The German Economy Post-War

Building on what we have looked at already, these notes will take a closer look at some of the key economic measures and pacts that informed German domestic and foreign policies throughout the Weimar Era in the 1920's. Below is a snapshot of the subsections that the notes will examine:

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1. Occupation of Ruhr
2. Hyperinflation
3. Gustav Streseman and his time as Chancellor
4. Dawes Plan
5. Locarno Pact
6. Young Plan
7. Wall Street Crash and Great Depression

Occupation of the Ruhr (1923-1925)

• The Occupation of the Ruhr was a significant event in post-World War I Germany, highlighting the economic and political instability of the Weimar Republic. The Treaty of Versailles imposed harsh reparations on Germany, which struggled to make payments. By late 1922, Germany defaulted on its reparations, prompting France and Belgium to take drastic action.
• In January 1923, French and Belgian troops occupied the Ruhr Valley, Germany's industrial heartland, to extract reparations directly through control of coal mines, factories, and railways. The occupation aimed to force Germany to meet its reparations obligations but severely disrupted the German economy.

• The Weimar Government, under Chancellor Wilhelm Cuno, adopted a policy of passive resistance, urging workers in the Ruhr to strike and refuse cooperation with occupying forces. The government continued to pay workers' wages, leading to a massive financial strain and exacerbating the economic crisis.
• The occupation and passive resistance led to a collapse in industrial production, worsening Germany's economic situation. The government resorted to printing money to pay striking workers and fund the resistance, contributing to hyperinflation. Social unrest grew, with food shortages and unemployment causing significant hardship.
• The crisis ended in late 1923 when Gustav Stresemann became Chancellor. He called off passive resistance, resumed reparations payments, and initiated negotiations to resolve the dispute. This led to the Dawes Plan in 1924, which restructured reparations and ended the occupation. The Ruhr occupation highlighted the fragility of the Weimar Republic and the destructive impact of the Treaty of Versailles.

Hyperinflation (1921-1924)

• Hyperinflation in the Weimar Republic was primarily caused by the economic fallout from World War I and the reparations imposed by the Treaty of Versailles. Germany's strategy of financing the war through borrowing led to a massive national debt. Post-war reparations and the occupation of the Ruhr exacerbated the situation, causing the government to print money to meet its obligations.

• By 1923, the value of the German mark had plummeted, leading to hyperinflation. Prices soared, and the cost of everyday goods skyrocketed. For example, a loaf of bread that cost a few marks in 1921 cost billions by late 1923. Savings were wiped out, and people's life savings became worthless overnight, causing widespread poverty and social unrest.
• Hyperinflation severely affected the middle class and those on fixed incomes, such as pensioners, who saw their purchasing power vanish. The crisis eroded trust in the Weimar Government and increased support for extremist political parties promising radical solutions. Barter systems emerged, and people used foreign currencies or gold for transactions.
• In response to the crisis, Chancellor Gustav Stresemann and Finance Minister Hans Luther introduced the Rentenmark in November 1923, a new currency backed by industrial and agricultural assets. The introduction of the Rentenmark stabilised the economy and ended hyperinflation. The Reichsmark later replaced the Rentenmark.

Long-term Effects

• Hyperinflation left a lasting scar on German society, contributing to the distrust of the Weimar Republic and democratic institutions.
• It also created fertile ground for extremist ideologies, as many Germans blamed the government and external forces for their economic misery.
• The hyperinflation crisis demonstrated the profound impact of economic instability on political stability.

Gustav Stresemann and His Time as Chancellor (1923-1929)

Background

• Gustav Stresemann was a key political figure in the Weimar Republic. He briefly served as Chancellor in 1923 and later as foreign minister until his death in 1929.
• A member of the German People's Party (DVP), Stresemann played a crucial role in stabilising Germany during the turbulent 1920s.

Chancellorship and Economic Stabilisation

• Stresemann became Chancellor during a severe crisis, marked by hyperinflation and the occupation of the Ruhr.
• His pragmatic approach included ending passive resistance in the Ruhr, resuming reparations payments, and introducing the Rentenmark to stabilise the currency. These measures helped restore economic order and laid the foundation for recovery.

Foreign Policy Achievements

• As Foreign Minister, Stresemann focused on rebuilding Germany's international standing and revising the harsh terms of the Treaty of Versailles through diplomacy rather than confrontation. Key achievements include:

Dawes Plan (1924)

• Stresemann negotiated this plan to restructure Germany's reparations payments, which eased the financial burden and led to the withdrawal of French and Belgian troops from the Ruhr. (More detail on this to come.)

Locarno Treaties (1925)

• These agreements, signed in Locarno, Switzerland, normalised relations between Germany and its Western neighbours, including France and Belgium.
• The treaties guaranteed Germany's western borders and paved the way for its admission to the League of Nations in 1926.

Domestic Policy and Legacy

• Domestically, Stresemann worked to foster political stability and economic growth. He promoted policies that encouraged foreign investment and industrial development.
• His tenure is often seen as the "Golden Era" of the Weimar Republic, marked by relative stability and cultural flourishing.

Death and Impact

• Stresemann's death in October 1929 was a significant blow to the Weimar Republic. His diplomatic skills and commitment to peaceful revision of the Versailles Treaty had been instrumental in stabilising Germany.
• Without his leadership, the republic faced increasing challenges from extremist movements and economic pressures, culminating in the Great Depression.

Dawes Plan (1924) in More Detail

The Dawes Plan was formulated to address Germany's economic crisis and the impasse over reparations payments imposed by the Treaty of Versailles. Named after American banker Charles G. Dawes, the plan aimed to stabilise the German economy and ensure reparations payments could be sustained.

Key Provisions

• Reparations Restructure: The plan restructured Germany's reparations payments, making them more manageable and linked to Germany's ability to pay. Payments were initially reduced and gradually increased as Germany's economy recovered.
• Economic Aid: The plan provided for substantial loans from the United States to Germany. These loans helped stabilise the German currency and provided funds for economic development and industrial growth.
• Reparations Commission: The establishment of an international commission to oversee reparations payments ensured transparency and fair treatment of Germany.

Impact on Germany

• The Dawes Plan had a significant positive impact on the German economy. It ended the hyperinflation crisis, stabilised the currency, and led to an influx of foreign capital, particularly from the United States.
• This financial support enabled Germany to invest in infrastructure, industry, and housing, leading to a period of economic growth and relative stability known as the "Golden Twenties."

Political and Social Effects

• The success of the Dawes Plan also had political implications. It bolstered the legitimacy of the Weimar Republic and reduced the influence of extremist parties, at least temporarily.
• The improved economic conditions alleviated some of the social unrest and hardships experienced by the German population, fostering a sense of cautious optimism.

Limitations and Criticisms

• Despite its successes, the Dawes Plan was not a permanent solution. It did not address the Weimar Republic's underlying economic weaknesses, such as over reliance on foreign loans and volatile short-term capital.
• Critics argued that it made Germany's economy heavily dependent on American financial support, which would prove problematic when the global economy faltered.

Legacy

• The Dawes Plan laid the groundwork for future reparations discussions, including the Young Plan of 1929.
• While it provided temporary relief and stabilisation, the plan's reliance on foreign capital meant that Germany's economic recovery was vulnerable to external shocks. This vulnerability would be exposed during the Great Depression.

Locarno Pact (1925)

• The Locarno Pact was a series of treaties negotiated in Locarno, Switzerland, in October 1925 and signed in London in December of the same year.
• The primary aim of the pact was to ensure peace in Western Europe by addressing and resolving some of the lingering territorial disputes from World War I. Gustav Stresemann, Germany's Foreign Minister, played a pivotal role in these negotiations.

Key Agreements

• Rhineland Security Pact: Germany, France, and Belgium agreed to respect their existing borders. Germany also accepted the Rhineland's demilitarised status, a condition set by the Treaty of Versailles.
• Arbitration Treaties: Germany signed arbitration treaties with France, Belgium, Poland, and Czechoslovakia, agreeing to resolve disputes peacefully and through arbitration.
• Guarantee of Borders: Britain and Italy guaranteed the western borders of Germany, France, and Belgium. This meant that any breach of these borders would be met with British and Italian intervention.

Impact on Germany

• The Locarno Pact marked a significant diplomatic achievement for Germany, signalling its reintegration into the international community.
• It improved relations with Western European powers and reduced the threat of French military intervention.
• The agreements paved the way for Germany's admission to the League of Nations in 1926, further legitimising the Weimar Republic on the world stage.

European Stability

• The Locarno Pact contributed to a period of relative stability and peace in Western Europe during the late 1920s.
• It was seen as a triumph of diplomacy and a significant step towards collective security and cooperation in Europe.
• The treaties reassured nations of their security and reduced the likelihood of border conflicts.

Criticism and Limitations

• While the Locarno Pact was celebrated for promoting peace, it had its critics. Some Germans viewed it as accepting the Versailles Treaty's harsh terms, particularly the loss of territory to Poland and Czechoslovakia.
• The pact did not address Germany's eastern borders, leaving unresolved tensions with Poland and Czechoslovakia.
• The Locarno Pact is often seen as a high point in interwar diplomacy, exemplifying the potential for peaceful conflict resolution.
• However, its effectiveness was limited by the rise of extremist politics in the 1930s. The spirit of Locarno failed to prevent the aggressive expansionist policies of Nazi Germany, leading to the outbreak of World War II.
• Nevertheless, the Locarno Treaties remain a significant example of diplomatic efforts to maintain peace in a volatile post-war Europe.

Young Plan (1929)

The Young Plan was an extension of the efforts begun with the Dawes Plan to restructure Germany's reparations payments. Named after the American banker Owen D. Young, the plan was adopted in 1929 to ease the financial burden on Germany further and stabilise its economy.

What the Plan Proposed:

• Reduction of Payments: The Young Plan reduced the total amount of reparations that Germany was required to pay. It set a fixed sum of 112 billion Reichsmarks to be paid over 59 years, significantly less than the original demands.
• Extended Payment Period: The extended timeline for payments meant that annual payments were lower and more manageable, aiming to integrate these obligations into Germany's long-term economic planning.
• Transfer Protection: To protect Germany's economy from external shocks, the Young Plan included provisions that allowed for temporary suspension of payments in the event of economic difficulties.

Impact on Germany

• The Young Plan was initially seen as a success, providing Germany with more favourable terms and reducing the strain on its economy.
• The plan also led to the withdrawal of the last Allied troops from the Rhineland in 1930, which significantly boosted German national pride and sovereignty.

Political Reactions

• Despite its economic benefits, the Young Plan faced significant political opposition within Germany.
• Right-wing nationalist groups, including the Nazi Party, vehemently opposed the plan.
• They argued that any reparations were unacceptable and used the plan to fuel anti-Weimar and anti-Allied sentiments. Adolf Hitler and other extremists exploited this opposition to gain political traction.

Global Economic Context

• The Young Plan's implementation coincided with the onset of the Great Depression, which began with the Wall Street Crash in October 1929.
• The global economic downturn severely impacted Germany's ability to meet even the reduced reparations payments.
• As the depression deepened, international efforts to provide relief and restructure debts, such as the Hoover Moratorium of 1931, temporarily suspended reparations payments.