1. Out of the total amount of the claim, whatever it eventually turns out to be, a sum of $5,000,000,000 must be paid before May 1, 1921. The possibility of this will be discussed below. But the Treaty itself provides certain abatements. In the first place, this sum is to include the expenses of the Armies of Occupation since the Armistice (a large charge of the order of magnitude of $1,000,000,000 which under another Article of the Treaty—No. 249—is laid upon Germany).110 But further, “such supplies of food and raw materials as may be judged by the Governments of the Principal Allied and Associated Powers to be essential to enable Germany to meet her obligations for Reparation may also, with the approval of the said Governments, be paid for out of the above sum.”111 This is a qualification of high importance. The clause, as it is drafted, allows the Finance Ministers of the Allied countries to hold out to their electorates the hope of substantial payments at an early date, while at the same time it gives to the Reparation Commission a discretion, which the force of facts will compel them to exercise, to give back to Germany what is required for the maintenance of her economic existence. This discretionary power renders the demand for an immediate payment of $5,000,000,000 less injurious than it would otherwise be, but nevertheless it does not render it innocuous. In the first place, my conclusions in the next section of this chapter indicate that this sum cannot be found within the period indicated, even if a large proportion is in practice returned to Germany for the purpose of enabling her to pay for imports. In the second place, the Reparation Commission can only exercise its discretionary power effectively by taking charge of the entire foreign trade of Germany, together with the foreign exchange arising out of it, which will be quite beyond the capacity of any such body. If the Reparation Commission makes any serious attempt to administer the collection of this sum of $5,000,000,000 and to authorize the return to Germany of a part it, the trade of Central Europe will be strangled by bureaucratic regulation in its most inefficient form.
2. In addition to the early payment in cash or kind of a sum of $5,000,000,000, Germany is required to deliver bearer bonds to a further amount of $10,000,000,000, or, in the event of the payments in cash or kind before May 1, 1921, available for Reparation, falling short of $5,000,000,000 by reason of the permitted deductions, to such further amount as shall bring the total payments by Germany in cash, kind, and bearer bonds up to May 1, 1921, to a figure of $15,000,000,000 altogether.112 These bearer bonds carry interest at 2½ percent per annum from 1921 to 1925, and at 5 percent plus 1 percent for amortization thereafter. Assuming, therefore, that Germany is not able to provide any appreciable surplus towards Reparation before 1921, she will have to find a sum of $375,000,000 annually from 1921 to 1925, and $900,000,000 annually thereafter.113
3. As soon as the Reparation Commission is satisfied that Germany can do better than this, 5 percent bearer bonds are to be issued for a further $10,000,000,000, the rate of amortization being determined by the Commission hereafter. This would bring the annual payment to $1,400,000,000 without allowing anything for the discharge of the capital of the last $10,000,000,000.
4. Germany’s liability, however, is not limited to $25,000,000,000, and the Reparation Commission is to demand further instalments of bearer bonds until the total enemy liability under Annex I has been provided for. On the basis of my estimate of $40,000,000,000 for the total liability, which is more likely to be criticized as being too low than as being too high, the amount of this balance will be $15,000,000,000. Assuming interest at 5 percent, this will raise the annual payment to $2,150,000,000 without allowance for amortization.
5. But even this is not all. There is a further provision of devastating significance. Bonds representing payments in excess of $15,000,000,000 are not to be issued until the Commission is satisfied that Germany can meet the interest on them. But this does not mean that interest is remitted in the meantime. As from May 1, 1921, interest is to be debited to Germany on such part of her outstanding debt as has not been covered by payment in cash or kind or by the issue of bonds as above,114 and “the rate of interest shall be 5 percent unless the Commission shall determine at some future time that circumstances justify a variation of this rate.” That is to say, the capital sum of indebtedness is rolling up all the time at compound interest. The effect of this provision towards increasing the burden is, on the assumption that Germany cannot pay very large sums at first, enormous. At 5 percent compound interest a capital sum doubles itself in fifteen years. On the assumption that Germany cannot pay more than $750,000,000 annually until 1936 (i.e. 5 percent interest on $15,000,000,000) the $25,000,000,000 on which interest is deferred will have risen to $50,000,000,000, carrying an annual interest charge of $2,500,000,000. That is to say, even if Germany pays $750,000,000 annually up to 1936, she will nevertheless owe us at that date more than half as much again as she does now ($65,000,000,000 as compared with $40,000,000,000). From 1936 onwards she will have to pay to us $3,250,000,000 annually in order to keep pace with the interest alone. At the end of any year in which she pays less than this sum she will owe more than she did at the beginning of it. And if she is to discharge the capital sum in thirty years from 1930, i.e. in forty-eight years from
