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Booklet 3 - Theme 3: Reacting to economic challenges, 1918-32 - Coggle…
Booklet 3 - Theme 3: Reacting to economic challenges, 1918-32
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Hyperinflation
Caused in 1921 when Germany began reparations, it printed money to buy foreign currency to pay reparations. In 1922 France and Belgium sent 60,000 troops to seize the Ruhr, January 1923 German government announced Passive Resistance, France was prepared to occupy the Ruhr indefinately. 130 paper mills and 130 mills printed the paper
Effects
Economic
January 1923, 1kg of Rye bread cost 163 marks. By November it cost 233 billion.
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Political
Those who lived on a fixed income or were living on inherited wealth were impoverished and alienated from the Republic, making them more inclined to vote for extremist parties.
Middle class professionals had to take on manual jobs in return for food, and they blamed democracy for poverty. This meant they were quick to blame the republic when economic struggles returned at the end of the decade.
Social
People started to barter instead of using cash -> hard for people like financial workers as they don't create physical goods
Paying workers became more difficult, prices were that unstable.
Health conditions plummeted, infant mortality rates increased, average life span declined, communicable diseases like tuberculosis spread more rapidly.
Recovery
Passive Resistance was costing the government money -> Introduced policy of fulfillment -> Germany in the short would work and French got coal and Stresemann used international sympathy to negotiate a better deal. Occupation ended 1925.
Government was spending too much money -> Initiated spending cuts -> Reduced pay of civil service up to 50% or more, reduced welfare benefits.
Currency became worthless -> Introduced new currency Rentenmark -> Calculated the whole worth of Germany and didn’t print any more money, 3.2 billion rentenmark in circulation. Was stable.
Stresemann
Views
Believed 20th Century would be dominated by competition amongst most advanced economic powers, unlike conservative nationalists who though military power was the way to go
Believed by encouraging the US to invest in Germany, it would reduce reparations as the US now wanted Germany to do well as they now had invested interest.
Dawes Plan
After the Ruhr, there was considerable international sympathy particularly from the USA for Germany. The result was the Dawes plan.
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If paying reparations disrupted German economic stability then the USA had the right to allow Germany to take a payment holiday
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Impact
Solved Germany’s immediate reparation problems by making it that reparations were paid with US loans, who in turn repaid the USA using the money they borrowed from the US.
Late 1920s German GDP had recovered to 1913 level and tax revenues were increasing. Government used this money to invest in public work schemes, urban housing, sport areas, swimming pools and opera houses.
German economy grew and attracted overseas investors, particularly from the USA.
German economy was tied to the US, as if anything bad happened to the US then Germany was screwed, Stresemann said ‘the economic position is only flourishing on the surface. Germany is in fact dancing on a volcano’.
Golden Years
Was not good because
Germany’s economy was based on the US, if US money was withdrawn then the economy would crash. Stresemann said Germany was ‘Dancing on the edge of a volcano’ which could explode at any time.
Labour relations increasingly strained, big business tried to keep wages down.
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Germany’s farms did not have prosperity, Germany’s farms did not modernise and the USA and Britain produced cheaper foods.
Worrying signs Weimar wasn't employed enough, for example unemployment rose to 1.2 million in 1928 to 1.9 million in 1929.
Was good because
Loans meant that industrial production doubled between 1923 and 1928. Wages rose every year during this period.
As Stresemann guessed, the USA was keen to protect Germany from British and France’s reparations, so Benjamin Strong, chairman of the US Federal Reserve paved the way for the Young Plan 1928, reducing the total payments to a quarter of what was agreed in 1921. Increased payment time to 1988.
Period of strong economic growth, by 1928 GDP rose to 1913 level. Tax revenue went up and money spent on public work schemes investing in urban housing, sports arenas, public swimming pools and opera houses. Welfare payments and wages increased.
Groups that suffered
Established Middle Class - Savings demolished by hyperinflation, estimated in 1924 their standards of living dropped by 60%
Farmers - Food shortages, Naval Blockade and the ToV meaning loss of farmland all hurt them. Government imposed tight restrictions on farmers to help feed the nation, meaning they capped prices and limited their profits. In 1924 Farmers were again hit by cheap imports from foreigners, devaluing their food massively. Agricultural purchases went down by 25% in 2927-30.
Industrialists - German Industry prospered during the 1920s due to short term US loans, however industrial production shrank by 40% from 1929-1932. Trade also dried up, falling 55% in the same time. German business could no longer find a foreign market for their goods. This led to bankrupcies and closures. 50,000 German firms closed in this time period.
Banks - In 1931, five major German banks closed.
Groups that prospered
Working class - Earnings increased and ZAG granted them the 8 hour working day. From 1913-25 welfare spending increased by 60%, and SPD+ZAG had their support.
Emerging Middle Class - Due to Hyperinflation they paid off their debt, and they were more willing to accept American forms of entertainment, significant because a lot of American culture seeped into Germany during the 1920s.
The Great Depression
Methods to Tackle it
Spending Cuts - Civil servant’s pay cut by 20% between 1930-32. Bruning’s government reduced welfare, and had to use Article 48 to do so. Led to a huge increase in poverty as 4 million people relied on this.
Diplomacy - Germany’s leaders tried to use diplomacy to stimulate the economy. Bruning did this by reducing reparations. He used the Economic crisis to prove that his country could not pay. It paid off and the Hoover Moratorium 1931 suspended payments.
Public Works - Government also implemented schemes such as 1931 Bruning initiated a road and canal construction. Expanded this in 1932. Von Papen expanded this initiative further, increasing the budget from 167 Million to 302 Million
How did these create resentment towards the Government?
Cutting Welfare made people extremely angry, Bruning allowed the economic situation to deepen to try to cancel the reparations instead of suspending them, and so he imposed more budget cuts. This worked effectively abolishing reparations, however the Nazi’s claimed success for this.
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