Young Plan

The Dawes Plan and the work of Gustav Stresemann had bought a level of prosperity to Germany after 1924, but some issues still remained. For this reason, another United States banker Owen Young started working on a new plan in 1928, which became known as the Young Plan in 1929. It sought to create the conditions for even greater economic growth, but it would have a little lasting effect because of the greatest economic catastrophe the world has ever seen that occurred in the same year, the Wall Street Crash.

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Table of contents

    Germany before the Young Plan (1924 - 1929)

    The first US loans brought an upturn in Germany's fortune. In 1924, the Dawes Plan allowed them to pay war reparations and enjoy some economic growth. Germany became an exciting place to live, and Berlin was becoming a centre of culture, art and science. After a significant amount of time, European countries could now eat at the same table after some important diplomatic steps, culminating in Germany joining the League of Nations in 1926, and this encouraged a focus on maintaining peace. This became known as the "Golden Age" of the Weimar Republic.

    The Young Plan Albert Einstein StudySmarterFig. 1 - Scientist Albert Einstein was in Germany during Weimar's Golden Age

    Issues

    Despite this success, unemployment remained high and increased to almost 2 million in 1929. The German economy was still weak and heavily dependent on the United States loans, which had given it an artificial galvanisation. Some claimed that the Dawes Plan did not go far enough to aid Germany. Therefore, Owen Young proposed a plan in 1929 that would not only reduce the burden of the reparations but also simultaneously promote continued economic progress.

    The Young Plan in Germany

    Germany implemented the Young Plan, which had been proposed by Owen Young in the United States, in September 1930. It aimed to follow the measures of the Dawes Plan and go even further.

    The Young Plan Owen Young StudySmarterFig. 2 - Owen Young

    The Young Plan assumed that the war reparations would be significantly less crippling, and there was finally an end date for the payments to the Bank for International Settlements. The Young Plan would also continue to support the German economy with US loans and included a clause about France withdrawing from the Rhineland.

    Aims of the Young Plan

    The aims of the Young Plan can be summarised in six points:

    1. Total World War I reparations were slashed by 20%.
    2. The fixed repayments for each year decreased to 2 billion gold marks. They were previously 2.5 billion per year under the Dawes Plan.
    3. An extra condition about payment stated that if reparations could not be paid, two-thirds of the annual amount could be deferred to the next year.
    4. There was finally an end date to the World War I reparations. They would last for 59 more years, and payments would end in 1988.
    5. Loans to support the economy would continue from US banks and were orchestrated by J.P. Morgan.
    6. France would withdraw from the Rhineland. This added to the improvements in territory made after the withdrawal from the Ruhr in the Dawes Plan.

    Now it is time to find out about the economic disaster that meant that the Young Plan never really came to fruition!

    The Wall Street Crash (1929)

    Interested in investing and making some serious cash? Learn some vocabulary for economics below.

    Term Definition
    StockA form of security that is bought. This indicates a share in the ownership of a company.
    Stock marketThe exchange in ownership of stocks. Wall Street, New York is the home of the United States stock market.
    EconomistA specialist in finance and economics.
    LoanSomething that is borrowed (normally money). This will normally be returned with interest.
    Interest ratesInterest is the extra amount that you need to pay if you borrow money. If interest rates are high it becomes more difficult to borrow money from the consumer.

    The "Roaring Twenties" in the United States mirrored the "Golden Age" for Weimar Germany between 1924 and 1929. Thanks to economic progress, the stock market was booming and growing at an alarming rate in 1929. Some economists predicted that this would result in a consistent high:

    Stock prices have reached what looks like a permanently high plateau."

    - Irving Fisher, 19291

    The reality was that the growth proved unsustainable. Soon after, the market crashed in October 1929. This directly resulted in the Great Depression.

    Several theories try and explain the reasons for the crash:

    1. Overpriced stocks led to overconfidence with new buyers, the growth enjoyed during the Roaring Twenties gave them false hope in their investments.
    2. Loans and bank credit gave first-time buyers without much financial backing the opportunity to invest.
    3. On August 29th the government raised the interest rates of the Central Bank Federal Reserve from 5 to 6%.
    4. Agricultural recessions from overproduction led to farmers making a loss.
    5. After the initial crash, panic set in. On one day 16 million stocks were sold. This became known as "Black Tuesday".

    The Great Depression was the name for the economic reverberations around the world of the Wall Street Crash. As the 1930s began, the loans that had contributed to the "Golden Age" of the Weimar Republic (1924-1929) began to falter because the US had economic problems of its own to confront. Ultimately, reparations did not help anyone.

    Lausanne Conference (1932)

    In response to the worldwide economic crisis, British, German, Belgian, Italian and French representatives met in Lausanne, Switzerland. The countries agreed that the payments for war reparations would be abolished. This was because they were simply impossible. There was an agreement for a final one-off German payment, but this was never paid. After this, there were no more attempts from the Allies to extract war reparations from Germany.

    What did a failed Young Plan mean for Germany?

    Despite the growth initiated by the Dawes Plan and proposed by the Young Plan in 1929, there were still some large political issues for the Social Democrats. Unemployment remained high and reliance on the US backed loans led to right-wing resentment. This was not a problem during the economic boom but after the Great Depression and the withdrawal of United States aid.

    To make matters worse, cries for a strong leader to make swift and decisive decisions grew because the Weimar Constitution favoured Proportional Representation. During times of crisis such as these, Germans looked ideally at the autocratic rule that was associated with the Kaisers (see Kaiserreich).

    Proportional Representation is a political system whereby each party receives a number of seats corresponding to the percentage of votes that they receive in any election. This means that small political parties have greater input, but can render governments ever-changing and weak in a crisis.

    The Constitution also had Article 48 to contend with. It stated that in an emergency the Chancellor could intervene and make laws without the approval of the Reichstag or parliament. It meant that the Reichstag were left as bystanders during times of economic crisis as an "emergency" was not clearly defined.

    A weak government and economic turmoil left a vacuum for Adolf Hitler's burgeoning Nazi Party. Around the time of the Wall Street Crash, the unemployment figures hit 2 million and trebled when Hitler became Chancellor in 1933. A government with this constitution was unable to solve this crisis alone, just as Stresemann was forced to seek the help that the Dawes Plan provided. As a result, through clever political moves, Hitler was able to bypass the Weimar Republic and declared himself "Führer" or supreme leader in 1934, cultivating his image as a saviour of Germany. The Weimar government failed, largely due to the economic disaster and the lack of political wherewithal to deal with it.

    The Young Plan - Key takeaways

    • Owen Young and the Allies worked with the Germans to create the Young Plan because of the shortcomings of the Dawes Plan and the fact that the war reparations were still astronomical.
    • The war reparations were slashed by 20% and the final date was set for the payments to be stopped, 1988.
    • The Wall Street Crash and the resulting Great Depression meant that the United States could no longer support the German economy.
    • The Young Plan could not be properly executed. The economy stalled and unemployment increased from 2 million to 6 million in Germany by 1933.
    • The resulting political and economic turmoil allowed Adolf Hitler and the Nazi Party to get into power.

    References

    1. Gary Richardson, Alejandro Komai, Michael Gou, and Daniel Park, "Stock Market Crash of 1929", Federal Reserve History, 2013.
    Frequently Asked Questions about Young Plan

    Why was the Young Plan significant?

    The Young Plan was significant because it outlined an end date for German war reparations and reduced the total amount owed to the Allies.

    What was the Young Plan?

    The Young Plan was a set of policies to help reduce the burden of World War I reparations and continue to support the German economy after the Dawes Plan.

    How did the Young Plan help Germany?

    The Young Plan allowed Germany to defer on payments that they couldn't pay and reduced the total amount of war reparations.

    Why was there opposition to the Young Plan?

    Right-wing parties such as the Nazi Party resented the Young Plan as it was based on continued reliance on United States loans.

    What happened in the Dawes Plan?

    The Dawes Plan reduced German war reparations and kickstarted the German economy creating a "Golden Age" for Weimar Germany between 1924 and 1929.

    Test your knowledge with multiple choice flashcards

    What was the first name of the United States banker who proposed the Young Plan?

    When did Einstein live in the Weimar Republic?

    Where would France withdraw from on the conditions of the Young Plan?

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