Reading between the lines here, and over generalizing, gives me two impressions:
1. Reparations mainly serve a political purpose, to make the victor population feel like they're getting sufficient revenge. In reality you want as much economic growth as possible because that's mutually beneficial.
2. Although Germany probably could have paid them, they didn't want to, and the sense of humiliation helped Hitler rise to power.
On (1):
> Germany would have to pay reparations for the devastation caused by the war, but would not pay for actual war costs.
> This figure [equivalent of $1 trillion today] was divided into three series of bonds: "A" and "B" Bonds together had a nominal value of 50 billion gold marks less than the sum Germany had previously offered to pay.
> "C" Bonds, comprising the remainder of the reparation figure, "were deliberately designed to be chimerical", with the Germans being informed that they would not be expected to pay them under realistic conditions. They were "a political bargaining chip" that served the domestic policies of France [which wanted more] and the United Kingdom [wanted less]. The figure was completely unreal; its primary function was to mislead public opinion "into believing that the 132-billion-mark figure was being maintained".
> Despite domestic pressure for a harsh settlement, British Prime Minister David Lloyd George opposed overbearing reparations. He argued for a smaller sum, which would be less damaging to the German economy with a long-term goal of ensuring Germany would remain a viable economic power and trading partner.
> "Germany financed its reparation payments to Western creditor nations with American loans", which the British and French then used to "cover their long-term interest obligations and to retire their wartime debts with the United States."
> Germany's payment of reparations during the 1920s was funded mostly through foreign loans.
On (2):
> As a result of the [Young Plan], German payments were half the sum required under the Dawes Plan.
> Hugenberg's proposed law called for [...] the rejection of the Young Plan
> 5.8 million people out of 6.3 million voters voting in favor of the law. This fell below the required 21 million votes (50% of eligible voters) in order for it to take effect. While this was a political defeat for Hugenberg, it did result in significant national attention for Adolf Hitler, who had worked with Hugenberg to promote the referendum
> Reparations played a significant role in Nazi propaganda, and after coming to power in 1933, Hitler ceased payment of reparations
Also interestingly this whole thing took until 2010:
> A final installment of US$94 million was made on 3 October 2010, settling German loan debts in regard to reparations.
