Source: https://history.state.gov/historicaldocuments/frus1919Parisv13/ch18subch1
Timestamp: 2018-07-23 17:57:05
Document Index: 37928015

Matched Legal Cases: ['Art. 248', 'art. 86', 'art. 108', 'art. 92', 'art. 109', 'art. 99']

Financial clauses (Art. 248 to 263)
Notes to Part IX, Articles 248 to 263
On May 13, 1919 the German delegation analyzed the effect of the conditions of peace on the situation of the German population. As long as Germany was an agricultural state, it could feed 40,000,000 inhabitants; as an industrial state, it could feed 67,000,000 by importing 12,000,000 tons of food a year; 15,000,000 persons gained their living through foreign trade and navigation. Now Germany would have to surrender its merchant fleet, colonies, and overseas interests. The territorial changes would involve the loss of 21 percent of the corn and potato crops, a third of its coal production (not to mention deliveries for 10 years), three quarters of all mineral production and three fifths of its zinc production. “An enormous part of German industry would therefore inevitably be condemned to destruction”; it would be increasingly necessary to import food, increasingly difficult to do so. “At the end of a very short time,” [Page 527]Germany would not be able to “give bread and work to numerous millions”. Moreover, hundreds of thousands of Germans would be expelled from the territories of Germany’s enemies and have to return home. Furthermore, the health of the German population had been broken down by the blockade, which had been continued since the armistice. “Those who will sign this treaty will sign the death sentence of many millions of German men, women, and children.” ( Foreign Relations, The Paris Peace Conference, 1919, v, 738.)
On May 22 the Allies characterized the German statement as “a very inadequate presentation of the facts of the case” and “marked in parts by great exaggeration”. Thus, Germany would have to provide not for 67,000,000 but 60,000,000 . It would have to transfer 4,000,000 tons of shipping, but 12,750,000 tons had been sunk, and the shortage was the result “not of the terms of peace but of the action of Germany”. It was true that Germany would lose regions specially productive of wheat and potatoes, but those foods could be imported. It was true that Germany would lose much coal, but one fourth of the pre-war consumption was in territories to be transferred and production had increased in the territory left to Germany. If Germany had to export coal, this was to make good the loss of coal resulting from “the wanton acts of devastation perpetrated by the German armies”.
The German note took no account of the fact that the economic disaster produced by the war was universal, and there was “no reason why Germany, which was responsible for the war, should not suffer also”. The Allies declined to accept the German argument that the treaty would bring about the destruction of several millions of Germans. Great Britain imported at least half of its food supplies and most of its raw materials. Germany could also build up for itself a position of both stability and prosperity, especially as its territory had not been pillaged or devastated. But Germany must recognize its responsibility for the “enormous calamity” of the world and its duty to make it good. “Those who were responsible for the war cannot escape its just consequences.” ( Ibid., v, 802.)
On May 29 the German delegation returned to this theme. If the territorial, political, and economic conditions of the Allies were carried into effect, Germany would be condemned to “economic and financial annihilation”, even without the payment of indemnities. [Page 528]Such a Germany could not and would not pay reparation as required by the Allies.
Germany could not, for strictly financial reasons, repay the war expenses of the Allies or assume the costs of the armies of occupation. The clauses concerning debts to be taken over were unfair. No credit was allowed for the materials handed over since the armistice.
The Allies evidently intended that Germany pay reparation for sixty or even a hundred years, but they failed to take into account that the German people would not work as slaves when they realized that the more they worked, the more they would have to pay to the Allies. The Reparation Commission was to obtain “a complete financial control of Germany by the Allies and a complete mastery over the Reich budget”. To make reparation a first charge on Germany’s revenues was impossible because credit would be undermined and Germany’s economic machine would break down; the burden of taxation would “probably be considerably higher than that of any other country”.
The expropriation of German property abroad would prevent Germany from meeting its foreign obligations and would necessitate the floating of new internal loans to compensate the holders. But loans would be impossible to raise and therefore compensation could be made only by “copious emission of notes”, which would depreciate the mark more and more.
Article 251 gave the commission control of Germany’s food supply. Article 241 would have the effect of destroying the powers of the Reichstag over finance. The commission, which would have its headquarters outside of Germany, would possess in Germany “incomparably greater rights than the German Emperor ever possessed”.
Not only did the Commission possess arbitrary powers. The Allies claimed the right to dispose of all enemy property in their own countries but demanded protection for the property of their own nationals in Germany. Germany must hand over consignments of gold for Turkey, Austria, and Hungary and at the same time transfer to the Allies its claims against those countries and Bulgaria.
Article 248 forbade the export of gold without consent of the Reparation Commission. Article 262 stipulated that special payments must be made at the parity of January 1, 1914, whereas Germany could pay only at the rate of exchange at which debts were incurred; furthermore, the necessity of paying for food with gold had so reduced the German gold balance that it might be necessary [Page 529]to pay in foreign currency rather than gold. Article 296, paragraph 4 (d) would also operate to the heavy damage of Germany.
The proposals of the Allies in their present form and extent were “positively incapable of execution”. After the costs of the army of occupation had been met and “the barest necessities in the shape of food and raw materials” paid for, little—if anything—would be left for reparation. “No German administration could be equal to the task of extorting further payments”. A different path has therefore to be sought, “a path of mutual understanding”.
On condition of retaining its territorial integrity according to the armistice convention, its colonies, merchant ships, and private property abroad, the German delegation repeated the proposals already described on page 456. “We recognise that we cannot even approximately re-establish a world trade on the pre-war scale, and that our economic life must be on a much more modest footing. All we ask is that we shall not be expected to vegetate, dishonored and enslaved.” ( Foreign Relations, The Paris Peace Conference, 1919, vi, 902.)
A special note contained German objections to articles 259 and 263 ( ibid., p. 918).
The Allies began their reply by reminding the Germans that “the authors of the war cannot escape its just consequences”. They pointed out that within the Reich they laid claims only against state property and resources and did not claim German private property in neutral countries. Nevertheless they agreed to insert in article 248 a clause permitting the Reparation Commission to make exceptions; they asserted that the limitation of the right to export gold was in the interest of Germany. As to the payment of the cost of the army of occupation, there could be no argument about it; nor would any credit be given for war material turned over since the armistice. Paragraph 2 of article 251 was also in the interest of Germany. On the question of state debts no concessions were made, because it would be unjust to saddle France, Poland, or mandated colonies with any phase of the German debt. Likewise the Allies maintained their position in respect of the Ottoman debt, although small changes in drafting were made in view of elaborate German explanations on certain points. They agreed, however, that the transfer of German credits in Austria, Hungary, Bulgaria, and Turkey should be credited to Germany’s account at such value as the Reparation Commission should decide. Germany could not be [Page 530]allowed to pay “in the currency of the country in which the injury has been committed”, because those countries would need foreign exchange. As regards article 263, the Allies agreed to substitute “interest at the rate or rates agreed upon” for the rate of 5 percent mentioned in the draft treaty, but insisted that the reimbursement be made at the rates of exchange existing when the deposits were made ( ibid., p. 967).
The treaty restoring friendly relations between the United States and Germany signed at Berlin, August 25, 1921 and in force on November 11, 1921 with retroactive effect to July 2, 1921 stipulates that “Germany undertakes to accord to the United States and the United States shall have and enjoy … all the rights and advantages” stipulated for its benefit by this part of this treaty, “notwithstanding the fact that such treaty has not been ratified by the United States”. The rights and advantages of nationals of the United States specified in the joint resolution of Congress, approved July 2, 1921 ( p. 18) were specifically mentioned in an understanding included in the Senate’s resolution of advice and consent to ratification of October 18, 1921. The Senate in that resolution made a further condition “that the United States shall not be represented or participate in any body, agency or commission, nor shall any person represent the United States as a member of any body, agency of commission in which the United States is authorized to participate by this Treaty, unless and until an Act of the Congress of the United States shall provide for such representation or participation.”
This part is, ipsissimis verbis, an annex, technically a schedule, of the treaty restoring friendly relations as printed by the Department of State in Treaty Series 658 but not as printed in 42 Stat. 1939.
The Reparation Commission was given a mandate by the Belgian, British, French, Italian and Japanese Governments to execute the clauses of part IX in their name.
Subject to such exceptions as the Reparation Commission may approve, a first charge upon all the assets and revenues of the German Empire and its constituent States shall be the cost of reparation and all other costs arising under the present Treaty or any treaties or agreements supplementary thereto or under arrangements [Page 531]concluded between Germany and the Allied and Associated Powers during the Armistice or its extensions.
The first charge upon all the assets and revenues of the German Empire and its constituent States shall be the cost of reparation and all other costs arising under the present Treaty or any treaties or agreements supplementary thereto or under arrangements concluded between Germany and the Allied and Associated Powers during the Armistice or its extensions.
Note to IX, 248
The question as to what constituted a “a first charge” arose in connection with several cases. The Reparation Commission on July 31, 1920 denied to Germany the right to execute an agreement to indemnify the owners for the torpedoing of the Argentine ship Monte Protegido in 1917. On December 31, 1921 the commission informed Germany that the financial clauses of its treaty with China of May 20, 1921 should have had prior approval and stated that Germany must turn over for reparation account any net receipts from the transactions involved. On April 6, 1922 the Committee of Guarantees informed the German Chancellor, with relation to the German-Soviet Treaty of Rapallo of April 20, 1922, that it must obtain prior consent “before concluding with foreign Governments or any institution whatever any agreement which entailed a diminution of assets for the German Government (even under the form of a concession or mortgage), or before effecting any payment of this nature in virtue of agreements already concluded”. The question of this type of infraction arose in the matter of several neutral vessels sunk by Germany. The Committee of Guarantees denied on October 14, 1922 a request of the German Government to pay an arbitral award of 2,966,804.65 francs for the loss of the cargo of the Spanish S.S. Sardinero. The extent of the application of article 248 arose on a number of occasions with respect to loans of various types. It was ruled on December 9, 1924 that state property could not be transferred to private enterprises without the intervention of the commission. On January 15, 1925 the Reparation Commission informed Germany that it was free, under stated conditions including the ruling of December 9, 1924, to employ its resources, over and above the requirements of the Experts’ (Dawes) Plan, for payments [Page 532]outside of Germany without the intervention of the commission, but with advance notice thereof to the commission. A modus vivendi was effected on that basis by letters of the Kriegslastenkommission on May 22 and of the Reparation Commission on May 30, 1925.
On August 24, 1925, a German payment to Norway and on October 2, 1926 a Prussian loan in New York were the subjects of protests by the commission, which held that the methods adopted by Germany violated the modus vivendi.
Denmark received 600,000 gold marks for the loss of the S.S. Orion during the war, paid January 2, 1929.
Payments to the Spanish Government in respect of the costs of internment of German nationals in Spanish territory during the war amounted to 8,000,000 Reichsmarks at the end of May 1929.
Proceeds under the British “reparation recovery act” up to January 20, 1930 amounted to 372,625,525 gold marks.
See also note to article 241.
Note to IX, 249
Army occupation costs are dealt with in article 1 of the agreement of March 11, 1922; the agreement of May 25, 1923; articles 2, 13, 15, [Page 533]and 21 of the agreement of January 14, 1925; and article 1 of the agreements of September 21, 1925 and January 13, 1927. For the texts of these agreements, see Appendix ( pp. 870, 880, 902, 919, 924).
The expenses of the Inter-Allied Rhineland High Commission and of the Inter-Allied Commissions of Control were included in the army of occupation costs.
Takings in marks were credited at the mean quarterly rate of exchange until May 1, 1922. After that for a short time the monthly average of exchange on New York was adopted, followed shortly by a decision to employ the daily rate of the date of receipt.
On United States army of occupation costs see appendix, documents 7 and 14.
The closed accounts of the Reparation Commission covering the period November 11, 1918 to January 20, 1930 recorded credits to Germany for army of occupation costs of 778,923,731.11 gold marks.
There shall be credited to the German Government, against the sums due from it to the Allied and Associated Powers for reparation, the value, as assessed by the Reparation Commission, referred to in Article 233 of Part VIII (Reparation) of the present Treaty, of the material handed over in accordance with Article VII of the Armistice of November 11, 1918, or Article III of the Armistice Agreement of January 16, 1919, as well as of any other material handed over in accordance with the Armistice of November 11, 1918, and of subsequent Armistice Agreements, for which, as having non-military value, credit should in the judgment of the Reparation Commission be allowed to the German Government.
Note to IX, 250
The armistice deliveries credited to reparation totaled 1,181,632,000 gold marks at December 31, 1922, but that sum was later readjusted to 1,025,300,931.
Rolling stock was credited to Germany at a total of 826,791,120 gold marks, of which 399,795,156 was debited to France and 385,728,630 to Belgium. Of 140,000,000 gold marks of abandoned material the United States received 22,000,000, and of trucks valued at 32,200,000 gold marks, a number of them valued at 7,924,037.
Note to IX, 254
The Reparation Commission determined the public debt of the German Reich subject to division as of August 1, 1914 to be 5,383,394,000 marks and that of Prussia 10,887,969,874 marks. The Financial Service of the commission found that all except some 26,000,000 gold marks of that 16,271,363,874 should remain liabilities of Germany and Prussia.
The portions of German imperial and state debt assumed by the cessionary states was, in gold marks: Belgium in respect to Eupen and Malmédy (arts. 32–39), 640,609; Czechoslovakia (art. 86), 242,789; Free City of Danzig (art. 108), 3,763,729; Poland (art. 92), ceded territory, 18,871,799, of which 1,750,361 was on account of Upper Silesia; Denmark in respect to Slesvig (art. 109), 2,000,000; Lithuania in respect of Memel (art. 99), 109,400.
Note to IX, 256
The Reparation Commission decided that it would not interpret this article and that differences between the parties concerned should [Page 537]be settled between them, the commission evaluating the properties and claiming payment from the cessionary states only after agreement between the parties had been reached.
Property was acquired by the cessionary states and credited to Germany on the reparation account, in gold marks, as follows: Czechoslovakia, 5,879,928; Denmark for Slesvig, 63,000,000; Free City of Danzig, 117,321,000; Danzig Harbor Board, 54,258,000; Poland, at Free City of Danzig, 92,128,000; Poland for East Prussia and Posnania, 1,563, 193,479; Upper Silesia, 419,033,269.
Poland’s obligations with respect to property ceded by Germany arose out of articles 92 and 243. By article 10 of the Spa agreement of July 16, 1920 the sums credited to Germany were entered provisionally in a suspense account, carrying interest at 5 percent per annum.
The Reparation Commission decided that, in case the Free City of Danzig or Poland should default in their payments to the credit of Germany, the Allied and Associated Governments would be responsible for payment in virtue, of article 107. Something akin to this situation occurred with respect to Danzig, which the Reparation Commission found was due to pay 263,707,000 gold marks on account of all the property ceded by Germany and of its quota of German and Prussian debts. A convention accepted in the name of Danzig on May 3, 1923 the obligations in execution of article 107, and article 24 of the Finance Ministers’ agreement of January 14, 1925 authorized the Reparation Commission to regulate all questions concerning the Danzig debt. The Free City arranged three loans under the auspices of the League of Nations, the second being a 6½ percent tobacco monopoly loan in the face amount of 40,000,000 gulden, issued under a protocol of June 22, 1927. Of the proceeds of this loan, 45 percent was devoted to paying £360,000 to the Reparation Commission in full liquidation of Danzig’s obligations.
Rolling stock of German railway material under clause VII of the armistice convention of November 11, 1918 was owing as arrears on January 10, 1920 in respect of 42 locomotives and 4,460 wagons. Further deliveries in connection with the taking over by cessionary states of German railways was provided for in articles 256 and 371. As of December 31, 1922, in virtue of article 250, the Reparation Commission credited Germany with 4,552 locomotives and 127,038 wagons valued at 826,791,120 gold marks.
The rolling stock assigned to Belgium was regarded as accessory to the railroads situated in Eupen and Malmédy, and consequently Belgium was not called on to pay for it.
(1) Germany agrees to deliver within one month from the date of the coming into force of the present Treaty, to such authority as the Principal Allied and Associated Powers may designate, the sum in gold deposited in the Reichsbank in the name of the Council of the Administration of the Ottoman Public Debt as security for the first issue of Turkish Government currency notes.
Note to IX, 259 (1)
A sum of 57,919,687.34 gold marks was transferred for the joint account of the Allied and Associated Powers by Germany on February 11, 1921. The original security was 80,000,000 gold marks of which 74,792,869.92 was actually deposited. The administration of the Ottoman Public Debt drew 16,873,182.58 gold marks between September 1916 and November 1918.
The Reparation Commission transferred the joint account to the Evaluation Commission instituted by the treaty of peace with Turkey, signed at Lausanne July 24, 1923.
Note to IX, 259 (2)
The Reparation Commission notified the Kriegslastenkommission on May 24, 1922 that no payment could be made under this provision without its sanction.
(3) Germany undertakes to deliver, within one month from the coming into force of the present Treaty, to such authority as the Principal Allied and Associated Powers may designate, the sum deposited in gold in the Reichsbank, representing the residue of the advance in gold agreed to on the 5th May, 1915, by the Council of the Administration of the Ottoman Public Debt to the Imperial Ottoman Government.
Note to IX, 259 (3)
A sum of £T 51,378 gold and 33.37½ silver piasters, representing the residue on June 28, 1919 of an advance of £T 400,000 granted on May 5, 1915 by the Council of Administration of the Ottoman Public Debt to the Imperial Ottoman Government, was transferred for joint account of Allied and Associated Powers by the Reichsbank on January 25, 1921. On September 6, 1921, in pursuance of a resolution of the Conference of Ambassadors, the sum deposited was transferred to the Council of Administration of the Ottoman Public Debt in view of article 254 of the treaty of peace with Turkey.
Note to IX, 259 (4–5)
The Reparation Commission took no action on these two provisions.
Note to IX, 259 (6)
Russia under the treaty of Brest-Litovsk transferred to Germany 93,596 kilograms of gold representing about 320,000,000 rubles; this gold was deposited for the joint account of the Allied and Associated Powers by Germany in December 1918.
A claim by the Rumanian Government for restitution by Germany of 2,673,000,000 marks representing bank notes issued by Germany [Page 541]in Rumania during the occupation was held by the Reparation Commission not to fall under article 259.
Note to IX, 260
The Reparation Commission on February 23, 1920 requested the German Government to supply a list of the rights and interests referred to in this article. The lists were submitted in July, August, [Page 542]and November on a much narrower interpretation of the article than the commission held. Pending arbitration on this point, the commission on January 7, 1921 called upon the German Government to sequestrate all rights and interests mentioned in the lists already transmitted, and later asked for further lists to be prepared by August.
Delivery of the securities called for began in September 1921 and continued through October 1922. All told, securities to the number of 1,395,233 were delivered and committed to the custody of British, French, Italian, and Belgian banks for realization.
The Reparation Commission on April 27, 1921 defined the word “concessions” as meaning “an agricultural, mining, industrial, commercial, or generally any economic right which has been granted either by a special legislative measure or by an act, in principle discretionary, of the executive authorities and which, therefore, does not result merely from the operation of the general law.”
“Rights and interests” were designated by the Reparation Commission as including shares, or partnerships; bonds; debentures; secured debts, or debts carrying a right of control.
The terms of this article raised a number of questions of interpretation, particularly with respect to the scope of the word “concession” and the phrase “public utilities undertaking”. The Reparation Commission entered into an agreement with the German Government to submit this and other questions raised in applying the article to the arbitration of Frederik Beichmann, president of the Court of Appeal, Trondhjem, Norway. The award of September 3, 1924 was accepted by the Reparation Commission which on June 31, 1925 concluded with Germany a protocol for the application of article 260.
The award of September 3, 1924 gave careful definitions of the terms:
“Public utility undertaking” comprises railroads of general and local interest, including tramways, and canals if they are subject to use by the general public, enterprises for the distribution of water, gas or electric current if they supply an area not too limited, or the general public; and does not comprise mining enterprises, such as those for coal, iron or copper, and those for extraction of petroleum or analogous substances, and the private schools in the Near East.
“Concession” embraces grants (octrois) of the right of exploiting mines or deposits … on condition that, according to the legislation of the country, the grant has been made by the state, or by an authority which is dependent upon a special act, and in virtue of a power discretionary in principle.
The award distinguished between enterprises which include exploitations independent of the concession and are not public utilities, these elements being separable or inseparable. Both words comprise movable and immovable property.
Certain Austrian, Hungarian, Russian, Turkish, and Polish securities were sold by the commission and the proceeds included in the annuities of the Experts’ (Dawes) Plan. A list of Danzig, Austrian, Hungarian, Russian, and Slesvig securities, held by the Reparation Commission, was returned to Germany. A further agreement of September 16, 1926 restored to Germany small amounts of company shares and other securities in ruble values and various contracts and concessions relating to African and Pacific areas in application of article 123.
The list of securities transferred by Germany is given in Report on the Work of the Reparation Commission from 1920 to 1922, p. 191. Altogether 9,281,133 gold marks was realized on securities under this article.
The provisions of the article, the Reparation Commission decided, were applicable only to rights and interests situated in ceded, reincorporated or mandated territory which the competent government did not liquidate under the provisions of article 297. Such liquidations gave rise to no credit on the reparation account.
Note to IX, 261
The claims of Germany against Austria, Bulgaria, and Hungary referred to in this article and the debts of Germany referred to in [Page 544]articles 213 of the Austrian treaty, 196 of the Hungarian treaty, and 145 of the Bulgarian treaty were “finally canceled” by annex II, 2 (ii), of the agreement of January 20, 1930.
Note to IX, 262
See part VIII, annex II, paragraph 12 (c).
Germany gives a guarantee to the Brazilian Government that all sums representing the sale of coffee belonging to the State of Sao Paolo in the ports of Hamburg, Bremen, Antwerp and Trieste, which were deposited with the Bank of Bleichröder at Berlin, shall be reimbursed together with interest at the rate or rates agreed upon. Germany, having prevented the transfer of the sums in question to the State of Sao Paolo at the proper time, guarantees also that the reimbursement shall be effected at the rate of exchange of the day of the deposit.
Germany gives a guarantee to the Brazilian Government that all sums representing the compulsory sale of coffee belonging to the State of Sao Paolo in the ports of Hamburg, Bremen, Antwerp and Trieste, which were deposited with the Bank of Bleichröder at Berlin, shall be reimbursed together with interest at 5 per cent. from the day of the deposit …
Note to IX, 263
The proceeds of the sale of São Paulo coffee, running from November 25, 1914 to November 30, 1920, amounted to £6,259,673 19s. 6d.