GERMANY'S DIFFICULTIES, 1929-33 Under the Dawes Plan from 1924 to 1929 Germany enjoyed comparative economic prosperity and met promptly her Repara tions obligations, but she was able to do so only by borrowing large amounts abroad. She could not pay Reparations in the normal way by a surplus of exports over imports, because foreign countries still felt a war prejudice against German goods and set up high tariffs to protect their own manufactures. During these five years Germany also borrowed abroad large sums in addition to what she needed for Reparations payments. These sums were partly spent by the Socialists in public welfare enterprises which brought in no economic return—reading rooms, public baths, parks and stadiums. They were also partly spent by the big in dustrialists in what was called "rationalization of industry," that is, the introduction of new and more efficient labour-saving ma chinery, with the hope of reducing the cost of production in Germany and thus increasing exports to pay Reparations and the interest on the borrowed money. Dr. Schacht, the President of the Reichsbank, had warned his countrymen against the folly of this excessive borrowing. In 1929 the foreign bankers also began to see their mistake and ceased to extend more loans to Germany. The collapse of the New York stock market and the beginning of the general world depression made matters worse.
It soon became evident that Germany, unable to borrow further abroad, would soon seek protection of the "gold clause" in the Dawes Plan which permitted her, under certain conditions, tem porarily to suspend Reparation payments. In view of these con ditions the Germans, the foreign bankers, and Reparations debtors were all glad to abandon the Dawes Plan and replace it by the Young Plan of 193o. This for the first time fixed definitely the total amount that Germany was to pay. As compared with the 21 billion gold mark annuity (plus a sum based on the index of prosperity) of the Dawes Plan, the Young Plan reduced Ger many's annual payments to about two billion gold marks a year from 1930 to 1966, followed by annual payments averaging a little over a billion and a half marks for the twenty-two years from 1967 to 1988. With the adoption of the Young Plan, the French withdrew their army of occupation from the Rhineland in June, 193o, and the Allied financial commissions of control were with drawn from Berlin, so that the Germans were at last free masters of their whole territory.
Even the Young Plan payments, however, soon proved to be be yond Germany's capacity to pay. Herr Bruning, who succeeded Hermann Muller as Chancellor in March, 1930, made heroic efforts to meet Germany's financial obligations and to save the tottering coalition of moderate parties (Roman Catholic Centre and Social Democrats) against the attack of the extremist anti-Republican parties (Communists and National Socialists). Bruning, at that time only forty-five years of age, was one of the finest characters of the post-War period. As a scholar, equally at home with Aristotle and St. Thomas Aquinas, he had risen to be the leader of the Catholic Centre party, was a skilful parliamentarian, an expert financier, and a man who understood the practical value of moderation and compromise in politics. But he was too opti mistic and too disinclined to use force to suppress the internal enemies of the German Republic. He made drastic financial re forms to reduce expenditures in the effort to meet the Young Plan Reparations payments. When the National Socialists made an alarming gain in the Reichstag elections of September, 193o, rising from 12 to 107 deputies out of a total of S77, Bruning sought to strengthen his coalition government in March, 1931, by proposing an economic union between Germany and Austria. This proposal aroused a storm of opposition in France and other states which feared that an economic union might ripen into a political union, and thus accomplish the Anscliluss (annexation) forbidden by the Peace Treaties of 1919. France withdrew her credits from Austria and Germany, the failure of many banks in both countries. President Hoover proposed and secured a moratorium for a year on Reparation payments and on Allied debt payments to the United States.
At the close of the Hoover Moratorium, in June, 1932, it was clear to financial experts that Germany's economic condition was so bad that she could make no immediate payments. Conse quently a new settlement was arranged by Bruning (though finally signed at Lausanne by his successor, Chancellor von Papen) which was to take the place of the Young Plan. The Reparations payment was slashed to three billion marks on easy payments. Ratification by the Allies was made contingent upon their securing a satisfactory arrangement in regard to their war debts owing to the United States; this has never been secured, so that technically the Lausanne Settlement is inoperative and Germany is still liable under the Young Plan ; but no one expects that she will be able or willing to pay the Young Plan annuities. As a practical matter, Reparations payments ceased with the Hoover Moratorium of June, 1931.
Chancellor BrUning's coalition majority gradually dwindled away until he could not muster enough votes to pass his financial and other measures through the Reichstag. Owing to the fact that there were some thirty parties and that the system of proportional representation worked against the formation of a stable cabinet, the parliamentary system was breaking down. Bruning therefore resorted to Article 48 of the Constitution, which allowed the Presi dent of the Republic, in case of emergency, to govern by presi dential decree instead of by Reichstag legislation. Finally, in May, 1932, Bruning proposed to President von Hindenburg an emergency decree for breaking up the great landed estates in East Prussia to make small farms on which some of the unemployed could be settled. It was a wise and desirable measure, but Hinden burg refused to approve it. He himself had a large East Prussian estate, his friends were land-owning aristocrats, and he could not bring himself to agree to Bruning's proposal. So Bruning resigned, and was followed by Col. Franz von Papen.
Chancellor von Papen dissolved the Reichstag and appealed to the country in a new election on July 31, 1932. Hitler's National Socialists secured more than a third of the total number of seats (23o out of 6o8). No Reichstag majority could be formed without his support. Chancellor von Papen therefore offered Hitler a position in the cabinet as vice-chancellor. Hitler declined. As head of the largest party he demanded the chancellorship for himself—"all or nothing." This was too much for President von Hindenburg who curtly refused to place him at the head of the cabinet. Von Papen called for a new election in November, 1932, in which Hitler's National Socialists lost slightly, but still won a third of the total vote and were strong enough to defeat the coalition cabinet. Von Papen, like Bruning, proposed a presi dential emergency decree breaking up the East Prussian estates, but, when von Hindenburg again refused to approve it, resigned in December. In his place von Hindenburg appointed an army officer, Kurt von Schleicher, as Chancellor. But he met with the same difficulties as his two predecessors and resigned on January 28, 1933. He was succeeded as Chancellor by Adolf Hitler, the leader of the National Socialist Party.