(1) is to be paid quarterly on January 15, April 15, July 15, and October 15 of each year, and (2) is to be paid quarterly on February 15, May 15, August 15, and November 15 of each year.
This sum, calculated on any reasonable estimate of the future value of German exports, is materially less than the original demands of the Treaty. Germanyʼs total liability under the Treaty amounts to 138 milliard gold marks (inclusive of the liability for Belgian debt). At 5 per cent interest and 1 per cent sinking fund, the annual charge on this would be 8.28 milliard gold marks. Under the new scheme the annual value of Germanyʼs exports would have to rise to the improbable figure of 24 milliard gold marks before she would be liable for so much as this. As we shall see below, the probable burden of the new settlement in the near future is probably not much more than half that of the Treaty.
There is another important respect in which the demands of the Treaty are much abated. The Treaty included a crushing provision by which the part of Germanyʼs nominal liability on which she was not able to pay interest in the early years was to accumulate at compound interest.[37] There is no such provision in the new scheme; the C Bonds are not to carry interest until the receipts from Germany are adequate to meet their service; and the only provision relating to back interest is for the payment of simple interest in the event of there being a surplus out of the receipts.
In order to understand how great an advance this settlement represented it is necessary to carry our minds back to the ideas which were prevalent not very long ago. The following table is interesting, in which, in order to reduce capital sums and annual payments to a common basis of comparison, estimates in terms of capital sums are replaced by annuities of 6 per cent of their amount:
| Estimates of | In terms of Annuities expressed in Milliards of Gold Marks. | |||
| 1. | Lord Cunliffe and the figure given out in the British General Election of 1918[38] | 28 | . | 8 |
| 2. | M. Klotzʼs forecast in the French Chamber, September 5, 1919 | 18 | ||
| 3. | The Assessment of the Reparation Commission, April 1921 | 8 | . | 28 |
| 4. | The London Settlement, May 1921 | 4 | . | 6[39] |
The estimate of The Economic Consequences of the Peace (1919), namely 2 milliards, was nearly contemporaneous with M. Klotzʼs figure of 18 milliards. M. Tardieu recalls that, when the Peace Conference was considering whether a definite figure could be inserted in the Treaty, the lowest figure which the British and French Prime Ministers would accept, as a compromise to meet the pressure put upon them by the American representatives, corresponded to an annuity of 10.8 milliards,[40] which is nearly two and a half times the figure which they accepted two years later under the pressure, not of Americans, but of facts.
There was yet another feature in the London Settlement which recommended it to moderate opinion. The dates of payment were so arranged as to reduce the burden on Germany during the first year. The Reparation year runs from May 1 in each year to April 30 in the next; but in the period May 1, 1921–April 30, 1922 only two, instead of four, of the quarterly payments in respect of the export proportion will fall due.
No wonder, therefore, that this settlement, so reasonable in itself compared with what had preceded it, was generally approved and widely accepted as a real and permanent solution. But in spite of its importance for the time being, as a preservative of peace, as affording a breathing space, and as a transition from foolish expectations, it cannot be a permanent solution. It is, like all its predecessors, a temporizing measure, which is bound to need amendment.
To calculate the total burden, it is necessary to estimate the value of German exports. In 1920 they amounted to about 5 milliard gold marks. In 1921 the volume will be greater, but this will be offset by the fact that gold prices have fallen to less than two–thirds of what they were, so that 4 to 5 milliard gold marks is quite high enough as a preliminary forecast for the year commencing May 1, 1921.[41] It is, of course, impossible to make a close estimate for later years. The figures will depend, not only on the recovery of Germany, but on the state of international trade generally, and more especially on the level of gold prices.[42] For the next two or three years, if we are to make an estimate at all, 6 to 10 milliards is, in my judgment, the best one can make.
Twenty–six per cent of exports, valued at 6 milliards gold, will amount to about 1½ milliard gold marks, making, with the fixed annual payment of 2 milliards, 3½ milliards altogether. If exports rise to 10 milliards, the corresponding figure is 4½ milliards. The table of payments in the near future is then as shown on the next page, all the figures being in terms of milliards of gold marks. In the case of payments after May 1, 1922, I give alternative estimates on the basis of exports on the scale of 6 and 10 milliards respectively.