How did the Great Depression affect Germany's reparations payments to the Allies?

Germany was, indeed, especially hard-hit by the Great Depression. A major factor was the Treaty of Versailles, which was supposed to settle outstanding disputes following the cessation of hostilities in World War I.

Instead, the Allies allowed their desire for revenge to get the better of them, and historians are nearly unanimous in their judgment that the terms dictated to Germany were unnecessarily debilitating. Germany reeled from the huge burden of reparations payments required of it as a condition of the treaty. Payments made by Germany to the victorious Allies represented a drain of capital that would have otherwise been directed toward the growth of German industry.

Another devastating factor contributing to Germany's economic collapse was the international trade war triggered by the passage of the Smoot-Hawley Tariff Act in the United States in 1930. This provision effectively prevented many German industries from selling their goods in foreign markets.

In order to pay its debts for World War I, as dictated by the Versailles Treaty, Germany engaged in a tremendous hyperinflation of its currency, printing paper marks until, by 1923, they became utterly worthless. The destruction of the currency wiped out the people's savings, which meant that there would be very little capital available within the German economy for years to come.

No other World War I combatant nation so destroyed its currency. This factor alone would have produced a depression for Germany. Add this ingredient to the others and you can see why Germans were especially hard-hit.

With the coming to power of Adolf Hitler in 1933, the German economy became increasingly socialized and militarized, which frightened foreign investors and prevented a healthy economic recovery. Instead, the "recovery," when it happened, was focused on war industries as opposed to those industries manufacturing goods that better the lives of everyday consumers.