"The Allied and Associated Powers formally reserve the rights of Russia to obtain from Germany restitution and reparation based on the principles of the present Treaty."--Article 116, Treaty of Versailles
https://www.loc.gov/law/help/us-treaties/bevans/m-ust000002-0043.pdf
This sentence was inserted into the Versailles Treaty by the French. What they had in mind was this: Frenchmen had invested heavily before the war in Tsarist Russian government bonds. The bondholders were clamoring for their money, and this clamor was embarrassing the French government. The Bolsheviks of course would not pay the bondholders. But statesmen in France (as well as many other countries) thought in 1919 that the Bolsheviks would soon fall. So, reasoned French statesmen, let's reserve the right of Russia (not saying *what* Russia) to reparations from the Germans in the future. A new, friendly non-Bolshevik Russian government will pay off French bondholders and reimburse itself by taking reparations from the Germans (whose capacity to absorb further reparation payments was assumed). In other words, the Germans will really be paying off French holders of Russian bonds.
The Soviet government of course denounced the reparations provisions as well as the rest of the Treaty of Versailles. Even before the Bolsheviks took power the Petrograd Soviet had called for a peace "without annexations or indemnities." (According to Orlando Figes, some soldiers found this formula hard to understand, thinking that "Anneksiia" and "Kontributsiia"--"annexations" and "indemnities"--were two countries in the Balkans..) Lenin, of course, also used this phrase in his Decree on Peace.
https://www.marxists.org/archive/lenin/works/1917/oct/25-26/26b.htm It would seem unlikely that the Soviet government would ever avail itself of Article 116. And yet that Article, which would seem to be a dead letter so far as Russia was concerned after the Bolsheviks won the Civil War, turned out to be quite significant a couple of years later, for the following reasons:
In 1921-2 the Soviet government was making a bid for "normal" relations with Western governments, seeking credits, trade, and diplomatic recognition. At the same time, the idea arose of a general European conference to deal with the postwar reconstruction of the European economy. The conference was to be held in Genoa in April 1922, and the once pariah (and still not exactly welcome) nations of Germany and Russia were among the invitees. The Russians accepted the invitation, but were worried that the capitalist powers there would present a united front on issues like debts and claims and would make Russian cooperation on these issues a precondition for re-establishing Western commercial relations with Russia.
For this reason, Soviet leaders were anxious to get--before the Genoa conference met--a bilateral treaty with Germany which would provide for the resumption of full diplomatic relations and the mutual cancellation of debts. In trying to get this, they made excellent use of Article 116: they carefully spread the word that France was offering to Russia economic aid and credits if Russia would agree to use Article 116 to get the Germans to pay off the Russian debt to French bondholders.
The Germans had already been disappointed with French refusal to permit reparations to be discussed at Genoa. Now it seems they were faced with the even worse prospect of new reparations (to Russia) being added to the old ones. The Soviet proposal for a bilateral agreement was thus very tempting. Still, Germany worried about possible Western retaliation for it being the first European country to recognize Soviet Russia. So Foreign Minister Rathenau delayed action.
Anyway, at Genoa the British introduced a memorandum that was everything the Russians and Germans could have feared. It went into the subject of Russian debts to the West, and suggested means by which they could be paid--and sure enough, there were several mentions of Article 116.
As Henry Kissinger writes (in *Diplomacy*):
"...The Western Allies remained oblivious to the temptations they were creating for both Germany and the Soviet Union by pretending that these two most powerful countries on the Continent could simply be ignored. Three requests by the German Chancellor and his Foreign Minister for a meeting with Lloyd George were rebuffed. Simultaneously, France proposed holding private consultations with Great Britain and the Soviet Union from which Germany would be excluded. The purpose of these meetings was to resurrect the shopworn scheme of trading tsarist debts for German reparations--a proposal which even less suspicious diplomats than the Soviets would have construed as a trap to undermine the prospect of improved German-Soviet relations.
"By the end of the first week of the conference, both Germany and the Soviet Union were worried that they would be pitted against each other. When one of Chicherin's aides telephoned the German delegation at the conspiratorial hour of one-fifteen in the morning on April 16, 1922, proposing a meeting later that day at Rapallo, the Germans jumped at the invitation. They were anxious to end their isolation as much as the Soviets wanted to avoid the dubious privilege of becoming German creditors. The two foreign ministers lost little time in drafting an agreement in which Germany and the Soviet Union established full diplomatic relations, renounced claims against each other, and granted each other Most Favored Nation status. Lloyd George, upon receiving belated intelligence of the meeting, frantically tried to reach the German delegation to invite them to the interview he had repeatedly rejected. The message reached Rathenau, the German negotiator, as he was about to leave for the signing of the Soviet-German agreement. He hesitated, then muttered: 'Le vin est tiré; il faut le boire' (The wine is drawn; it must be drunk)."
https://archive.org/stream/kissingerdiplomacy4/Henry Kissinger - Diplomacy#page/n255/mode/2up
According to George Kennan (*Russia and the West Under Lenin and Stalin*; most of the facts in this post are from that book) there was never any danger that the Russians would in fact agree to the Anglo-French proposal; but of course the Russians were careful not to inform the Germans of that fact, and other sources gave the Germans the impression that the Anglo-Franco-Soviet talks were going well, and that there was a real danger that Russia would now be added to the circle of Germany's creditors.. BTW, Rathenau, who to the very last was reluctant to reach a separate Soviet-German agreement, did attempt twice to tell E. F. Wise, Lloyd George's adviser, that Germany and Russia were going to talk at Rapallo. According to Kennan, "On the first occasion, the word came back that Mr. Wise was asleep and could not be disturbed. The second time, a chilly voice answered that the gentleman had gone out of town for the day, and could not be reached." (p. 220)
In any event, Rapallo in Kennan's words "could justly be described as the first great victory for Soviet diplomacy." For the Western Allies, it meant the end of any possibility of Germany as a partner in a united Western approach to the problem of Russian Communism; and it also meant--though this was not clear to many people at the time--that the whole western approach of coupling debts and claims with recognition had been undermined. There are a number of possible what-ifs concerning Rapallo and its relation to Article 116, but here are two:
(1) What if the sentence in Article 116 about Russia's right to reparations had never been inserted in the Versailles Treaty? (Maybe it becomes obvious earlier than in OTL that the Whites have no chance against the Bolsheviks.) Even if Soviet Russia never had the slightest intention of invoking it, the *threat* that it might do so was a powerful weapon, and the Russians put it to good use at Rapallo. Would there still have been a Rapallo agreement without that sentence? It is possible that advocates of an "Eastern" orientation in the German delegation, like Adolf Georg Freiherr von Maltzan (Ago von Maltzan) knew that Russia's Article 116 threat was a bluff (as Rathenau himself believed) but just used it as an excuse for an agreement they wanted anyway. "It will perhaps never be known with absolute certainty whether Maltzan truly believed the Article 116 threat or simply used it as a bogey to frighten his colleagues into supporting an alignment with Russia which he desired for other reasons, as is argued by Fischer Louis, Soviets in World Affairs, 1: 339–40. ... The surviving record of Maltzan'sprivate expressions of his views, however, points to the conclusion that he did consider the threat genuine."
https://www.cambridge.org/core/jour...-and-rapallo/142734A291FBC0CEDC8FC4BE8362A3FF
(2) What if the Soviets actually *did* invoke Article 116 and sought reparations from the Germans? Of course this would be cynical. Of course it would go against everything the Soviets said about their opposition to all reparations. Of course it would make the Soviets very unpopular in Germany. Still, let's suppose that Britain and France propose a *really* generous offer to the Soviets in terms of recognition, both short- and long-term credits, etc.--on the sole condition the Soviets use Article 116 to pay off Western claims against Russia. Let's assume the Russians have given up on the chance of a German revolution any time soon. I can even see how the Soviets will explain it to the German woekers, "Of course it would have been much better if there were no reparations, as we have always advocated. But the Anglo-French imperialists have forced our hand; we cannot get normal economic relations with them until we invoke Article 116, so it is really their fault, not ours. And in any event, the Russian economic recovery that Anglo-French credits, etc. will make possible will ultimately be to the benefit of the German workers and peasants, because it will strengthen Soviet Russia, whose ultimate objective is the liberation of all oppressed peoples, including the German working people" etc. etc. OK, not likely to convince the Germans. But as I said, couldn't there conceivably be a Soviet government that would write off Germany in favor of Anglo-French help for the struggling Russian economy?
Ironically, if this were to happen, the end result would be a sort of US foreign aid for both Soviet Russia and French bondholders. US banks will make loans to Germany---never to be repaid, though this won't be realized until the Great Depression hits--which will pay reparations to Russia, which will pay off Western, especially French, bondholders and in turn get Russia Western economic aid...