1
Q
How did different countries finance the war
A
- Germany’s defeat plunged the finances of the state into crisis
- for all countries involved, the war effort required unprecedented levels of government spending
- in Britain this was financed through combination of higher taxes ad government borrowing
- in Germany, however, wartime governments chose to finance war through increased borrowing and by printing more money
- this meant government debt grew and value of currency fell
2
Q
What did Germany’s strategy depend on? Why was this risky?
A
- this highly risky strategy was based on a simple but flawed calculation = that Germany would win the war and would be able to recoup its losses by annexing the industrial areas of its defeated enemies and forcing them to pay heavy financial reparations
- defeat for Germany not only deprived the country of this repayment method, but also imposed a heavy burden of reparations and the loss of some industrial areas
3
Q
what was the problem for the Weimar Republic in 1919
A
- in 1919, the new government of the Weimar Republic was faced with a debt of 1.44 billion marks
4
Q
what can governments do to reduce national debt
A
- in situations where national debt needs to be reduced, governments can either raise taxes or reduce spending, or they can do both
5
Q
Why was it difficult for the German government to reduce national debt using these policies?
A
- in the context of the political instability of the early years of the Weimar Republic, both of these policies (raising taxes and reducing spending) carried serious risks
- a rise in taxation would risk alienating support for the new republic as anti-republican parties would be able to claim that taxes were being raised to pay reparations to the Allies
- it was also very difficult for governments to reduce spending
- although military expenditure was dramatically reduced, there were civil servants to be paid
- support for the new republic was considered to be so fragile that successive governments avoided making civil servants redundant and even extended welfare benefits
6
Q
Did the German government use these policies to reduce national debt?
A
- given the severe political difficulties Germany faced in the immediate aftermath of the war, the governments of the Weimar Republic did not try to address economic issues with unpopular measures (raising taxes or cutting spending)
7
Q
positives of the German economy after the war
A
- although national debt was high, unemployment had virtually disappeared by 1921 and there was a rapid recovery in economic activity
- in many ways, the German economy coped with the transition from war to peace much more successfully than other European economies
8
Q
negatives of the German economy after the war
A
- however, allowing inflation to continue unchecked was a policy fraught with danger
- prices which had doubled between 1918 and 1919, had quadrupled again between 1919 and 1920, reaching a point 14 times higher than in 1913
9
Q
why did the German governments allow inflation to continue to happen
A
- the reason governments allowed this to happen was partly political
- the 1920 coalition, led by Konstantin Fehrenbach, was dominated by the centre party which was supported by many powerful German industrialists
- they were benefitting from inflation by taking short-term loans from Germany’s central bank to expand their businesses
- by the time the loans were due for repayment, their real value had been significantly reduced by inflation
- furthermore, inflation had the effect of lessening the government’s burden of debt (although the reparations themselves were not affected because these were paid in gold marks or goods) and it is often suggested that German politicians had a vested interest in allowing it to continue unchecked
10
Q
overall effect of the increasing inflation
A
- in some ways, therefore, inflation was beneficial
- by 1921, unemployment in Germany was only 1.8% compared with nearly 17% in Great Britain
- this in turn encouraged investment, especially from the USA
- however, left unchecked, inflation eventually became uncontrollable and, by 1923, Germany’s high inflation became hyperinflation
11
Q
How was the amount of reparations decided
A
- treaty included requirement that Germany would have to pay reparations, but had not fixed actual amount
- a reparations commission was set up to determine scale of damage caused by German armed forces in Allied countries
- the reparations commission’s report concluded Germany should pay 132 billion gold marks = £6.6billion to be paid in annual instalments
12
Q
Did the government accept the terms - reparations?
A
- when report was presented to German government in 1921, with the ultimatum to accept the terms within 6 days, it caused a political crisis in Germany
- the cabinet of Fehrenbach resigned in protest at what it considered to be excessively harsh terms and was replaced by another led by Chancellor Joseph Wirth
- just as in 1919, with the Allied ultimatum, there was no alternative to acceptance and the new government signed unwillingly
13
Q
The start of Germany’s use of the policy of fulfilment
A
- Germany made its first payment soon after signing the treaty
- this was the start of the German policy of fulfilment of the Treaty of Versailles under which successive German governments calculated that cooperation would win sympathy from the Allies and a revision in the terms once it became clear that full payment of the reparations was beyond Germany’s capacity
14
Q
Were Germany helped when they struggled to pay reparations?
A
- this, however, was far from being a final settlement of the reparations issue
- by January 1922 Germany was in such economic difficulties that the Reparations Commission granted a postponement of the January and February instalments
- In July, the German government asked for a further suspension of the payments due that year
- in November 1922, it asked for a loan of 500 million gold marks and to be released from its obligations for 3 to 4 years in order to stabilise its currency
15
Q
Were Germany given the loan and the time to stabilise its currency like they asked for?
A
- the French were deeply suspicious that this was simply an excuse and refused to agree to Germany’s requests
- this dispute set the scene for a major clash over reparations in 1923, during which French and Belgian forces occupied the Ruhr industrial area of western Germany in an attempt to extract payment by force
16
Q
the economic impact of reparations
A
- reparation payments made repayment of the huge government debt resulting from the war even more difficult
- in addition, Germany’s gold reserves were inadequate for the scale of the reparations payments that had to be made in gold
- another part of the reparations payments had to be made in coal, but Germany had lost a large part of its coal reserves in the treaty
- another possible method of payment was in manufactured goods, but workers and manufactures in the Allied countries would not agree to this as they regarded it as a threat to their jobs and businesses
- Germany might have been able to increase its reserves of foreign currency, in order to make the payments, by increasing its exports to other nations. However, the Allies hampered Germany’s export trade by confiscating its entire merchant fleet and later, by imposing high tariffs on imports of German goods
- Germany couldn’t find the money to pay reparations the allies were forcing them to pay
- response of German government = print more money = inflation even worse = value of mark fall even further
17
Q
the Franco-Belgian occupation of the Ruhr
A
- by end of 1922 Germany had fallen seriously behind in its payment of reparations to France in the form of coal
- this prompted French, together with the Belgians, to send a military force of 60,000 men to occupy the Ruhr industrial area in January 1923 in order to force the Germans to comply with the treaty of Versailles
- their aim was to seize the area’s coal, steel and manufactured goods as reparations
- these troops occupied the whole Ruhr are and, in the course of 1923, the numbers of occupying forces grew to 100,000
- they took control of all the mines, factories, steelworks and railways, demanded food from the shops and set up machine-gun posts in the streets
18
Q
How did Germany respond to the Franco-Belgian occupation of the Ruhr
A
- the government of Chancellor Wilhelm Cuno knew Germans could not fight back - treaty had reduced size of German army and the Rhineland, of which the Ruhr was a part, was demilitarised
- instead, he responded by stopping all reparations payments and
- ordering a policy of ‘passive resistance’ = whereby no one living in the area, from businessmen and postal workers to railwaymen and miners, would cooperate with the French authorities
- German workers were promised by their government that their wages would continue if they went on strike while parliamentary troops working with the German army secretly organised acts of sabotage against the French
- they crossed the customs barrier secretly at night and blew up railways, sank barges and destroyed bridges in order to disrupt the French effort
19
Q
How did the French react to the German passive resistance
A
- the scale of the French operation grew in response
- French set up military courts and punished mine owners, miners and civil servants who would not comply with their authority
- around 150,000 Germans were expelled from the area
- some miners were shot after clashes with the police
- altogether, 132 Germans were shot in the eight months of the occupation, including a seven year old boy
- French also brought in their own workers to operate the railways and get coal out of the Ruhr, but this did not prove particularly effective
- in May 1923, deliveries were only a third of the average monthly deliveries in 1922 and output in the Ruhr had fallen to around a fifth of its pre-occupation output
20
Q
the economic effects of the occupation
A
- paying the wages or providing goods for striking workers was a further drain on government finances
- tax revenue was lost from those whose businesses were closed and workers who became unemployed
- Germany had to import coal and pay for it from the limited foreign currency reserves within the country
- shortage of goods pushed prices up further
- the combined cost of all of this amounted to twice the annual reparations payments
- since government still refused to increase taxes, its only option was to print more money
- this was the trigger for the hyperinflation that gripped Germany during the course of 1923
21
Q
consequences of the hyperinflation crisis
A
- during hyperinflation crisis, money lost its meaning as prices soared to unimaginable levels
- printing presses worked continuously to keep banks supplied with worthless paper money
- workers collected their wages and salaries in wheelbarrows and tried to spend their money immediately before prices rose even further
- the rising prices for food had most serious effects
- food began to run short as speculators hoarded supplies in anticipation of higher prices in future
- in many areas this led to breakdown in law and order
- there were food riots when crowds looted shops
- gangs of city dwellers travelled to the countryside to take food from farms, but were confronted by angry farmers determined to protect their livelihoods
- there was large increase in number of convictions for theft
- people bartered their possessions in exchange for vital supplies
22
Q
social welfare
A
- those involved in revolution of November 1918 - sailors, soldiers and workers who had helped to bring down Kaiser - were motivated by a desire for a better and freer life
- there were also large numbers of people who needed support as a result of death or injury during the war
- the challenge for those politicians who wrote the Weimar constitution in 1919, and for those who served in later coalition governments, was to enshrine those aspirations into new legal rights
- one of key rights set out in the constitution was that every German citizen should have the right to work or to welfare
- this led to series of reforms to the welfare system and to employment rights
23
Q
Social welfare acts made by the Weimar government
A
- 1919 = a law passed limiting the working day to a maximum of eight hours
- 1919 = the state health insurance system, introduced by Bismarck but limited to workers in employment, was extended to include wives, daughters and the disabled
- 1919 = aid for war veterans incapable of working because of injury became the responsibility of the national government; aid for war widows and orphans was also increased
- 1922 = National Youth Welfare Act required all local authorities to set up youth offices with responsibility for child protection and decreed that all children had the right to an education
24
Q
what was the issue with the welfare benefits the Weimar government were promising?
A
- the social welfare budget put a huge demand on the government
- the printing of money was largely to pay out to welfare benefits that the Weimar Republic was committed to providing, which exacerbated the hyperinflation crisis
25
Hyperinflation crisis - winners
- there were black marketeers who bought up food stocks and sold them at vastly inflated prices
- those who had debts, mortgages and loans did well since they could pay off the money they owed in worthless currency
- hyperinflation also helped enterprising business people who took out new loans and repaid them once the currency had devalued further
- those leasing property on long-term fixed rents gained because the real value of the rents they were paying decreased
- owners of foreign exchange and foreigners living in Germany could also benefit
- in the countryside, most farmers coped well since food was in demand and money was less important in rural communities
26
Hyperinflation crisis - losers
- pensioners were particularly badly hit, including war widows living on state pensions
- those who had patriotically lent money to the government in wartime by purchasing fixed interest rate 'war bonds' also lost out because the interest payments decreased in value
- landlords reliant on fixed rents were hit badly
- of the workers, the unskilled and those who did not belong to trade unions fared the worst. Although workers were given wage increases, these did not keep up with rising prices, so standards of living declined. By 1923, there was also an increase in unemployment and short-time working; at end of year, only 23.9% of the workforce was fully employed
- artisans and small business owners - the Mittelstand - were badly hit. Their costs rose and the prices they charged could not keep pace inflation. They also paid a disproportionate share of taxes
- the sick were very badly hit. The costs of medical care increased whilst the rapid rise in food prices led to widespread malnutrition. Death rates in large cities increased. Suicide rate increased
- amongst children suffering from malnutrition, the incidence of diseases such as tuberculosis and rickets increased
Germany 1918-1945
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