Article 231 of the Treaty of Versailles ( the ` war guilt ' clause ) declared Germany and its allies responsible for all ` loss and damage ' of the Allies during the war and set up the basis for reparations . World War I reparations refers to the payments and transfers of property and equipment that Germany was forced to make under the Treaty of Versailles ( 1919 ) following its defeat during World War I. Article 231 of the Treaty ( the so-called ` war guilt ' clause ) declared Germany and its allies responsible for all ` loss and damage ' suffered by the Allies during the war and provided the basis for reparations .