Formerly a British colony, Cyprus had remained a British military base, with, back in the 1970s, agriculture and tourism as its other main earners. Now its burgeoning financial sector became the basis of the island’s prosperity, leaving its economy increasingly dependent on a banking monoculture. This remained the case even after it joined the euro at the beginning of 2008. As a result, when it came to paying back the 2013 ‘bail-out’ loan, Cyprus’s creditors considered that only the island’s banking sector could provide the funds. Hence the bail-out providers’ imposition of a startlingly novel ‘bank deposits tax’ that, ominously, freezes and then guts bank accounts containing deposits of €100,000 or more. Capital and currency controls have been forced on Cyprus, completely against the spirit and letter of the EU’s founding principles – as if such controls had suddenly popped up on the border between, say, Connecticut and the rest of the United States.
In this context, Germany, as the richest and most populous country in Europe and therefore the main paymaster, is seen – to return to the similarities with the Weimar era – as a kind of combination of merciless financial vigilante, like France bearing down on Germany after Versailles, and ‘Uncle Shylock’, like the American bankers who would not forgive the loans taken out by France, Britain and its other co-combatants in the First World War. Had not the combination of these two factors condemned post-First World War Europe to permanent austerity and a ‘beggar-my-neighbour’ struggle for survival?
The real problem, arguably, is that, because they (voluntarily) remain within the monetary straitjacket of the eurozone, the modern debtor countries must abide by its rules, of which Germany is the undoubted guardian. Specifically, as a result, they cannot devalue their national currencies. Unlike Germany in the 1920s, they cannot ‘inflate their way out of trouble’, thereby, first, making their economies more competitive and, second (less virtuously), in effect cheating their creditors by repaying them in debased money.
Of course, as this entire story shows, Weimar Germany may have ‘inflated its way out of trouble’ for a while. The eventual result, however, was to help create another, even worse, kind of trouble - one that manifested itself a decade down the line in the shape of the Nazi dictatorship. This is a fact of which modern Germans are well aware. The spectacle of the Anglo-Saxon countries ‘solving’ the recession by conjuring money up from nowhere to keep the economy going unsettles minds east of the Rhine. London and Washington may call it ‘quantitative easing’, but to those Germans with even the dimmest memory of the early 1920s, the story of the Reichsbank’s printing presses clattering away around the clock to produce million, billion and trillion mark notes, and the chaos that resulted, is irresistibly brought to mind.
Germans’ awareness of their own history, including the price they paid for the hyperinflation – financial aversion therapy of the most drastic sort – as well as the benefits of financial discipline, which transformed the country after the Second World War, makes it obvious to most Germans that a similar course of action must be pursued by their troubled eurozone friends if they are to lift themselves out of the mire. The problem is that while this attitude may appear to opinion formers in Berlin to reflect simple common sense, to those on the southern European periphery, where the suffering is not decades in the past but very much an urgent thing of the present, it feels much more like arrogant indifference to wasted lives and crushed hopes.
Meanwhile, the communal memory of the hyperinflation lingers in the subliminal regions of the German unconsciousness, occasionally rising into the national awareness at times of crisis. ‘There is anecdotal evidence,’ as the correspondent of the London Observer wrote at the end of March 2013, ‘that some Germans have begun removing their savings from banks, and that others have opened new accounts to spread their savings around and avoid getting caught like Cypriot depositors with more than €100,000. The financial daily Börsen-Zeitung commented that while Germans – still collectively haunted by the currency collapses experienced by their forefathers – were not necessarily planning a run on the bank with their feet, “they are already doing it in their heads”.’3
Clearly, for all Germany’s renewed prosperity, the ninety-year-old national sense of trauma has not yet been fully overcome. The problem for the world may be that Germany’s instinct is correct.
Appendix
Timeline of Key Events
Date and Events Rate of Mark to US Dollar (monthly av.)
1914
August. Germany at War. Mark decoupled from Gold Standard. 4.19
December. First wartime Christmas. 4.50
1915
December. Stalemate on the Western Front. 5.16
1916
December. German advances on the Eastern Front. 5.72
1917
March. First Russian (democratic) revolution. 5.82
October. Second (Bolshevik) Russian revolution. 7.29
December. Germany’s war position strengthens. 5.67
1918
March/April. Treaty of Brest-Litovsk. Massive German territorial and economic gains in the east. German breakthrough on the Western Front. 5.11
August. German advances on the Western Front halted. Retreat begins. 6.10
November. Revolution in Germany. Monarchy overthrown. Armistice signed. 7.4
1919
January. Bolshevik-style Spartacist uprising in Berlin suppressed. Rosa Luxemburg and Karl Liebknecht murdered. 8.20
April. Avant-garde ‘Bauhaus’ art institute founded in Weimar. 12.61
April/May. So-called ‘Bavarian Soviet Republic’ in Munich. After its violent suppression, Munich became a centre of militant right-wing reaction. 12.85
June. Versailles Treaty. Scheidemann resigns as first post-war chancellor and is succeeded by Gustav Bauer. 14.01
1920
March. Unsuccessful right-wing (Kapp) putsch in Berlin causes crisis. Gustav Bauer makes way for Hermann Müller. 83.89
June. Elections. Parties of the right resurgent. Müller resigns. Fehrenbach Chancellor. The mark temporarily stabilises. Foundation of the Völkischer Beobachter, newspaper of the Munich-based National Socialist German Workers Party (NSDAP = Nazi Party). 39.13
1921
May. Fehrenbach resigns. Parties divided over acceptance of Allied reparations ultimatum. Wirth becomes Chancellor. 62.30
July. 32-year-old Adolf Hitler becomes leader of the Nazi Party, which claims 3,600 members. 76.67
August. Matthias Erzberger, reforming former Finance Minister and signatory of the 1918 armistice, assassinated by ultra-nationalists. 84.31
October. Germany loses most of the key industrial area of Upper Silesia to Poland. 150.20
1922
January/February. Hard-line nationalist cabinet in France under Poincaré takes aggressive line on reparations. 207.82
March. Release of Friedrich Murnau’s film Nosferatu: A Symphony of Horror, based on Bram Stoker’s Dracula. 284.19
May. Fritz Lang’s film Dr Mabuse: The Gambler, a paranoid moral fantasy portraying contemporary decadence, fraud and the abuse of money, opens in Berlin and is a huge hit. 290.11
June/July. Crisis follows the murder of Walther Rathenau, German Foreign Minister, by far-right assassins. Emergency Law passed by Reichstag.
Germany demands moratorium on cash payments of reparations. 493.22
August. Poincaré demands ‘productive guarantees’ including surrender of state forests and mines in Western Germany to the Allies, plus majority of shares in major German chemicals concerns. 1,134
October. Fall of Lloyd George in the UK. End of Greco-Turkish War. Mussolini seizes power in Italy.
The German government makes illegal the use of foreign currencies as payment within Germany. Inflation accelerates still further. 3,180
November. Growing crisis over German failure to meet reparations demands. Fall of Wirth government. New administration under a non-political businessman, Wilhelm Cuno.
Reparations negotiations unsuccessful
.
Albert Einstein is awarded the Nobel Prize for Physics. 7,183
December. Berthold Brecht’s first play, Drums in the Night, successfully premieres in Berlin.
Just before Christmas, Germany is declared in default of reparations. 7,589
1923
January. France and Belgium invade and occupy the Ruhr to enforce reparations. The German government proclaims a policy of ‘passive resistance’. Railway workers refuse to handle coal shipments bound for France.
In Munich, the Nazi Party holds its first national conference, causing the Bavarian government to declare a state of emergency. 17,972
February. Courtesy of a hard-currency donation from a foreign sympathizer, a huge sum when translated into paper marks, the Völkischer Beobachter becomes a daily paper. The Reichstag passes a law (Notgesetz) against profiteering and the black market. 27,918
March. Thirteen workers killed by French troops suppressing a demonstration at the Krupp plant in Essen. 21,190
April. Tempelhof Airfield, Berlin, officially opened. Reichstag passes a supplementary finance bill adding 4.5 billion marks to the budget for that year, representing the cost of supporting ‘passive resistance’ in the Ruhr, buying imported coal to replace stocks confiscated by the French, etc. Freud’s Das Ich und das Es (The Ego and the Id) published. 24,475
May. Police in Munich prevent clashes between leftist demonstrators and Nazis, the latter 1,200 strong and armed with weapons including machine guns.
In the Rhineland, Rhenish separatists, supported by the French occupiers, carry out the first of several unsuccessful coup attempts.
The German saboteur Albert Schlageter is executed by a French firing squad in the Ruhr and becomes an instant national martyr. 47,670
June. Mass expulsions of resisting German railway workers from the Ruhr reach 4,500 per month (plus 11,000 dependents).
Anti-inflation riots in Leipzig end in 7 dead and 100 serious injuries.
Danzig airport opened.
Inflation supplement for German civil servants increased from 2,900 to 6,000 per cent.
The German government introduces stricter laws against currency speculation. 109,966
July. Postal, telegram and telephone charges drastically raised. Rail tickets and goods charges further increased.
The Government Printing Works delivers the first 500,000-mark notes to the banks. Inflation increases dramatically. Million-mark notes soon follow.
According to a German government report, 92 Germans have been killed during the Ruhr occupation and 70,000 expelled from the occupied area. British Prime Minister Stanley Baldwin demands French withdrawal.
The fall in the mark becomes an uncontrollable torrent. 353,412
August. Sudden death of American President Warren G. Harding. Vice-President Calvin Coolidge succeeds him.
Food riots in French-occupied Wiesbaden. Grocers’ and butchers’ shops looted. The French turn back all food shipments from the Reich to the occupied area that do not have customs duties paid on them, causing widespread hunger. By presidential decree, trading in German marks outside the Reich is made illegal.
Cuno loses a vote of confidence in the Reichstag. Centre-right politician Gustav Stresemann becomes chancellor. Plans made to abandon ‘passive resistance’ in the Ruhr.
One gold mark now equals 1,000,000 paper marks. In December 1922 it was 1,000. The fall continues and accelerates.
On 20 August a loaf of bread in Berlin costs 200,000 marks.
Unemployment in Germany almost doubles in one month from 3.5 to 6.3 per cent. 4,620,455
September. A massive earthquake in Japan kills 140,000 and makes half a million homeless. 100,000 supporters of the far right gather at Nuremberg. Prominent among them are members of the Nazi Party. Adolf Hitler takes political leadership of the unified ‘German League of Struggle’ founded after this rally.
The inflation soars catastrophically out of control. On 3 September the dollar is worth 9.7 million marks, on 6 September 33.2 million, the next day, 7 September, 53 million, and on 13 September 92.4 million. Rumours of a right-wing coup in Munich, and fighting between communists and police in Saxony. The Reich government warns that it will not tolerate rebellion in the provinces from either political extreme. State and provincial leaders agree to the abandonment of passive resistance in the Ruhr and this becomes central government policy. 98,860,000
October. On 1 October the mark trades at 242 million against the dollar. On 8 October 838 million.
On 10 October a communist-socialist coalition government is sworn in in Saxony. The French reject German offers to normalise the situation in the Ruhr.
By 10 October the mark’s value has collapsed dramatically to 2.9 billion (American = 1,000 million).
In Bavaria, the Munich government refuses to sack its ultra-nationalist, anti-Semitic army commander and calls the Reich cabinet ‘a Jew-government’.
In Saxony the communist Finance Minister supports the arming of workers’ militias. The commander of the regular military responds by banning the militias. The stage is set for a violent confrontation.
An Enabling Law (Ermächtigungsgesetz) is passed, empowering the Reich government to assume dictatorial powers in case of national emergency and overrule local state governments.
Meanwhile, the stage is being set for financial reform. Tax liabilities will be calculated in gold marks. A ‘rent’ bank is set up based on the ‘real’ worth of businesses, agricultural assets, etc., preparatory to reform of the currency. Holders of this notional value will guarantee it with 6 per cent of their worth, entrusted to the government as a kind of debt provision deposit.
President Ebert voluntarily forfeits half of his official allowance as an example of austerity.
The mark reaches 41 billion against the dollar.
A communist uprising in Hamburg is suppressed by government forces.
The Exorcism (Die Austreibung), a new film by Friedrich Murnau, is released.
A Berlin station begins regular radio broadcasts for the general public. ‘Radio mania’ is unleashed.
Drastic cuts in the civil service planned, totalling 1.5 million. Unemployment has trebled in three months and now stands at 19.1 per cent.
Using its new powers, the government sends troops into Saxony, deposes the socialist/communist coalition and installs a ‘Reich Commissar’ in its place. 25,260,000,000
November. On 12 November, President Ebert appoints the banking expert Hjalmar Schacht as Reich Currency Commissar, with crucial powers to overrule any ministerial decisions he considers harmful to currency normalisation.
On 16 November, under Schacht’s direction, the government issues a new currency, the Rentenmark – initially confined to domestic use in the Reich itself – each new Rentenmark worth 1 trillion paper marks. All printing of the latter ceases. It is the beginning of the end for hyperinflation.
Poincaré admits in a speech to the Chamber of Deputies that financially, the occupation of the Ruhr has cost France more than it has brought in.
A Reparations Commission, including for the first time German representatives, begins new discussions about Germany’s ability to pay reparations. (Average estimate impossible – 1 November exchange rate 133 billion to the dollar, 15 November on the eve of currency reform, approx. 2.5 trillion)
December. The introduction of the fixed-value Rentenmark causes severe but temporary hardship for many Germans. Prices continue to rise for a while, and the new money is in short supply.
Because the Rentenmark is a purely domestic currency – technically not even legal tender – the paper mark continues to be bought and sold in foreign exchanges. Its value against the dollar rises to 6.7 trillion marks on 1 December before stabilising at 4.2 trillion on 3 December.
The President approves emergency legislation to ensure that all major taxes and government obligations are carried out in Rentenmarks.
On 22 December, some weeks after the sudden death of Reichsbank President Havenstein,
Schacht is finally appointed to his post, while also remaining Reich Currency Commissar. There will be struggles ahead, but the end of the hyperinflation is now in sight. 4,200,000,000,000
Acknowledgements
Anyone casting an eye over the sources I have used for this book will notice that, more than ever, digitally stored and organised information has come to play an important role. As a writer who matured professionally in the company of the printed word, and who once viewed digital sources with some reservation, I initially had to force myself to embrace the internet. Now, however, I have arrived at a point where I find it hard to conceive of a working life that does not rely heavily on the treasures to be found (along with the dross, of course) within the ever-expanding online universe.
In researching The Downfall of Money, a book dealing with a historical period outside the scope of most living human memory, I have not been able to conduct interviews, as I have for my other work. However, I have been able to access newspapers of that time through an internet connection. Where, even at the beginning of this century, one still had to trek to libraries and archives, and spend days or even weeks trawling through thousands of pages of newsprint, it is now possible to read the thoughts, words and observations of men and women, recorded in print ninety or more years ago, through the medium of a home computer connection – and with searchable databases enabling huge savings in time and energy. To be able to check the value of the mark against the dollar or other foreign currencies, for every day between 1919 and 1924, through the financial pages of a Berlin newspaper of the time – and by referring to other press sources to compare the quotidian financial reality with the often tragic fates of the human beings affected by it – has been a terrific gift. We may worry about the future of the printed word, and the viability of the traditional book, but for research purposes ours is in many ways a new golden age. To those who have digitised millions of such precious pages and made them available online, profound thanks.
The Downfall of Money: Germanys Hyperinflation and the Destruction of the Middle Class Page 39
