How did Stresemann and the Dawes Plan stabilize the economy?

Introduction

Gustav Stresemann:

• After his business career, Stresemann was elected the youngest member of the Reichstag. A committed monarchist + nationalist, supported Kaiser’s expansionist policies.

• Appalled by Germany’s defeat, he attempted creating a constitutional monarchy.

  • 1919 formed the DVP + opposed Weimar Republic, but by 1921 he faced political reality + committed himself & his party to republic.

• 1923 crisis Stresemann was made chancellor + confronted all problems:

  • Occupation of the Ruhr, hyperinflation + opposition from left and right wing extremists. His term in office lasted for just 3 months (known as Stresemann’s 100 days) but laid the basis for the recovery of 1924-9.

• Stresemann was foreign minister in all Weimar governments from 1923-9: essentially architect of Weimar foreign policy. He showed strength of character + realism to negotiate w/ Allies & improved Germany’s international position.

• However, failed to generate real domestic support for Weimar = his long-term reputation is arguable as he failed to revise Versailles Treaty majorly + questionable if he could’ve saved Weimar Republic from Nazism.

Stabilisation of the currency:

• Aug 1923, height of hyperinflation crisis, Cuno’s gov collapsed + replaced by new coalition led by Gustav Stresemann.

• Stresemann’s gov. ‘Great Coalition’ = first in history of Weimar Republic to incl. left + right

• Stresemann’s party, DVP shared power with Centre Party, Socialists and DDP.

• Chancellor for only 103 days & took office at time when Weimar Republic in serious political + economic difficulty.

  • When he left office in November; currency stabilized, inflation was under control + attempts to overthrow republic from left + right failed

Stresemann’s priority = to bring inflation under control, involving 3 key steps;

1. The end of passive resistance:

• Passive resistance against occupation of Ruhr called off in September = unpopular + risky move led to serious unrest + Beer Hall Putsch in Munich.

• Stresemann calculated no alternative = Germany’s economy began to grind to halt + inflation completely out of control.

• Ending passive resistance, meant govt. stopped paying workers who refused to work for French = essential first step towards reducing govt. expenditure.

2. Issuing of a new Currency:

• In November, new currency (Rentenmark) introduced to replace old + worthless Reichsmark.

  • New currency exchanged for old on basis of 1 Rentermark for 1 trillion old marks.

• Germany didn’t have sufficient gold reserves to back new currency, was supported by mortgage on all industrial + agricultural land.

• Once new currency successfully launched, govt. kept tight control over money in circulation to prevent inflation reoccuring.

• Old inflated marks gradually cashed in; August 1924 Rentenmark became Reichsmark, backed by German gold reserve, maintained at 30% of value of Reichsmarks in circulation.

• Inflation no longer a problem + value of new currency established at home + abroad.

  • All this happened under direction of Hjalmar Schacht.

Hjalmar Schacht (1877-1970): director of National Bank from 1916 + co-founder of DDP Party in Nov. 1918. ‘financial genius’ role in stabilization of Germany currency. In 1923, became Reich Currency Commissioner + head of Reichsbank + introduced the Rentenmark. Negotiated Dawes and Young Plans; modified Germany’s reparation payments. Later became Economics Minister under the Nazis (1934-7) but lost favour + removed from Reichsbank in 1939.

3. Balancing the Budget:

• Stresemann’s govt. cut expenditure + raised taxes.

• Pay cuts to gov. workers, 300,000 civil servants lost their jobs + taxes raised for individuals + companies.

• Govt. debt began to fall, confidence restored.

  Impact of these three changes:

• Considerable difference to operation of German economy.

• Well-managed companies run carefully, to not build up excessive debt continue to prosper.

• Weaker companies heavily reliant on credit crumbled.

  • No. of bankrupt companies in Germany rose from 233 in 1923 to over 6000 in 1924.

• Also, ppl who lost savings w/ collapse of old currency didn’t gain anything from new currency.

Stresemann’s Foreign Policy Aims:

• Pre- 1921-2; little to suggest, Stresemann becoming mainstay of Weimar democracy.

• Before 1914 his nationalism was expressed in his support of the Kaiser’s ‘Weltpolitik’ & 1918 his support of military regime + Treaty of Brest-Litovsk had earned him title of ‘Ludendorff’s young man’

• Stresemann was against creation of republic + his party campaigned to restore monarchy.

• After failed Kapp Putsch + murders of Erzberger + Rathenau, Stresemann’ party adopted a more sympathetic approach toward Weimar Republic.

• 1921 he’d become convinced that republic + constitution was Germany with only chance of preventing dictatorship

• Pragmatist = why he was referred to as a ‘Vernunftrepublikaner’, a rational republican, rather than a convinced one.

• Stresemann’s foreign policy, shaped by deep understanding of domestic + international situations. He recognized, that Germany was militarily defeated - not just ‘stabbed in the back’.

• Rejected solutions of hardliners who lacked understanding of circumstances that brought Germany to its knees in 1923.

• Stresemann aimed to free Germany from the limitations of Versailles + restore country to status of great power. He ruled out offensive action; only choice was diplomatic fulfillment.

  At first, he worked towards those aims by pursuing the following objectives:

  i) To recognize that the French rightly had security concerns + France controlled balance of power in Europe. Franco-German friendship, essential to solving outstanding problems.

  ii) To play on Germany’s vital importance to world trade & earn the goodwill and cooperation of Britain + USA. Sympathy of USA vital to attract US investment into German economy.

  iii) To maintain Germany’s friendship with the USSR since the signing of the Treaty of Rapallo.

  iv) To encourage co-operation and peace, particularly w/ Western powers; restore Germany as leading power in Europe.

Reparations Issue and the Dawes Plan:

• Stabilising Germany’s economy dependened on settling reparation dispute & domestic issues.

• Nov. 1923, Stresemann asked Allies’ Reparations Committee to set up committee of financial experts to address Germany’s repayment concerns.

• USA invested in getting Germany back to place where reparation pay could be made to France = money was passed on to the USA to repay war loans.

• American banker Charles Dawes acted as new committee’s chairman.

  Charles Dawes (1865-1951): American banker + politician. Became US Vice-President in 1924. His work with Stresemann to solve the reparations issue = joint award of Nobel Peace Prize, 1925.

• Dawes Plan finalized in April 1924; Stresemann’s govt. had fallen, but he remained as foreign secretary + took credit for what was achieved, despite opposition from right wing.

• The Dawes Plan confirmed the original figure of total reparations payment to 6.6 billion pounds (132,000 million gold marks) & made payments more manageable.

• ‘victory for financial realism’

Recommendations of the Dawes Plan:

• Amount paid P.Y. by Germany to be reduced till 1929, when the situation would be reappraised.

• Proposed Germany should re-start reparations by paying 1000 million marks (fraction of earlier expectatin) + the sum should be raised in annual increments over 5 years by 2500 million marks p.y. Then the sum can be based on German industrial performance.

• Germany to receive loan of 800 million marks from USA = start plan + allow investment in German infrastructure.

Impact of the Dawes Plan:

• Stresemann didn’t believe in the plan, privately referred to as ‘no more than an economic armistice’, but agreed as way of securing foreign loans.

• Heated debate in Reichstag over the Dawes Plan. ‘national opposition’ (DNVP & smaller right-wing groups e.g. NSDAP) bitterly attacked this policy of compromise, they believed Germany should defy Versailles Treaty + refuse paying reparations.

• Dawes Plan was eventually agreed + accepted by both Germany + Allies in July 1924.

  It brought several benefits to Germany:

  i) Allies accepted that Germany’s issues with payment of reparations were real.

  ii) Granted loans = new machinery, factories, houses + jobs & German economy rebuilt.

  iii) French left Ruhr during 1924-5, after it was clear Germany would restart paying reparations + occupation could no longer be justified.

  iv) Such measures contributed to German optimism, their country was its own master again.

• Short term; Dawes Plan = success. German economy not weakened, as it gained twice as much money from abroad as paid out in reparations. Reparations were being paid regularly, contributed to improve Franco-German relations.

• Whole system = dangerously dependent on US loans. Attempting to end 1923 crisis, Stresemann linked Germany’s fortunes w/ external forces; had dramatic effects post-1929.

Conclusion – The survival of Weimar:

• Stresemann’s action tackling problems helps explain end of crisis, independently, doesn’t help us understand why the Republic was able to survive.

• Republic’s survival in 1923, contrasted to its collapse 10yrs on when challenged by Nazis.

  Why didn't republic collapse during crisis-ridden months prior to Stresemann’s emergence on the political scene?

  i) Anger directed more towards French + Allies than towards Weimar Republic itself.

  ii) Inflation, workers didn’t suffer to same as during mass unemployment of 1930s.

  iii) Some business people did v. well post-inflation, made them tolerant of the republic.

• If suggestions of public attitudes towards republic are right, it seems that despite distress + disillusionment in 1923, hostility to Weimar Republic was yet to reach unbearable levels

  • Also, no obvious political alternative to republic = extreme left not recovered from divisions + suppression (1918-21) + isolated position = not enough support to overthrow repb.

  • Extreme right; not strong enough = divided + no clear plans. Failure of Kapp Putsch was clear warning to danger of taking hasty action + possible reason army made no move in 1923.