With the Hoover Moratorium expiration looming, representatives from Great Britain, France, Italy, Belgium, Germany and Japan gathered at Lausanne on the shores of Lake Geneva in Switzerland to address the pressing issues of war debts and reparations.
It was amply clear to the delegates that the deepening depression had made it impossible for Germany to resume its reparations payments. They came to an agreement on a two-point plan:
Not to press Germany for immediate payments
To reduce German indebtedness by nearly 90 percent and require Germany to prepare for the issuance of bonds valued at three billion Reichsmarks to be administered by the Bank for International Settlements and issued when world economic conditions warranted. This provision was close to cancellation, reducing the German obligation from the original $33 billion to $714 million.
It was informally agreed among the delegates that these provisions would be effective only in the event that the United States agreed to cancellation of war debts owed by other Allied governments.
The conference also recommended the convening of a major international economic forum in London in 1933.
A number of American business associations and financial institutions spoke out in favor of the Lausanne plan, reasoning that cancellation of the U.S. public war debts would make it easier to collect on the massive private loans made in Europe following the end of World War I. Despite this self-serving action, the plan attracted little other support, and was widely condemned in the press and by many political leaders. Hoover made the obligatory public statement about the lack of any connection between reparations and war debts, and affirmed that the United States was not in accord with the decisions made at Lausanne.
When the moratorium expired, the international debt situation was technically returned to the terms of the earlier Young Plan, but in fact the system had collapsed. Germany did not resume reparations payments and once the National Socialists (Nazis) had consolidated power, the debt was repudiated.
For a short period in 1933, the United States continued to receive war debt payments from several former Allies. After 1934, however, only two nations continued to honor their obligations Hungary paid until World War II erupted in 1939 and Finland discharged its entire debt.