Impact of Economic Issues on Expansionist Foreign Policies in Germany (1900-1933)

1. What was the impact of economic issues on expansionist foreign policies in Germany? 1900-1933

2. Germany’s Economical Growth prior to WW1 • Many of the German states had industrialized quite quickly during the second half of the 19th century - in particular, some of these German states developed strong coal and iron industries, along with a rapidly-expanding railway network. Later, they were quick to move into the newer chemical and electrical industries. Once Germany had been officially created in 187I, the economic benefits which had resulted from the expansion of the Zollverein were increased, as all remaining internal tariffs were abolished.

3. Germany’s Economical Growth prior to WW1 • Then, in 1879,Bismarck introduced a new external tariff system on imported goods. This was to protect, in particular, German farmers from Russian food imports and German factory owners from British industrial goods. • As a consequence, there was further rapid economic growth, giving the new Germany one of the world's fastest-growing industrial bases. • Within Europe, Germany had the fastest growing economy - and this economic growth and prosperity - especially after 1890 - enabled Germany to build a large modern army, and to build an increasingly-strong navy. • However, the rapid emergence of the new Germany as one of Europe’s leading industrial and military powers was one of the factors which led to the outbreak of the First World War in 1914

4. Source : McDonough, F. 1997. The Origins of the First and Second World Wars. Cambridge. Cambridge University Press. p. 3. • The German population soared from 49 to 60 million between 1890 and 1914, and the economy grew faster than that of any other country in Europe. ln 1914, Germany's steel output was higher than that of Britain, France and Russia combined and coal production had risen to second position behind Britain. The prominence of science and technology in the school curriculum gave Germany a notable lead in new, 'high-tech' industries. Germany's industrial strength was used to increase its military strength.

5. Economic impact of the First World War and the Treaty of Versailles • The First’ World War had a largely negative impact on Germany's economy - as it did on the economies of the other European participants. • The stalemate which quickly developed on the’ Western Front put a great strain on Germany's economy - while many industries switched over entirely to war production, Germany's national debt was massively increased: from 5,000 million marks to 144,000 million marks by the end of the war.

6. Economic impact of the First World War and the Treaty of Versailles • In addition, Germany lost industrial customers to countries such as the US and Japan; while, as the war dragged on, world trade in general declined. • In particular, Europe’s export market had virtually collapsed, and inflation rose - in Germany, by 1918, prices were 500% higher than they had been in 1914. • Furthermore, industrial production in Germany had dropped to about two-fifths of its pre-war level.

7. Economic Realignment • Relations between Germany and the rest of Europe did not stay this way permanently. • It was not the case that the post-WWI relations between Germany on one hand and Britain and France on the other remained the same all the way through to the outbreak of WWII. • In the interwar years there was a change in relations on this front, and there lay the change in diplomatic alignments in Europe.

8. Germany started the interwar years as an outcast within Europe, but relations between Germany and the victors of WWI improved over time and alignments between European nations evolved for a number of reasons.

9. Economic impact of the First World War and the Treaty of Versailles • Although the modern industrialized German economy meant that, at first, Germany coped with the demands of’ total war’ better than less-developed economies (such as Russia's) did, in the end, the strains of a two-front war proved too much, even for the German economy. • As food shortages became increasingly serious, economic problems, strikes, political unrest and, eventually, revolution began to emerge in Germany. • It was in this economic context that the Allies imposed the Treaty of Versailles on the defeated Germany.

10. REALLY IMPORTANT TO NOTE THE PROPAGANDA • The Treaty of Versailles, as well as depriving Germany of many of its important industrial areas, also imposed reparations (compensation) as part of the’ war guilt’ clause - the figure was finally set by the Reparations Committee at 6.6 billion pounds in May 1921. • Although this initially caused economic problems in 1922 - which resulted in France and Belgium invading the Ruhr in 1923,after Germany had asked for a 4-year postponement in making its second payment - the treaty did not actually destroy either the German economy or Germany as a great power. • Even as early as 1919,Gennany was still potentially the most powerful of the states on the European mainland: the Russian and Austrian empires had collapsed, while France was more seriously weakened by the war than Germany.

11. Historical Debate • Although the economist J. M. Keynes argued that the reparations created real problems for the German economy. historians suchas D. Peukert (1991) have pointed out that the payments - about 2,000 million marks a year - represented only 2% of Germany's total national output in the 1920s. • Furthermore, during the 1920s, the total amount of reparations was reduced by negotiation with the Allies.

12. Gustav Stresemann ( 1878-1929) • He became the most significant German statesman of the Weimar Republic. He worked with France to improve relations between Germany and the Allies in the period of 1923-29. • However, a firm nationalist, he was also a conciliator who believed that it was necessary to cooperate with the Allies in order to 'revise' the Treaty of Versailles.

13. Gustav Stresemann ( 1878-1929) • His long-term aims were • A. to get all Allied troops removed from Germany; • B. to re-adjust Germany's eastern borders with Czechoslovakia and Poland; • C. to end reparations completely; • D. to make Austria part of a 'Greater Germany'; • E. and even to get back Alsace-Lorraine and Eupen-Malmedy. However, he did not plan to use force to achieve these aims

14. Under the leadership of Gustav Stresemann • After the economic crisis of 1923, however, Germany made a quick recovery under the leadership of Gustav Stresemann who, from 1923-29, acted as chancellor and then foreign secretary. under him, a new currency - the Rentenmark - was immediately introduced to stabilize the currency. • Stresemann then began to negotiate for a reduction in the reparations bill. • Although the figure set in 1921 remained, the annual repayments were reduced and the time-scale extended. • In addition, the US agreed to make a substantial loan to Germany to help its economy recover: the Dawes Plan o{ 1,924 initially lent Germany 800 million marks.

15. Economic Propserity • To most Germans, it seemed that Germany’s economic problems were well and truly over, and that its economy would continue to expand. In this atmosphere, extreme nationalist groups - which were already beginning to push for territorial expansion - found they had little electoral support, and were increasingly marginalized. • Especially as Stresemann, as well as overseeing economic growth, was also successfully - by negotiation with the Allies - improving Germany's diplomatic position in Europe. • The Nazi Parry for instance, experienced what is often referred to as their’ Lean Years' between 1924 and 1929. • In December 1924,they only won 14 seats in elections to the Reichstag; while, in 1928, this dropped to 12 seats.

16. With regard to Germany, Britain and France had ulterior motives for eventually improving their relations with Germany. In the first instance, reparations –ironically enough -created the first steps to something of a reconciliation. Germany was forced to pay huge amounts in reparations under the terms of the Versailles Treaty. Again , the famous Economist J. M. Keynes had warned that the sum of £6600 million which was set at the Treaty of Versailles was too much to expect from Germany.

17. The amount was certainly unrealistic and Germany could not possibly pay the full amount –certainly not without any assistance. In 1923 Germany faltered on her reparations to France and the French took over the Ruhr Valley (which is situated on the Franco-German Rhineland border) with a view to taking reparations in coal. The French eventually withdrew their troops from the Ruhr Valley, but not before the drawing up of the Dawes Plan.

18. The invasion of the Ruhr in 1923 • The invasion of the Ruhr in 1923 came about as France and Belgium claimed Germany had failed to make the coal deliveries it was supposed to under the terms of the reparations agreement. • It was this military action which had directly led to Hitler's attempt to take power in 1923. At first, the German government had encouraged Germans to engage in passive resistance to the occupation. • But, when the resulting economic problems - which included hyperinflation - led the government to end resistance, German nationalists had been outraged.

19. Economic Realignment The Dawes Plan (formed in 1924 and named after Charles Dawes who chaired the committee that agreed to the plan, and became US Vice President the following year) was basically a payment plan for Germany to make the reparations bill more manageable. Germany still had to pay the full amount but the new installments made repayment more realistic and they came with a £40 million loan to help Germany pay.

20. Economic Realignment The payments were phased in steps of £50 million in the first year and building up to £125 million in the fifth year. The USA’s ulterior motive for this was to get Britain and France’s re-payments back to her! Britain and France owed the USA money, which they could not pay without Germany paying them her reparations, and Germany could not re-pay money it did not have!

21. Economic Realignment The Dawes Plan served as a means to get money back in circulation –and for the USA to finally get her money owed to her by Britain and France! By way of the Dawes Plan, the USA lent Germany money with which she could pay her reparations to Britain and France, who could then pay their debts back to the USA.

22. Dawes/Young Plan • The US, which had loaned massive amounts to Britain and France during the First World War was keen to see Germany make its reparations repayments. This would enable France to repay its US debts. ln fact, though the US later criticized France for its insistence on heavy reparations, it refused a French suggestion in 1919 to cancel its US debts. • As a consequence, the French felt they had to insist on compensation from Germany. ln August 1929, the 'Young Plan' even reduced the reparations figure by about 75%, further reduced the annual payments, and extended the repayments period to 59 years.

23. Economic Realignment • There were three significant effects of the Dawes Plan: • Firstly the Ruhr Valley was evacuated by the French in July 1925. • Secondly Germany was treated as an equal for the first time since the end of WWI –as opposed to an entity beneath everyone else. • Thirdly the Dawes Plan helped Germany’s economy improve under her Foreign Minister Gustav Stresemann.

24. Economic Realignment In 1929 Stresemann appealed to the USA for further assistance with reparations payments. Further to the Dawes Plan a committee headed by American Industrialist Owen Young reduced Germany’s reparations bill to £2000 million (less than a third of the £6600 originally set at the Treaty of Versailles).

25. Economic Realignment The Young Plan (as it is famously known) also set a time scale of 59 years for the amount to be paid. Under the terms of the plan payments would start in May 1930 and end in 1988. This was a much more realistic time scale for paying a much more realistic amount, and as such enabled better relations between Germany, France, and Britain.

26. Economic Realignment Stresemann’s efforts to achieve a better reparations deal for Germany -along with the successful outcome helped to achieve stability in Germany (after years of turmoil in the early years of the Weimar Republic), increased his popularity amongst the German people and his status as an international leader, and therefore improved Germany’s standing within Europe from her wretched Pariah status in 1919.

27. Economic Realignment This improvement in prospects for Germany, and relations between Germany on one hand and Britain and France on the other however did not last. Barely had the Young Plan been agreed when everything was shattered by the Wall Street Crash on 24th October 1929. The consequent Great Depression spread through much of the world, and Germany in particular was hard-hit by the Depression. The USA called in all her loans and Germany was unable to pay anything by 1931-32.

28. Germany and the Great Depression • However, despite the rapid growth of the German economy after 1924, there were some signs that the 'Golden Years’ might soon come to an end. • In part, this was because much of the recovery was dependent on foreign (especially US) loans. • In 1928 alone, this amounted to over 5 billion marks. Furthermore, the bulk of the German banking system was based on short-term loans to German industries, which would not be repaid if those firms went bankrupt. • One early sign of a possible slowdown came as early as 1926,when Germany's balance of trade moved into the red. • In addition, unemployment remained a problem - though the figure of 2 million unemployed in 1926 had dropped to 1.4 million by 1928 ,this indicated a potential weakness in the German economy.

29. Germany and the Great Depression • In early October Stresemann died, then, later in the month, the Wall Street Crash took place in the US. • Within a short space of time, Germany's economy was shattered. • It was the impact of the economic problems which gave Hitler and the Nazis their political opportunity - and they used it well. • Within less than four years, Hitler was chancellor of Germany and, at long last, in a position to push forward the Nazis’ expansionist foreign policy aims.

30. Germany and the Great Depression • As firms continued to collapse, unemployment soared: to 3 million by 1930, to 4 million in t93t,and to over 6 million by 1.932. • Millions of other industrial workers, though they retained their jobs, had their hours reduced by short-time working. • Banks continued to collapse, while industrial production dropped by 50%, and unemployment rose to over 30%. This severe economic crisis led to the collapse of a series of coalition governments and thus a sort of political paralysis. • In this situation, governments increasingly relied on ruling by presidential decree, as allowed by Article 48 of the Weimar Constitution. • With hindsight, it is easy to see this as the beginning of the end of Weimar democracy.

31. Germany and the Great Depression • . However, this economic and political crisis saw the Nazi vote rapidly increase in the various elections between 1929 and 1932. • In 1930, the number of seats won by the Nazis rose rapidly, from 12 to 107; in July 1932, their seats increased to 230, making them the largest parry in the Reichstag.

32. Very often, the rise of the Nazis to power is linked to the proportional system of voting established by the Weimar Constitution. This is seen as having allowed small extremist parties to gain political representation and influence beyond their real levels of support. However it should be noted that, under the first-past- the vote system (used in countries such as Britain and the US), the July 1932 result would have enabled the Nazis to form a minority government The Nazis' (NSDAP's) growing electoral breakthrough from1928-32, as percentages of seats gained in the Reichstag

33. Economic Realignment The Dawes Plan and Young Plan had helped improve Germany’s standing after WWI and improve relations between Germany on and France and Britain on the other, but the Wall Street Crash shattered all of this. There would be further re-alignments between Germany and other European nations, but these would be more ideological…

34. Wall Street Crash • The Wall Street Crash put an end to US loans and, very soon, the US began demanding early repayment of those loans already received. • This - combined with the impact of the Great Depression which followed the-Wall Street Crash - quickly put an end to the relative prosperity most Germans had enjoyed in the years 1924-29. • Soon, German industrial firms began to decline, and Germany was unable to pay for essential raw material and food imports. The number of bankruptcies increased significantly - as did unemployment, which increased from 1,4 million to 2 million by the end of the year.

35. The NAZI • As they won more and more seats, some conservative and nationalist politicians began to sound out the possibility of some political deal with the Nazis. • However, in the November 1932 elections, the Nazi Party's votes and thus seats declined (from 230 seats to 196),while the performance of the German Communist Party (KPD) continued to improve. • It was this political situation which formed the context for the deal offered to Hitler by von Papen, a former leading member of the conservative German Centre Party (Deutsche Zentrumspartei, and accepted by president Hindenburg.

36. Hitler, the Chancellor • The offer was, in the end, that Hitler could be the chancellor of a coalition government put together by von Papen, who assumed that, as vice-chancellor, he could control Hitler as it seemed to him - and the German elites in general - as though the Nazis had passed their peak (though they were still the largest single party in the Reichstag). • Thus, on 30 January 1933, Hitler became chancellor of Germany. By March t933,he had established a purely Nazi government.

37. German Centre Party • The Deutsche Zentrumspartei was usually just referredto as the Zentrum - ZP; sometimes, it was also known as the Catholic Centre Party. • This party became increasingly authoritarian, right-wing and nationalist after 1929, and attempted several political deals with Hitler and his Nazi Party before 1933. ln June 1932, von Papen resigned from the ZP - to forestall his expulsion from the party for having accepted the position of chancellor from Hindenburg (at the time, Bruning of the ZP was the chancellor).

38. Effects of Nazi economic policy • When Hitler became chancellor of Germany in January 1933, although the economic problems resulting from the Great Depression were still in existence, the worst effects were already over - this was because of the actions taken by the various coalition governments between 1929 and 1932, and because world trade finally began to recover in early 1933.

39. In fact, Hitler was not that interested in economics - for him, the three main aims after 1933 were to: • Restart the economy and solve unemployment via government expenditure on public work schemes • Establish German autarky ( economic self-sufficiency and isolation international economic system • Create a Wehrwirtschaft ('war economy') so that Germany could fight and win a 'total' war in the future.

40. Effects of Nazi economic policy • As early as February 1933, Hitler was talking about creating a’ military’ economy which would allow territorial expansion. • On the surface, Hitler's economic policy seemed to be successful - for instance, between 1933 and 1935, unemployment dropped from6 million to 1.7 million, and continued to decline further. • However, it should be noted that the decline in unemployment was also the result of following earlier programme for recovery begun by the last Weimar governments, in addition to the Nazi government's public work schemes; increased expenditure on armaments; the introduction of conscription , after 1935; and the establishment of the German Labour Front.

41. Also, • The decline in unemployment was also increasingly achieved bythe removal of certain groups (such as left-wing political prisoners and, later, Jews). • These groups were placed in concentration camps and removed from the official statistics, while their jobs were taken by the unemployed. The Nazis also had strong gender prejudices. Consequently, some married women were removed from their jobs, so these could be given to unemployed men.

42. Problems and Solutions • Furthermore, as became increasingly apparent, Hitler's economic and military policies were creating new problems for Germany. The often uncoordinated Nazi plans, along with some of the policies followed by Hjalmar Schacht as president of the Reichsbank, had, as early as the summer of 1934, resulted in inflation and a serious balance of payments deficit in foreign trade. • Hitler appointed Schacht as minister of economics to deal with these problems and, in September 1,934, Schacht produced his 'New Plan’. • As a result of various measures, the German economy soon began to show signs of recovery and, by the end of 1935, Germany had achieved a trade surplus, while industrial production was up by almost 50% compared to 1933.

43. However, as Schacht was aware, these improvements were relatively limited and essentially short-term. • In particular, his use of 'mefo' bills was inflationary at a time when Germany still needed to import raw material for Hitler re-armament programme. This was particularly worrying, as the cost of these products was increasing while Germany's reserves of gold and foreign currency were declining. • ’Mefo' bills: These were secret government bonds which Schacht had printed, to conceal the true expenditure on armaments.

44. In 1936 • In 1936,a new economic crisis arose over the state of the balance of payments, and Schacht argued that this problem could only be overcome by reducing spending on re-armament, and instead increasing exports so as to gain Germany more reserves of foreign currency. • However, these suggestions were counter to the Nazis’ plans - from 1936,Hitler had decided on a more aggressive foreign policy and so insisted on an even faster expansion of Germany's military strength. • In addition, Germany's armed forces also opposed Schacht's suggestions.

45. Hjalmar Schacht ( 1877-1970) • He was a conservative banker and powerful financier, with close tiesto Germany's industrialists and bankers. Although not a Nazi, he was strongly opposed to Germany's reparation obligations. Hitler made him head of the Reichsbank in 1933, a position he continued to hold until 1939. • From 1934-37, he was also minister of economics. He was forced to resign from the latter post, as he opposed Nazi plans for German re-armament because he feared they would lead to inflation and economic collapse.

46. In September 1936 • In September 1936, Hitler responded to the crisis by placing Germann Goring in charge of the Four-Year Plan - this was designed to make Germany's economy and military forces ready to fight a war in four years’ time. • In theory Goring's plan was to operate alongside Schacht's plan; but, in practice, Schacht found his position and policies increasingly undermined by Goring's encroachments on the activities of his ministry. • Furthermore, his warnings about the looming balance of payments problem were simply ignored. • Eventually, in November 1937,Schacht resigned as minister of economics, and his place was taken by Walther Funk. However, Goring continued to decide the main economic policies.

47. Four-Year Plan • The plan aimed to control all imports and exports; increase agricultural production; make Germany self-sufficient inall important raw materials (such as metals, oil, petrol, rubber and textiles); and retrain sections of workers in key industries. • From then on, Hitler gave greater priority to his plans for military expansion, and massive amounts of state money were poured into research and development, and into armaments production. In all, during 1936-40, this amounted to almost 50% of all, industrial investment in the German economy.

48. Effects of the 4 year Plan • While the Four Year Plan achieved some success such as big increases in aluminum production, and helping reduce unemployment down to only 300,000 by the end of 1938 - the Nazi 'economic miracle was more myth than reality in many areas of the economy. Although total German industrial production increased by just over 100% between 1933 and 1938, the aim of being self-sufficient in raw materials was not met - this was particularly true for oil and rubber.

49. Effects of the 4 year Plan • In all, over 30% of Germany's important raw materials and 20% of its food still came from abroad. • Even the massive re-armament failed to meet Hitler’s plans - this was despite military spending increasing from 1.9 billion RM in 1933 to 32.3 billion RM in 1938. • Thus, by 1939, Germany was not yet in a position to fight any major long-lasting war.

50. War as a means of fixing economical issues • Nonetheless, it appears that Germany's economic situation n 1939 was such that a war was needed to prevent the German economy from collapsing. • In particular, the “mefo” bills issued earlier by Schacht were due for repayment in 1939 - if paid, it would have wrecked the German economy. • The outbreak of war, in September 1939, prevented this as Hitler was able to write them off.