubles of making public the small amount they are to get from reparations because both Prime Ministers believe their government will be overthrown if the facts are known.” He was right. By the time the commission set a final total of 132 billion gold marks (approximately £6.5 billion, or $34 billion) in 1921, emotions about Germany, especially in Britain, were cooling off.³⁵

The German delegation that came to Versailles in May complained bitterly about the decision not to announce the final figures of the reparations until after the treaty had been signed. “No limit is fixed save the capacity of the German people for payment, determined not by their standard of life but solely by their capacity to meet the demands of their enemies by their labour. The German people would thus be condemned to perpetual slave labour.” The emotion, given the general dismay over the terms, is understandable; the interpretation, however, unduly pessimistic. The special commission on reparations had to take into account Germany’s capacity to pay; it also had to consult the Germans themselves. Furthermore, the categories of damage for which reparations were to be paid were specifically limited; not enough, perhaps, since they included pensions, but they were certainly not open-ended. ³⁶

Starting the section in the treaty on reparations were two articles— Articles 231 and 232—that came to be the object of particular loathing in Germany and the cause of uneasy consciences among the Allies. Article 231 assigned responsibility to Germany and its allies for all the damage caused by the war. Article 232 then restricted what was an unlimited liability by saying that since Germany’s resources were in fact limited, it should be asked to pay only for the specified damages. The first clause—the war guilt clause, as it later came to be known—had been put in after much debate and many revisions, primarily to satisfy the British and the French that Germany’s legal liability was clearly established. The Americans helpfully put one of their clever young lawyers on to it. John Foster Dulles, the future secretary of state, thought he had both established the liability and successfully limited it and that, on the whole, the treaty was pretty fair. The European Allies were happy with his formulation. Lloyd George, always sensitive to political considerations, said, “The English public, like the French public, thinks the Germans must above all acknowledge their obligation to compensate us for all the consequences of their aggression. When this is done we will come to the question of Germany’s capacity to pay; we all think she will be unable to pay more than this document requires of her.” If the Germans balked at paying a particular category of damages, Loucheur thought, the Allies could always threaten them with an unlimited claim. No one thought there would be any difficulty over the clauses themselves. ³⁷