Newspapers are reporting that Germany has just paid the last installment of its reparations for World War I, as laid down in the 1919 Treaty of Versailles and modified (that is, reduced substantially) in 1924 and again in 1929. This is not true; in fact, Germany stopped paying reparations in 1932, after having paid no more than an eighth of what was demanded, and payments never resumed. What Germany is actually paying back is the debt that it incurred from foreign bondholders in the 1920s, some (though by no means all) of which went toward reparations payments.

Why is this distinction important?  Because now we're hearing repeated the old German propaganda about the grave wrong done to Germany after World War I. The Cato Institute's blog puts it this way:

As Keynes rightly predicted, the unreasonably high French demands for financial reparations led to German economic weakness. The end result was hyperinflation, which was one of the principal causes of Hitler's rise to power and the start of the Second World War. In spite of losing two world wars, Germany did eventually become the most powerful nation in Europe -- through trade, capitalism and German ingenuity.

In fact Keynes--and my friends at Cato--have this almost completely wrong.  As a number of recent historians, most recently Niall Ferguson have pointed out, Germany was fully capable of making reparations payments, particularly after they were scaled back in the 1924 Dawes Plan.  What was lacking was the political will of the Weimar Republic to do so.  Germany was a magnet for foreign investment in the 1920s, taking in 27.1 billion marks from bond sales in the United States alone, while paying out no more than 19.1 billion marks in reparations. The rest went into lavish construction projects and--illegally under the Treaty of Versailles--the military.

The hyperinflation of 1922-23 was not the result of reparations, but rather Germany's attempt to thwart French efforts to collect them during the Ruhr Crisis.  Nor did hyperinflation have anything to do with Hitler's rise to power; true, the Nazi share of the vote increased sharply in 1923, but afterward plummeted to virtually nothing, where it remained for most of the rest of the 1920s.  Indeed, by 1928 Germany, far from having been crippled by the allegedly unjust Versailles settlement, had reestablished itself as one of the world's greatest industrial powers.  What brought an end to the Weimar Republic was when the influx of foreign capital came to a sudden end in 1928--which produced not inflation, but its exact opposite.

The claim that Germany was mistreated in 1919 popped up repeatedly during the interwar period, fostered most commonly by the Germans themselves.  It played a major role in British appeasement, which did not begin with Neville Chamberlain but was in fact consistently followed throughout the 1920s.  Again and again London winked at Germany's violations of the peace treaty (which began soon after the ink was dry), while denouncing the French for attempting to uphold the settlement.  Far from World War II having been the result of Germany's alleged mistreatment, it stemmed rather from the failure to enforce what been laid down at Versailles.