Economics of G20. Группа авторов
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Reparations
Reparations were important in creating uncertainty and doubt in the 1920s. Astronomical sums were thrown around at Versailles. The decision was postponed. Ultimately, the 1921 London Schedule of Payments required Germany to pay 132 billion gold marks (US$33 billion) in reparations to cover civilian damage caused during the war (Marks, 1978).5 Immediately 20 billion gold marks were to be paid, but only 8 billion was paid. The London schedule divided reparations into three groups, A, B and C. A was the leftover amount of 12 billion and B was 38 billion golden marks. The rest was designated as C, and none expected this to be paid.6 Ultimately, just over 20 billion gold marks or $5 billion was paid. Most of these payments were financed by foreign loans, many of which were eventually repudiated by Hitler (Marks, 1978).7
Reparation payments were progressively reduced.8 The Dawes Plan managed to finally get French agreement to a reparations deal after the fiasco of the occupation of the Rhineland in 1923.9 The United States loaned $200,000,000 to Germany to “prime the pump,” and Germany paid 1,000,000,000–2,500,000,000 marks in reparations for 5 years.10 But it soon became obvious that Germany would not be able to pay the required amounts. The Young Commission was set up in 1929. The Young Plan further reduced payments by about 20%. Also, of the annual payment of US$473 million, one-third had to be paid; the rest could be postponed, but would incur interest. Most of the payments were financed by a consortium of American investment banks coordinated by J.P. Morgan & Co. In the end, Germany received more money in loans than it ever paid in reparations; thus, the cost of repairing war damage was borne ultimately by the taxpayers, investors and consumers of the Allied nations and the United States.
There was considerable discussion and cooperation at various levels. But these did not satisfactorily resolve the issues. There were continuous alarms, and the performance of the world economy during this period was poor. Some analysts have attributed the problems to the lack of a hegemon. According to this idea, a hegemon would provide the public good of monetary stability and other countries would benefit from this stability (Kindleberger, 1973).11 Such analysts argue that in the pre-World War I period, the UK had been the hegemon and the Bank of England (BE) had acted to ensure the smooth working of the GS. Eichengreen (1996, 1998) challenged this hegemonic interpretation of the GS, arguing that the international monetary system was essentially cooperative. The BE depended on lending from other central banks, the Bank of France in particular, to stabilize the system in times of crisis.12 The extent of cooperation among central banks has been questioned. Cooperative efforts, Gallarotti (1995, Ch. 3)13 argues, were intermittent, occurred on an ad hoc basis when crises threatened, were bilateral rather than systemic and were effected in order to protect domestic markets.14
Great Britain was too weakened by the war to act as a hegemon any longer, and the US, which was now the most powerful economy, chose not to act to stabilise the world economy. Others argue that the BE could no longer stabilise the world economy because structural changes prevented it from playing that role (De Cecco, 1984). Still others have held that the reparations issue vitiated the atmosphere for cooperation or that they imposed an unbearable burden on Germany, which weakened it and the entire world economy.
Attempts at International Cooperation to Stabilise the Economy
Genoa Conference
The Genoa Conference (GC) was held in 1922 to find a cooperative solution to the ills of the world economy, particularly the European economies. However, the major powers had very different expectations. Also, political and economic objectives were intertwined. The British and the French had called for the conference. The French were mainly interested in ensuring their security from Germany. They sought to cripple Germany’s power and reparations were one way to do so; thus, their main concern was that reparations be paid to them and that there would be no reduction in the amount of reparations.
The British sought a revival of the world economy by agreement on monetary measures and the reintegration of Germany, the Soviet Union and other East European economies into the world economy as this would boost British exports and so the economy. The Soviets also hoped for their reintegration into the world economy. The US, expecting that they would be pressurised to write-down the war debts owing to them, did not officially attend.15 Furthermore, the US economy seemed to have overcome its earlier recession and was now growing rapidly so that European revival seemed less necessary for its own prosperity. Furthermore, they had not recognised the Soviet Union and did not want to officially attend a conference with them.
The UK was most interested in the revival of Germany and Russia. Negotiations foundered when France and Belgium, pre-revolutionary Russia’s main creditors, insisted on the repayment of pre-war loans and restitution of confiscated foreign-owned property in Soviet Russia. The US was also unwilling to deal with Russia unless it recognised its responsibility for the tsarist debts and met other conditions which essentially meant a repudiation of communism. On the contrary, Russia wanted to be reintegrated economically without accepting liability for tsarist debts and without any political and economic strings.
Genoa seemed to provide a map for the reconstruction of the international monetary system. The draft resolutions, piloted by the British Chairman Hawtrey, sought to both increase the supply of gold available to the central banks and reduce the demand. Withdrawal of gold coinage meant that the entire amount of available gold was at the disposal of the central banks. The demand for gold was sought to be reduced, through adoption of the GES.16 Countries held their reserves in the form of other currencies, usually the pound sterling. The proposed GES mitigated the deflationary pressure arising from the demand for gold as countries returned to the GS.
Also, devaluation of currencies that had depreciated significantly was recommended, in order to speed restoration of the GS. It was also recommended that independent central banks be set up in the newly independent countries and that the central banks should cooperate continuously in order to manage the system and be free from political pressure. Cooperation would regulate credit to maintain the currencies at par and to prevent undue fluctuations in the purchasing power of gold.
While all parties agreed on the need to return to gold, the resolutions fudged on just what the GS was and would be, and when and how countries off gold would get there. Furthermore, the French and the Belgians did not accept the need to devalue.17
Consequently, the progress at Genoa did not lead to a durable reconstruction of the system. The French role at the conference and policy thereafter illustrate how little real consensus existed among the conference participants and how opposition to the Genoa principles, present from the start, developed in the later 1920s. They, along with a number of other countries, were not in favour of devaluation and wanted a return to the pre-war parities. Furthermore, the French were against the adoption of the GES as it would give undue importance to the pound.18
The GC, however, had a long-run effect. The Bank of International Settlements (BIS) set up to manage the Young Plan became a forum for meetings of central bankers, which it continues to be to this day. These meetings helped develop common ideas on monetary policy and the role of central banks. Two of the ideas that have become very prominent are that central banks should be independent and that the only objective of central banks should be to control the rate of inflation.19
Section Cooperation after Genoa
There were two aspects to cooperation after the GC. One was attempts to deal with the vexatious issue of reparations. The former has been discussed earlier. The other was central bank cooperation, principally among the central banks of the US, the UK, France and Germany. The intensity of central bank cooperation over different periods has been measured.20
An index was developed on the basis of the state of international relation, prestige and independence of central banks and technicality of issues requiring cooperation. Usually, cooperation was the greatest in technical issues. Extent of cooperation