The dual crisis

Geneva disarmament talks Article 8 of the Covenant of the League of Nations committed its signatories to the lowest level of armament consistent with national security and the fulfilment of international obligations.

protectionism

The practice of regulating imports through high tariffs with the purpose of shielding domestic industries from foreign competition.

The Depression was the turning point. The collapse of world trade and finance cannot be disentangled from the crisis in world politics. All the profound causes of the war are rooted in the length and severity of the slump: the rise of radical ideologies and exclusive nationalism, the formation of closed economic blocs, the Japanese and Italian challenges to the League of Nations, and the failure of the Geneva disarmament talks (1932—34). The mass psychological impact of unemployment, grinding poverty and unprecedented rates of financial, industrial and agricultural collapse defies quantification. The prevailing mood of pain and fear certainly persuaded those living at the time that civilization was on the brink of an epoch-defining change. The nineteenth-century order of free trade and liberal finance was breaking up into a few vast autarkic empires. Parliamentary democracy had also had its day. The modernizing ideologies of the totalitarian Right and Left would soon dominate the globe.

Some have suggested that the Depression would not have had such an impact had the major creditor Powers, the United States, Britain and France, co-operated to defend the global economy. Sadly, even if officials had recognized the scale and duration of the Depression early enough, the mutual recriminations over war debts, reparations and trade, which had typified their relations after 1919, inten­sified during the Great Depression. In the 1920s, the Europeans, reliant on dollar loans to feed the cycle of debt and reparations payments, resented the American practice of protecting their own producers while insisting that Europe open its markets to mass-produced American exports. Fears of American eco­nomic domination, particularly the domination of the growing markets for manufactured goods, were voiced in London and Paris. The Europeans also quarrelled among themselves. The French attributed their economic woes to the selfish practices of the Anglo-Saxons, and the British suspected that the French used monetary policy as a coercive instrument. At the outset of the slump, officials in Washington, London and Paris resorted first to tariff barriers, trade quotas, competitive currency devaluations and exchange controls to counter its effects. The rush to protectionism reduced the volume of world trade and confirmed the widespread belief that the true cause of one's own economic misery was the beggar- my-neighbour policies of the other Powers.

Since American trade, credit and foreign investments were fundamental to the functioning of the world economy, the American response to the New York stock market crash was of critical importance. Unfortunately, however, American markets were more important to Washington and New York than European ones. Indeed, for the American president, Herbert Hoover, economic nationalism was instinctive. Even before the economic crisis took shape, he had been hostile to the Young Plan of August 1929, which he regarded as yet another crooked scheme to permit the Europeans to dodge war debts by linking them to reparations.

Young Plan

Name given to a financial scheme, worked out in 1929 by a committee chaired by the American businessman Owen D. Young, to reduce German reparations and arrange fresh credit for Germany. It was informally agreed by German, French and British delegates that reparations would be scaled back further if the former European Allies secured a reduction in debt repayments to the United States.

see Chapter 4

The collapse in economic confidence caused a run on the banks. Lenders called in loans. Borrowers lacked the securities and cash to service debts. Banks failed. Credit evaporated. In Europe and America, the banking crisis put pressure on currency exchanges and drained gold reserves. The gold standard began to fall apart. This had psychological and political repercussions. The restoration in the 1920s of the pre-1914 system of currency exchange rates fixed in relation to gold had symbolized the end of wartime monetary expedients. It would act as a check on inflation and promote prosperity. Britain returned to gold in 1925. France did so three years later. In September 1931, the pound was forced off gold. Fifteen other nations eventually suspended the gold standard. The world monetary system split apart into three main currency groups. The first consisted of countries, such as Britain, that had abandoned gold.

A banking crisis in Central Europe in the spring of 1931 showed just how politically divisive this breakdown process was. In May, the largest commercial lender of the Danube region, the Austrian Credit-Anstalt, became insolvent. The Austrian central bank and British lenders with investments in the region stepped in to help, but additional loans were required. The French government agreed to underwrite French commercial loans to Austria, but only if Vienna renounced plans for a customs union with Germany. Since the Germans had recently proposed just such an Anschluss, and talks along these lines between Berlin and Vienna had begun, the French demand was not unwarranted. Yet the British saw it as pointless French bullying, while the French believed that British financial

Anschluss

The political union of Germany and Austria. Anschluss was specifically prohibited under the Versailles Treaty, but was carried out by Hitler in March 1938 without any resistance from the victors of the First World War.

Nazis (or Nazi Party)

The abbreviation for the National Socialist German Workers Party (Nationalsozialistische Deutsche Arbeiterpartei (NSDAP)). It was founded in October 1918 as the German Workers Party by the German politician Anton Drexler to oppose both capitalism and Marxism. It took on its more notorious title in February 1920. One year later Hitler became the Nazi Party Führer (German: leader).

Weimar Republic

The German parliamentary democracy that existed between November 1918 and January 1933. Attacked from both the Right and the Left of the political spectrum, it never won the loyalty of the majority of Germans.

intervention in Central Europe was intended to undercut French influence. The focus of this Franco-British quarrel moved to Berlin as a run on the Reichsmark developed. In June, to relieve the pressure on German banks, Hoover proposed a one-year moratorium on all inter-governmental war debt and reparation payments. The French, who had not been consulted in advance, interpreted Hoover's standstill proposal as a strategy designed to rescue Anglo-American commercial interests in Germany at the expense of France's claims for reparations. It took two agonizing weeks to secure a consensus.

The Hoover moratorium was a breathing space. A solution to the debilitating problem of debts and reparations had to be found. Talks took place between the British chancellor of the exchequer, Neville Chamberlain, and the new centre-left premier in France, Edouard Herriot, at Lausanne in July 1932. A replacement for the Young Plan was agreed. Germany would make a final three billion Reichsmark payment (it was never paid). The deal, however, turned on a ‘gentlemen's agreement'. Lausanne would not be ratified until the Europeans had concluded a ‘satisfactory settlement' with their chief creditor, the United States. Details of the agreement leaked. Hoover was furious — but he was on his way out of the White House. In Europe, some officials speculated that the election of a Democrat to the presidency might transform American policy. Franklin D. Roosevelt, however, was as preoccupied and hamstrung by domestic concerns as anyone else, and shared some of the prejudices of his Republican predecessor. In April 1933, the dollar devalued against gold and a partial export upturn followed. This led to com­petitive currency devaluations elsewhere. Plans for interim exchange stabilization were put forward at the World Economic Conference in June-July, but Roosevelt denounced them. The last chance for a concerted response to the crash passed when the conference broke up.

Z The collapse of the Weimar Republic

In addition to dividing those Powers with a stake in the status quo, the crisis also affected the domestic politics of the revisionist states, especially Germany.

To be sure, Germany was acutely vulnerable to the financial storms. Half of the deposits in German banks were foreign, mostly American and British. In Europe, German industry was the worst hit by the fall in demand. Moreover, the legiti-

macy of the Weimar Republic and its founding centre-left Reichstag coalition arose from a commitment to social reform and welfare. Modest unemployment insurance enacted in 1927 proved to be a major liability as the slump deepened. From 1929 to 1932, unemployment jumped from about 1.5 million to more than 6 million. Lengthening unemployment lines and declining tax revenue added up to a budget deficit. Bitter debates in the Reichstag over how to spend the shrinking budget shook the confidence of foreign investors and the domestic electorate. All across Europe this pattern of interlocking financial and political crises destabilized democracies. In Germany, where democracy was associated with defeat and humiliation, voters disavowed parliamentary politics in huge numbers. For salvation, they looked to the anti-democratic parties of the Left and Right. On the Right, a propaganda campaign waged against the Young Plan played on what many already believed: that Allied reparations and other sinister forces (Bolsheviks, Jews, etc.) were responsible for Germany's suffering.

Reichstag

The lower house of the

German parliament during the Wilhelmine and Weimar periods.

Bolsheviks

Originally in 1903 a faction led by Lenin within the Russian Social Democratic Party, over time the Bolsheviks became a separate party and led the October 1917 revolution in Russia. After this ‘Bolsheviks' was used as a shorthand to refer to the Soviet government and communists in general.

In March 1930, unable to break the financial deadlock, Weimar's last social democratic coalition government resigned. From then on, until Hitler suspended the Reichstag altogether in March 1933, German chancellors no longer governed on the basis of a parliamentary majority, but instead enacted legislation through emergency powers of decree made available to them by the Reich president, Paul von Hindenburg. The 83-year-old field marshal hoped that this erosion of democratic checks on executive authority would eventually lead to an authori­tarian regime drawn exclusively from the traditional ruling elites (army officers, the landed aristocracy and senior bureaucrats). While the anti-democratic motives of the Hindenburg circle are not in doubt, the personal aims of the first ‘presi­dential' chancellor, Heinrich Brüning, remain a puzzle. Traditionally portrayed as leading the vanguard for the anti-democratic Right, some now suggest that Brüning had in fact hoped to preserve democracy with dictatorial expedients. Indeed, the only way his painful programme of tax hikes and budget cuts could be executed was through decrees. These measures had unmistakable internal and external purposes. First, austerity would demonstrate that Germany could no longer pay reparations (success on this front arrived with the Lausanne agree­ment). Second, Brüning believed that a balanced budget would ward off inflation until self-correcting market forces restored German economic growth. The unintended consequence of Brüning's strategy was that his use of presidential powers accustomed voters to the consolidation of power in the hands of a few, while the severe hardship of his austerity measures converted many to radical causes. In September 1930, the National Socialist German Workers Party — the Nazis — broke through to become the second largest Reichstag party with 107 seats; the communists won 77 seats. In the Reichstag, the Social Democrats, with 143 seats, provided Brüning's anti-socialist cabinet with passive support to prevent the Nazis from gaining a toehold in government.

Nonetheless, Brüning found it impossible to govern Germany in the midst of the crisis without, at the same time, antagonizing President Hindenburg. Ignoring the indispensable role that Brüning had played in the presidential election in April 1932 when Hindenburg had seen off a challenge from Hitler, the president lost confidence in the chancellor. Hindenburg disliked Brüning's flirtation with the socialists, and was outraged when he had the audacity to propose that landless peasants be settled on insolvent aristocratic estates. Accordingly, in May 1932, at the suggestion of the minister of defence, General Kurt von Schleicher, Hindenburg appointed Franz von Papen chancellor. The rise of this shallow mediocrity to high office was indicative of just how dangerous a game the conservative cabal around Hindenburg had begun to play. For General Schleicher, the redeeming attribute of the new German chancellor was his malleability. By controlling Papen, so Schleicher believed, he would control the German govern­ment. However, much to Schleicher’s dismay, once in office, Papen asserted his independence. To make matters worse, the ambitious and conniving Papen began to ingratiate himself with Hindenburg. While the president’s affection for Papen grew, in the country and the Reichstag his reputation plummeted. Reluctantly, in early December 1932, Hindenburg replaced Papen with Schleicher.

It is worth dwelling on the intrigue that followed Papen’s downfall because, as Henry A. Turner argues, this was a moment ‘when the fate of a great nation was contingent upon the actions of a handful of individuals’. The chief instigator was Papen. Allying himself with Hitler, Papen hatched a plot to return to office and to wreak revenge on his one-time sponsor, General Schleicher. Months earlier, both Schleicher and Papen had concluded that no conservative-dominated regime could be established without mass public support. Both men had made secret contacts with Hitler in order to harness his growing radical movement to achieve their own conservative political ends. In fact, to clear the way for a deal with the Nazis, one of Papen’s first acts as chancellor was to lift Bruning’s ban on Hitler’s brown-shirted street thugs, the storm troopers. However, these negotiations always failed for the same reason: Hitler wished to be a ‘presidential’ chancellor, with full emergency powers, but Hindenburg, who distrusted the rabble-rousing former corporal, was only ever willing to appoint Hitler as a ‘parliamentary’ one. Some top-ranking Nazis criticized Hitler for refusing to take power in stages by entering into a political alliance with the conservatives. Hitler held out for all or nothing. He was fighting elections to destroy democracy, not to form a cabinet based on a right-wing coalition in the Reichstag.

In January 1933, Papen was ready to offer Hitler what he demanded. The two men agreed to form a new Hitler—Papen cabinet (Papen acting as deputy chancellor). Hitler had a sizeable presence in the Reichstag; Papen had the ear of the Reich president. Meanwhile, Schleicher, who never had any distinctive policies to offer, was embattled on all fronts. He had no firm base of support in the Reichstag and soon faced a vote of no-confidence. To remain in office, he needed Hindenburg, but the doddering field marshal shunned him. Not only had Papen turned Hindenburg against Schleicher, but the president now believed that Schleicher was planning a coup. Military government was a real possibility. Schleicher commanded loyal troops. Yet he backed away from using force to stay in power and resigned on 28 January. The next day, Papen deceived Hindenburg. He persuaded the president that the new Hitler—Papen cabinet would be supported by a majority right-wing alliance, and that Hitler would govern through the Reichstag; in reality, no such coalition had been formed. On 30 January, once Hitler had been sworn in, the promised Reichstag coalition failed to materialize and Hindenburg had little choice but to offer the new chancellor use of his emergency powers.

It was ultimately the woeful lack of judgement of Papen, Hindenburg and Schleicher that created Hitler's opportunity to seize power and to consolidate Nazi rule afterwards. By no means was this the only potential outcome of the first thirty days of 1933. Had Hitler been denied the chancellorship, his all-or-nothing quest for power might have backfired. His popularity among German voters was already on the decline. As frustration within the Nazi movement grew, the party might have fragmented. H. A. Turner argues that the most plausible alternative to the Hitler chancellorship was a military dictatorship under General Schleicher. This was what Hitler feared most. After all, the small but disciplined German army would have had little trouble controlling the streets. Hindenburg would have had to acquiesce. The prospective opposition to military dictatorship was too divided to mount a challenge. Furthermore, from 1933 onwards, General Schleicher's military dictatorship would have benefited from the same economic fortunes and easy foreign policy victories that the Nazis in fact benefited from.

Certainly Germany would have remained a revisionist state. Schleicher would have ordered early large-scale military growth. Such plans were under way under Brüning and, in December 1932, to salvage the world disarmament talks, the Western Powers had conceded to Germany the principle of equality of rights in armaments. Unlike Stresemann, who, as we saw in Chapter 2, sought to rebuild German power through diplomacy, Schleicher would have put force before diplomacy in the revision of the hated territorial settlement of 1919. Even so, Germany's top-ranking army officers were men of prudence. In all likelihood they would have fought rapid, localized conflicts against minor states such as Poland, but not risked another world war. The restoration of Germany to its place as a European Great Power was their long-range ambition. None of this of course happened. Instead, a few individuals, who had failed to appreciate the cunning and barbarity of the Nazi leader, betrayed everything that was civilized and humane in German life by turning over the state to Adolf Hitler.

Chapter 2

Great Powers

Traditionally those states that were held capable of shared responsibility for the management of the international order by virtue of their military and economic influence.