A Revision of the Treaty / Being a Sequel to The Economic Consequence of the Peace

by John Maynard Keynes

The details relating to the Bonds are not likely, therefore, to be operative, and need not be taken very seriously. They are really a relic of the pretenses of the Peace Conference days. Briefly, the arrangements are as follows:

Germany must deliver 12 milliards of gold marks ($3,000,000,000) in A Bonds, 38 milliards ($9,500,000,000) in B Bonds, and the balance of her liabilities, provisionally estimated at 82 milliards ($20,500,000,000), in C Bonds. All the Bonds carry 5 per cent interest and 1 per cent cumulative sinking fund. The services of the series A, B, and C constitute respectively a first, second, and third charge on the available funds. The A Bonds are issued to the Reparation Commission as from May 1, 1921, and the B Bonds as from November 1, 1921, but the C Bonds shall not be issued (and shall not carry interest in the meantime) except as and when the Reparation Commission is of the opinion that the payments which Germany is making under the new settlement are adequate to provide their service.

It may be noticed that the service of the A Bonds will cost $180,000,000 per annum, a sum well within Germanyʼs capacity, and the service of the B Bonds will cost $570,000,000 per annum, making $750,000,000 altogether, a sum in excess of my own expectations of what is practicable, but not in excess of the figure at which some independent experts, whose opinion deserves respect, have estimated Germanyʼs probable capacity to pay. It may also be noticed that the aggregate face value of the A and B Bonds ($12,500,000,000) corresponds to the figure at which the German Government have agreed (in their counter–proposal transmitted to the United States) that their aggregate liability might be assessed. It is probable that, sooner or later, the C Bonds at any rate will be not only postponed, but canceled.

2. The Committee of Guarantees.—This new body, which is to have a permanent office in Berlin, is in form and status a sub–commission of the Reparation Commission. Its members consist of representatives of the Allies represented on the Reparation Commission, with a representative of the United States, if that country consents to nominate.[35] To it are assigned the various wide and indefinite powers accorded by the Treaty of Peace to the Reparation Commission, for the general control and supervision of Germanyʼs financial system. But its exact functions, in practice and in detail, are still obscure.

According to the letter of its constitution the Committee might embark on difficult and dangerous functions. Accounts are to be opened in the name of the Committee, to which will be paid over in gold or foreign currency the proceeds of the German Customs, 26 per cent of the value of all exports and the proceeds of any other taxes which may be assigned as a “guarantee” for the payment of Reparation. These receipts, however, chiefly accrue not in gold or foreign currency, but in paper marks. If the Committee attempts to regulate the conversion of these paper marks into foreign currencies, it will in effect become responsible for the foreign exchange policy of Germany, which it would be much more prudent to leave alone. If not, it is difficult to see what the “guarantees” really add to the other provisions by which Germany binds herself to make payments in foreign money.

I suspect that the only real and useful purpose of the Committee of Guarantees is as an office of the Reparation Commission in Berlin, a highly necessary adjunct; and the clause about “guarantees” is merely one more of the pretenses, which, in all these agreements, the requirements of politics intermingle with the provisions of finance. It is usual, particularly in France, to talk much about “guarantees,” by which is meant, apparently, some device for making sure that the impossible will occur. A “guarantee” is not the same thing as a “sanction.” When M. Briand is accused of weakness at the Second Conference of London and of abandoning Franceʼs “real guarantees,” these provisions enable him to repudiate the charge indignantly. He can point out that the Second Conference of London not only set up a Committee of Guarantees but secured, as a new and additional guarantee, the German Customs. There is no answer to that![36]

3. The Provisions for Payment in Cash and Kind.—The Bonds and the Guarantees are apparatus and incantation. We come now to the solid part of the settlement, the provisions for payment.

Germany is to pay in each year, until her aggregate liability is discharged:

(1) Two milliard gold marks.

(2) A sum equivalent to 26 per cent of the value of her exports, or alternatively an equivalent amount as fixed in accordance with any other index proposed by Germany and accepted by the Commission.