1931: Debt, Crisis, and the Rise of Hitler

by Tobias Straumann

Germany's financial collapse in the summer of 1931 was one of the biggest economic catastrophes of modern history. It led to a global panic, brought down the international monetary system, and turned a worldwide recession into a prolonged depression. The crisis also contributed decisively to the rise of Hitler. Within little more than a year of its onset, the Nazis were Germany's largest political party at both the regional and national level, paving the way forHitler's eventual seizure of power in January 1933.The origins of the collapse lay in Germany's large pile of foreign debt denominated in gold-backed currencies, which condemned the German government to cut spending, raise taxes, and lower wages in the middle of a worldwide recession. As political resistance to this policy of austerity grew, the German government began to question its debt obligations, prompting foreign investors to panic and sell their German assets. The resulting currency crisis led to the failure of the already weakenedbanking system and a partial sovereign default.Hitler managed to profit from the crisis because he had been the most vocal critic of the reparation regime responsible for the lion's share of German debts. As the financial system collapsed, his relentless attacks against foreign creditors and the alleged complicity of the German government resonated more than ever with the electorate. The ruling parties that were responsible for the situation lost their credibility and became defenceless in the face of his onslaught against an establishmentallegedly selling the country out to her foreign creditors. Meanwhile, these creditors hesitated too long to take the wind out of Hitler's sails by offering debt relief. In this way, a financial crisis soon developed into a political catastrophe for both Europe and the world.

Genres: History, Economics, Politics, Nonfiction, Germany, European History, Audiobook

266 pages, Kindle Edition

First published January 1, 2019

About the author

Tobias Straumann, born in 1966, is an economic historian and titular professor of modern history at the University of Zurich. He studied in Bielefeld, Paris and Zurich, was a senior lecturer at the University of Lausanne and spent visiting semesters at the University of California at Berkeley, the Chinese University of Hong Kong and the University of Oxford.

Reviews

[Frank Stein · Rating 3 out of 5]

This book is a confused and slightly bewildering look at the collapse of the European monetary order at the beginning of the Great Depression, but it has an important story to tell.

The book begins in January 1930, when triumphant ministers from across Europe celebrated the conclusion of the “Second Hague Conference.” After the passing of the German famed Foreign Minister Gustav Streseman, the son of a Berlin pub-owner who became a capitalist mogul, the new German foreign minister, Julius Curtis, somehow managed to come to agreement with Aristide Briand, Streseman’s long-term French counterpart, and rewrite a new German reparations agreement into law. It extended German repayments until 1988 (!), and mandated that 600 million marks of them every year would be mandatory. In return, the French and other allied countries agreed to withdraw from the Rhine and give up control of the Reichsbank and the Reichsbahn. Two months later, the German Reichstag passed the agreement by overwhelming margins. It seemed as if the perils and international tensions resulting from the First World War had finally passed.

Yet it all went wrong so quickly. Within weeks of passing the new Hague plan, German Social Democratic Chancellor Herman Muller found his coalition incapable of protecting the new social insurance and unemployment fund of 1927, since he refused to raise taxes or cut benefits. This gave the arch-conservative President Paul von Hindenburg a chance to place Heinrich Bruning, leader of the Catholic Central Party, who the arch-Protestant Hindenberg thought acted like a “Protestant Catholic," as the new chancellor. Within months Hindenburg and Bruning successfully used the “Article 48” of the Constitution to disband parliament and implement emergency austerity. The disruptive move and subsequent election allowed the Nazis to move from 2.6% of the vote in the last, 1928, election to 18.3% in this September election, and for the Communists to rise to 13% as well. Still, within months Bruning had to negotiate another German loan from the French, and the American bank Lee, Higginson, and he had to agree to even more austerity, increased social insurance taxes, reduced civil servant salaries and so on. In December, he got it through with another Article 48 move, but the right and the left were raging ever stronger. In March 1931, Bruning broached a customs union with Austria, verboten under the Versailles Treaty, and mentioned he would try to renegotiate reparations payments, which he thought was necessary for yet another round of austerity.

Brunings plans all fell apart in June 1931, when Austria’s Credit-Anstalt bank faced collapse, and then the German Nordwolle textile firm and its associated Danat Bank came under pressure. The French, British and American central banks had to extend credit to the Reichsbank to keep it on gold, and US President Herbert Hoover, understanding the intensity of the crisis, proposed a total moratorium on reparations. Such efforts were not enough. In July the Danat and then Dresdner banks closed, and Bruning was forced to break off international debt payments entirely. A global financial crisis followed, one which, importantly, encouraged the rise of the Nazis and Adolf Hitler.

The story in this book, however, is almost impossible to disentangle. Chronologies move backwards and forwards without explanation, characters are introduced and disappear, and important events fly by without comment. It’s hard to separate the wheat from the chaff, but the author does at least show how much this financial crisis mattered, to Germany and the rest of the world.

[Constantinos Kalogeropoulos · Rating 5 out of 5]

Tobias Straumann's '1931: Debt, Crisis, and the Rise of Hitler' is a fascinating and highly accessible account of the role that unsustainable debt, crushing austerity, and political deadlock, played in both the discrediting of the establishment parties of the right and left - who had hitched their proverbial wagons to that austerity - and of the rise of Hitler and the Nazi party which filled the political void that they vacated. We like to think that we're behind such dark periods in history, but if the EU sovereign debt crisis taught us anything, its that the European establishment political and financial elites of our day still haven't learned the lessons that led to the downfall of the liberal German republic. Reading this book I couldn't help but remember the famous aphorism that while "history doesn't repeat itself, it often rhymes."

[Fahim Ahmad · Rating 3 out of 5]

“It is not sufficient to have good intentions and appeal to the spirit of cooperation. Nor is it wise to agree on global rules that are not enforceable and then hail them as breakthroughs just because diplomats and politicians are reluctant to return empty-handed after several rounds of contentious and exhausting negotiations. “
These are the closing lines of the book I am about to discuss here and in my opinion it almost perfectly sums up the whole book in two sentences. This book, as the title so correctly mentions, is about what actually happened before the economic crisis of Germany in 1931, a crisis that not only hit germany, it reverberated across the world. This crisis would eventually give Hitler the push that he needed to go on to become the authoritarian leader that he was.
The crisis that hit Germany immediately after the first world war, revolved mainly around the huge amount of war reparations that it had to pay to the allied nations under the treaty of Versailles. The government in Germany initially suffered from a lack of good leadership. Eventually though the government did put its act together, it still struggled to get enough money together to properly pay the reparations under the Weimar government. Germany had been struggling since the early 1920s but it all came to a head as 1930 and 1931 approached.
The book shows the struggle of the German leadership trying to put austerity measures, collecting huge amounts of taxes from the already struggling German people and at the same time making blunders along the way, especially as far as keeping up friendly and meaningful diplomatic relations is concerned. The book tries to show what the German government did during the last days of the crisis as the stock market fell, as they struggled to pay the employees, as the banks slowly started closing and failing. It also showed the response of the other government in relation to the German crisis, namely Britain, France and the United States.
The main point that the book tries to highlight is that the actions of individuals have the power to change the road that nations eventually take. It also tries to highlight the diplomatic failures, failures that can only be seen with the wise eye of hindsight. The people participating at the moment, however, somehow fail to see the obvious problems in their actions and convictions.
The problem, however, of this book, for me, was that while it showed the sequence of events during the one and a half year or so of history it showcases, it did not provide enough analysis of the events which went against what I thought the book would cover when I picked it up. I appreciated the book’s fluid description of the events that preceded one of the biggest financial crises in the world but as I mentioned before the analysis part kind of threw me off. Also, the book fails to show in detail the rise of Hitler lightly brushing past it. To be honest, I am willing to read a more detailed version of the book. Maybe I should look for one by another author. The book gets a mere 3 out 5 stars from me and I would recommend it to anyone who would just like to get lite details about the crisis and not much into heavy reading.

[Pep Bonet · Rating 4 out of 5]

Very good description of the financial crisis of 1931, describing all the elements that contributed to it. As with other books on the two World Wars, one gets a sense of inevitability that is quite depressing. Important reading, especially when we try to recover from the 2008 crisis, while waiting for the next one.

[Ashim Sharma · Rating 4 out of 5]

This is a very interesting book that explains the 1931 Sovereign Debt Crisis of Germany. Tobias Staumann argues that while the crash of 1929 led to a global recession, it was the 1931 sovereign debt crisis that transformed a global recession into a global depression.

After WWI, global balance sheets were nested and chain linked to one another. US was the largest creditor nation and Germany was the largest debtor nation. UK and France had to pay war loans to the US, and they in turn, to a large extent, relied on German war reparations. So the weakest link in this global debt chain was Germany and within Germany the weakest link was its banking sector.

Germany essentially had a long term liability of war reparations but war and hyperinflation had destroyed its capital base. So to rebuild the economy, to pay for reparations, and to fund unemployment benefits and social security programs it had to borrow. Most of this borrowing came from foreign short-term loans and deposits which were ‘hot money’ ie chasing higher yields (official rate in Germany was 2x that of UK and US) and which had to be rolled over every few weeks and months.

So Germany was structurally fragile to both a currency crisis and a banking crisis. At the first sign of trouble, foreign investors will start pulling money out of Germany. They would sell short term paper and/or convert their RM deposits into $ or gold, which would eventually push the German central bank to suspend gold convertability to halt the decline in their reserves. Moreover, since the deposits weren’t sticky, German banks would be forced to call their loans to meet their survival constraint.

Till 1930 such a crisis hadn’t come to pass for one important reason: these short-term foreign loans in practice were considered senior to war reparations in the capital structure. Germany if faced with a recession could delay making war reparations. So whenever Germany found itself in trouble it could raise rates to attract more deposits.

But all this changed after the 1930 Young Agreement. Germany now had to pay an unconditional annuity of RM650 million no matter what. Operationally this changed the seniority in the capital structure. Foreign loans now became junior to war reparations and annuity.

As it turns out this had some far reaching implications:

1. Germany could now no longer rely on foreign loans to fund reparations as investors priced in higher probability of default. So funding risk increased.

2. Germany now has to fund both war reparations and debt through a budget surplus (so that they have the money) and a trade surplus (so that they have forex/gold to pay). By 1929 Debt to GDP was 80%+ and the economy was contracting. Operationally this meant instead of adopting a counter cyclical policy of increased government spends and lower taxes, Germany has to adopt a pro-cyclical policy of lower wages, higher taxes, and reduced spending. And as the economy contracted Germany had to adopt multiple rounds of such austerity measures, which were deeply unpopular with the population.

3. This put the German government in a dilemma: if they renegade on repatriations it would lead to capital flight leading to a banking and currency crisis. If they continued to pay repatriation they would be forced to impose harsher austerity measures, which was politically unsustainable. Hitler and Nazi party had emerged as the second largest party to the surprise of many in 1930 and one of their election planks was to end reparations. More austerity would be mean political defeat for government and Nazi eventually forming the government.

Given the above the book answers the following questions through a political - economic - foreign policy lens :

1. Why wasn’t Germany able to get additional bridge loans or credit lines from UK, US or France when these powers realized that a crisis is brewing?
2. Why weren’t the original reparations ever renegotiated ? And why didn’t the US come out earlier to announce a debt moratorium on WW1 loans and reparations?
3. What were the catalysts in the summer of 1931 which converted a regional funding crisis to a global liquidity crisis?

One thread I will pursue further is a financier named Felix Somary. He was among the very few people who was able to connect the dots of the impending global depression, repeatedly warned governments and central bankers. He also moved his client money out of the markets before the above events took place. In 1927 when Keynes disagreed with him on the prospects of crisis, Keynes asked Somary where does he foresee a crisis coming from. Somary replied “from the gap between appearance and reality” and from “fundamental global imbalances that were about to unwind in a chaotic way”

Highly recommended.

[niste eroi · Rating 5 out of 5]

Astonishing!
I just tell you that a book that mention Felix Somary is a book that it s a must read.

[Arun Pandiyan · Rating 5 out of 5]

After the First World War, the democratically elected Weimar Republic was facing a credibility deficit among the Germans, which began with the Treaty of Versailles. The treaty had a “war guilt clause” that held Germany accountable, ordered the return of territories, curbing of military, and announced huge reparations to be paid by Germany. Germans were frustrated that they would be taxed heavily.

The government tried to stabilize the polity through economic means. Dawes Plan and later the Young Plan reduced and rescheduled reparations, but borrowed heavily from the United States to reconstruct the economy. The system worked, until it didn’t. When the Great Depression hit in 1929, U.S. loans were pulled, German banks collapsed, industrial output fell sharply, and unemployment exploded. Public anger grew violent.

Proportional representation ensured under the new constitution produced unstable coalitions, and some provisions normalized emergency rule. As economic pain intensified, democratic consensus evaporated and populism filled the vacuum. The Nazis monetized the crisis and gained popularity, and also the necessary public support in elections. Hence, the rise of Hitler.

[Joshua Shorter · Rating 3 out of 5]

This book was a scholarly work on the issues surrounding the debt crises in Germany prior to WWII which lead directly to the rise of Adolf Hitler. It covered a lot of information that was valuable for the background to become clear. I found it somewhat difficult to read, due to the scholastic nature and the fact that the names of people and institutions were reported in German, for the most part. It did provide a lot of good background information as a cautionary tale for governments becoming over leveraged. Governments are meant to serve the people and they cannot adequately manage that task when they are too worried about their own insolvency.

[Simon · Rating 5 out of 5]

I had always bucketed German economic malaise/distress that lead into the war fervor with hyperinflation (34). Straumann masterfully paints the slow burn into banking crises of 1931. Eye-opening, with flashes of the recent European crises. Very much worth a read for any lover of economic /business history, or has an interest in the political machinations of trade/finance based power politics.

[Vince M · Rating 3 out of 5]

(Read in January 2025) I won't lie and say this is an exciting read, nor will I claim to have academic mastery of either World War.

This book is a look at how Germany went from losing the Great War in 1919 to Adolf Hitler's appointment as Chancellor only 14 years later in 1933. This all boils down to the Allies setting exorbitant reparations for the German government to pay, which of course would come from taxes on the common people. In trying to satisfy these monetary demands, the German govt had to borrow from predatory lenders and sponsor austerity programs to suck out every last drop of cash from the German people, and there were multiple whole gamuts of recession, depression, and inflation periods.

This is not to say that the Allies are to blame for the rise of Hitler, but that conditions prevailed that saw the German people poor and suffering and willing to submit to an enthusiastic ideologue promising to restore proud Germany to its former might (with a little bit of genocide mixed in).

Interesting on a macro level but not a book that I had need of reading. Three tumultuous stars.

[Diego Lucero · Rating 4 out of 5]

This book argues that it was not the stock market crash of 1929 alone that pushed the world into economic depression, but the German crisis of 1931.

Germany’s 1931 financial crisis not only gave the Nazis the opening they needed, but also triggered an international liquidity crisis, throwing banks and financial markets across the globe into chaos. Like dominoes, the pillars of the global economy toppled one after another.

The German crisis teaches us a timeless lesson about the importance of getting international agreements right. In the 1920s, the Allies failed to come up with a reparations regime corresponding to the economic and political realities in Germany.

After the Great War, the Allied powers had decided to uphold their war debt claims against each other and to punish Germany with a high reparations bill. This agreement was a recipe for disaster. The European countries were supposed to pay their war debts to the United States and, because nobody knew how this transfer was supposed to work, in the long run the whole sum was effectively charged to Germany as reparations debt.

By the end of 1929, debts owed to foreign banks amounted to a third of German GDP. Including reparations obligations, the Reich had foreign debts amounting to a staggering 86% of German GDP.

The reason this pile of debt did not collapse in the beginning was that it had been stabilised by private short-term capital flows to Germany, but these additional loans only made things worse.

Between 1929 and 1932, German industrial production fell by almost 50%. Unemployment reached more than 20% and real GDP shrank by roughly 25%. The global economy broke up into several currency and trade blocs, bringing an end to an era of globalisation.

Demand for foreign funds resulted, in part, from the lack of domestic credit and also because of the German government’s inability to agree a budget surplus and earn a current account surplus.

The weak Weimar Republic needed public support to survive the turbulent post-war years, and that could only be maintained by increasing public services and paying decent wages. Borrowing from abroad enabled the authorities to avoid unpopular tax increases, keep workers well paid and postpone the true costs of reconstruction.

Another reason for Germany’s borrowing was that some officials in the German Foreign Ministry saw an advantage in accumulating commercial debt owed to US banks. They argued that high debts would make it more probable that reparations would be cancelled as soon as the Reich threatened to default on its debts.

The reason why European diplomats were still having to deal with German reparations more than 10 years after the war was an open secret. Earlier agreements had simply failed to resolve the issue. The Treaty of Versailles of 1919 had stipulated that Germany alone was responsible for the war and therefore had to make compensation for all damage done to the civilian population of the Allies.

The London Ultimatum of May 1921 was supposed to resolve the issue, but only made things more complicated by fixing the final bill at the extremely high level of 132 billion gold marks, corresponding to around 250% of Germany’s 1913 GDP.

The sum could have been substantially lower if the US government had been prepared to reduce its claims on France and Great Britain. But this was taboo in Washington, and the USA was not yet ready to lead and bear the costs of international stability. Accordingly, France and Great Britain simply passed the bill over to Germany.

Politically, such a scenario was simply unenforceable, as most German citizens were convinced that their country had not lost the war. Thus, when the cost of the reparations bill became known in Germany, a sort of tax boycott ensued. Taxpayers deferred the submission of their returns until the very last moment and the authorities delayed demands for arrears, aiming to obstruct the transfer of reparations.

The German government transferred only the first cash tranche required by the London Ultimatum but then virtually stopped paying. Predictably, German workers responded with passive resistance and, to support their struggle, the German government induced the central bank to pay their wages by printing money.

As the additional money entered the economy directly via private consumption, the inflation rate, which was already high because of the war and reconstruction, accelerated and eventually led to full-blown hyperinflation.

The mark plunged, and the effects of hyperinflation were brutal and unevenly distributed. Anyone with savings or holding bonds lost their wealth.

Real wages, as well as welfare payments, declined as the inflation rate surpassed the pace at which nominal wages and rents were being adjusted to rising prices.

On the other hand, those citizens, companies and public bodies that were in debt benefited from hyperinflation, as their liabilities denominated in German currency were annihilated.

Most importantly, German governments — the Reich, the states, or Länder, and the communities — saw their debts denominated in German currency disappear.

This was detrimental for creditors, both domestic and foreign, but advantageous for the German taxpayer.

All these sudden upheavals had a demoralising effect on the vast majority of the German population. Many voters, especially the middle classes who had lost their savings, were traumatised and disillusioned with the young Weimar Republic.

In 1924, the Allies engaged Charles Dawes, an American lawyer and politician, to chair an expert committee to make proposals for rescheduling German reparations. The Dawes Plan brought several improvements for Germany.

• First, it lowered the annual repayment instalments and provided the Reich with a foreign loan to enable a smooth transition to the new payment schedule.

• Second, a new currency, the Reichsmark, backed by gold, was introduced to establish monetary stability.

• Finally, Belgium and France withdrew their troops from the Ruhr region.

In exchange, Germany had to accept a certain level of foreign control.

In principle, the Dawes Plan worked remarkably well. Between 1923 and 1927, industrial production more than doubled in Germany.

The Dawes Plan was really only a provisional settlement of the German debt, designed to put an end to the diplomatic tensions between France and Germany and to restore confidence in Germany’s currency and public finances after the disaster of hyperinflation.

However, the basic defects of the reparations scheme were not addressed. Two weaknesses of the Dawes Plan were particularly obvious: first, that it only defined the annual repayment schedule; and second, that as time went by, it became increasingly difficult to maintain foreign supervision of Germany’s public finances.

Germany offered higher interest rates than the US. The Dawes Plan contemplated a “transfer protection clause” that was designed to help the Reich by giving it the freedom to delay an annual payment if it threatened the stability of the currency.

In reality, as foreign bankers and investors rapidly understood, transfer protection meant that the claims of private debt creditors had priority over reparations, because the latter could always be delayed.

As a result, Germany was able to borrow vast amounts of capital, of which only a small part served to make productive investments. As of 1929, the Reich had accumulated foreign debt amounting to 86% of GDP.

In 1930, everything changed. The Young Plan changed the transfer protection clause. Henceforth, Germany would be obliged to pay a tranche with an unconditional annuity. The payment of the rest could be delayed, postponed or suspended in case of recession, for example, but not this unconditional tranche.

From then on, reparations payments came first and servicing private foreign debts came second. Borrowing from abroad suddenly became more difficult because foreign banks and investors feared that their claims would not be honoured in times of crisis.

Chancellor Müller tried to defend the Young Plan, but the majority of the political forces from the left and the right were against it. In the end, the coalition prevailed, but it was in no way a convincing victory.

Hindenburg, the President of the Reich, did not like the Young Plan and knew that supporting it was putting his prestige at risk.

The Weimar Constitution gave the President significant powers, and Hindenburg was willing to use them.

Hindenburg proposed Brüning, a Centre Party politician with a reputation for fiscal expertise and austerity, as the new Chancellor, and the composition of the new cabinet reflected the wishes of the President as never before.

The collapse of the Grand Coalition put an end to normal parliamentary democracy, which was replaced by a presidential system based on Hindenburg’s emergency decrees.

The new German government seemed to be serious about fiscal restructuring; many believed that someone like Brüning was in a better position to cope with the financial problems than his Social Democratic predecessor.

In spring 1930, it seemed that Germany had managed to restructure its public finances. The French economy continued to be robust, and the American recovery from the 1929 employment crisis gained pace. It seemed as if the world economy would leave the crisis behind in the course of that year.

But predictions that the economic crisis was coming to an end turned out to be completely wrong. International trade, industrial production and employment — every major economic indicator — resumed their decline. The Fed and other central banks were forced to ease monetary policy.

Against the opinion of many economists, US President Hoover decided to increase import duties by an average of 20%; it sent a negative signal across the world.

Eventually, the French army left the Rhineland. This started a nationalist movement in Germany: the German government paid tribute to the Germans who had given their lives for the liberty of the Fatherland; there was a rallying cry to national strength. The government even decided to circulate a coin bearing the provocative legend: “The Rhine, Germany’s river, not Germany’s border.”

French public opinion turned from disappointment to disgust, and the French reaction was particularly intense. The French immediately accelerated the construction of fortifications stretching from the border with Switzerland in the south to Luxembourg in the north — what became known as the Maginot Line.

Amid growing political mistrust, the price of the Young Bond in the market quickly slid below the offer price of 90% of face value. The main reason was Germany’s deteriorating fiscal situation: the number of unemployed was much higher and tax receipts much lower. The finance minister was therefore forced to prepare an austerity budget.

The plan proposed a series of spending cuts, notably: i) reduction of health insurance compensation, ii) increase of workers’ contributions, iii) creation of an emergency tax for employees with a fixed salary, iv) tax increase for unmarried persons, and v) higher tax on bonuses paid to members of boards of directors.

This austerity plan was very unpopular. A fiscal crisis was avoided, but at the price of a full-blown political crisis. The Reichstag was dissolved in July 1930, and investors began to realise that Germany was politically unstable. The Young Bond fell more than four percentage points.

In the September 1930 election, many new voters went to the polls to express their anger with the state of affairs. The Nazi Party became the second-largest party with 107 seats, behind the Social Democrats.

There were many reasons for the Nazi victory. Above all, there was the economic crisis and the ensuing political discontent, but also the fact that they had run a well-organised campaign. Hitler’s charisma appealed to all classes with its promise to restore Germany’s greatness and power. But the single most important factor was that the Nazis succeeded in blaming the Young Plan for the domestic economic crisis. The Nazis had managed to form a movement that attracted all groups protesting against the failure of the Weimar Republic.

Meanwhile, the ruling parties assembled fewer than 200 seats in the Reichstag; they needed 288 for a majority.

The government needed a foreign loan. It started negotiations two weeks after the elections. The American bankers made clear that they wanted high interest rates of around 6% and demanded that the debt redemption bill be approved by a parliamentary majority.

A new austerity package was approved to reduce the deficit. It included the lowering of civil servants’ salaries by 6% and parliamentary deputies’ salaries by 20%. It foresaw a series of spending cuts, an increase in the tax on tobacco, and an increase in contributions to the unemployment insurance fund from 4.5% to 6.5%. The package was well received by American investors, but domestically the reaction was harsh.

At that moment, the cover ratio — the share of gold and foreign reserves relative to banknotes in circulation — had fallen from 69% to 57%. It was rapidly approaching the minimum of 40% required by the gold standard.

At that time, more than 3 million people were out of work, representing around 15% of the workforce, with a particularly dire situation in the mining, metal, timber and textile sectors.

In October 1930, the German government finally signed a loan with German, American, Canadian and Swedish banks. The loan amounted to US$125 million against collateral of short-term government bonds and was denominated in gold dollars, to be protected against potential future German inflation or a devaluation of the Reichsmark. The term of the loan was two years, and it bore an interest rate of about 6%.

Both the austerity plan and the foreign loan were debated and voted on in the Reichstag. Chancellor Brüning prevailed with the help of the Social Democrats, and the proposal was approved by 325 votes in favour and 237 against.

Investors reacted euphorically to Brüning’s victory. But only the immediate panic disappeared; Germany’s official interest rate was still kept at the level of 5%, while the Bank of England, the Banque de France and the New York Fed had their rates between 2% and 3%.

In April 1931, industrial production resumed its downward path. Poverty was spreading. Jobless parents and their families, dependent on shrinking communal welfare, often went hungry. Young people without any chance of finding a job became increasingly resentful.

In May 1931, preparations for a new austerity package began.

At that time, in 1931, Creditanstalt, one of the biggest banks in Austria, defaulted and lost a large share of its deposits. The bank turned to the BIS in Basel to provide liquidity. The Austrian crisis did not immediately produce a full German banking panic, but it intensified international mistrust and contributed to the wider Central European financial crisis.

Meanwhile, the Nazis won a sensational victory in the elections in the Free State of Oldenburg, with 37% of the vote, which was considered a very symbolic victory.

Brüning and a German delegation were invited to the UK, where they tried to explain how difficult the political and economic situation was in Germany. The German government “couldn’t go any further without the danger of social unrest.”

Although sympathetic to the German situation, the British were not willing to offer any help.

The run on the German currency rapidly gained momentum. Germany’s adherence to the gold standard was increasingly called into question.

American President Hoover decided to propose a one-year moratorium to help Germany. However, the French were against it. For France, the issue was not so much financial, but how to maintain security against its neighbour and how to prevent Germany from gaining military superiority.

At this point, reparations were France’s only instrument to delay Germany’s domination. Many French politicians, journalists and other public figures repeatedly stated that the German government was exaggerating its problems.

In the end, Hoover was able to convince the French, and the Hoover Moratorium was put into place.

At that point, the situation had seriously deteriorated; reserves had dropped in Germany and some banks were about to collapse. Germany needed central bank credit from the United States, but the US was not willing to help.

Danat Bank became illiquid and had to close its doors. Dresdner Bank was also about to fail. The German government had to guarantee all Danat deposits to prevent a broader crisis.

The Danat crisis created a bank run. Berlin banks were only paying 20% of what customers demanded.

The government was forced to declare a bank holiday for the next two days. The situation was contained over the following weeks.

After Germany, Great Britain was the weakest link in Europe in September 1931. The British government declared that it would suspend gold convertibility. Within days, sterling lost more than 20% against the US dollar.

At the end of 1931, nearly 25% of the workforce was unemployed. In 1932, nearly 40% of industrial workers were without a job.

The meteoric rise of Hitler started in the autumn of 1929. He found that blaming foreign powers for Germany’s domestic misery was extremely effective. But it was the acceleration of the crisis in the summer of 1931 that propelled Hitler’s party to new heights. Still, the financial crisis did not bring Hitler immediately to power, as some Nazis had expected when Danat Bank closed its doors on 13 July.

Brüning survived the no-confidence vote in mid-October 1931 and maintained his position until late May 1932. He was followed by two other chancellors: Franz von Papen and Kurt von Schleicher.

Financial diplomacy failed to contain the crisis, the world economy continued to contract, and the Nazi Party continuously gained ground among the German electorate, especially in bourgeois circles.

By the time of the national elections in July 1932, Hitler had become a dominant political figure in Germany.

Debt and never-ending crisis unleashed forces that were hard to control.

[Bobby Daugherty · Rating 1 out of 5]

Typical anti-German propaganda. While it covers the bankers use of hyperinflation to cripple Germany, no real acknowledgement of Hitler's public works program and labor-based economy is ever mentioned. The author opines that Hitler's policy was one of "antisemitism". An oddly honest response to an economic plan that is based on production and forbids vice, usury, and speculation.

[ritupon deori · Rating 4 out of 5]

Beginning with the 1918 into treaty of versailles and never ending reparations towards fall of reichstag and rise of Hitler..got to know some unheard reasons behind

[Nikola Bakic · Rating 5 out of 5]

Outstanding book, short but incredibly concise and packed with lots of incredible insights on the global descent into chaos following an incredibly tumultuous decade and a half punctuated by Weimar hyperinflation, 1929 crash, and the incredible tug of war between German creditor nations/recipients of reparation payments and the moderate political forces within the Weimar Republic that tried to reconcile the irreconcilable - namely, the interest of her creditors/former WWI belligerents and the interest of ordinary German working men and women who had suffered immensely throughout the WWI and the larger part of the ensuing decade. The story of how the financial and global liquidity crisis of 1931 shattered the post-WWI global order is an unjustifiably overlooked historical episode in the context of the radicalisation of Weimar politics that eventually lead to the rise of Hitler and his ascent to the German chancellery in 1933. Straumann masterfully tells this story and frames the issues and dilemmas faced by politicians and policymakers of leading global powers of the time during those fateful few years. The main focus is on the leaders of the Weimar Republic of centrist orientation finding themselves between the Scylla and Charybdis of unplayable/unenforceable reparation payments imposed on them by the victors of WWI and domestic political economic constraints and pressures that grew intolerable after the maddening plight of German population throughout the 1920s. I wholeheartedly recommend this book to anyone interested in politics of debt, international relations, domestic policy constraints and how they are all entwined. To take our just one quote from the book: “the German financial crisis of 1931…is a timeless reminder of the dangers of ignoring the dynamics of domestic politics when setting up international institutions and concluding international agreements…only when domestic electorates are ready to accept a loss of sovereignty for the benefit of cross-border cooperation can international institutions and agreements have a change of working efficiently and standing the test of time”. As we know the German electorate of the time got too radicalised and imposed insurmountable domestic policy constraints on moderate political forces in the country that were seeking political alignment and cooperation with former foes.

[Kevin Hill · Rating 5 out of 5]

A thoughtful examination of the German Debt Crisis of 1931

Most people know a little about the hyper-inflation that led to the collapse of the Weimar Republic and the rise of Hitler. This book provides an in depth look at the debt issues that propelled the crisis. He does a fine job of explaining the difficulties that theGerman statesmen and economists faced. The book provides food for thought about the current economic situation.

[Elan Kluger · Rating 4 out of 5]

This is a relatively clear book about the follow-up in Germany to the Young Plan which facilitated Hitler’s rise. It argues for scrutiny towards the terms of international settlements because they set the structure under which policymakers can or not make the policy of their choice. The demand for reparations undermined the ability of Brüning and others to set the Weimar government on the right path.

I appreciate books like these because they are not nakedly economic determinist, but nonetheless alive to the way the economic relates to and conditions the political. With that said, this is not that exciting to read. Had I not been assigned to read it for a class, it is unlikely I would have made it through.

[Rhys McKendry · Rating 4 out of 5]

Interesting book and provides an eloquent narrative of a turbulent time.

As an economic history, I find it rather limited. The counterfactual, namely that the 1939 Great Stock Market Crash was more influential, is barely elaborated on. I’d prefer a more in-depth look at economic indicators for potential signs of causality.

The book’s premise is one that can never be completely proven, but I felt the argument could easily have been built on.

A generous four stars, although I concede that the book was rather easy to read!

[Walter Haugen · Rating 2 out of 5]

Minutiae

This book was recommended by one of the finance channels I watch. While somewhat interesting from a nuts-and-bolts perspective, the elites of Europe clearly learned nothing from the First World War. The American elites can "maybe" be forgiven for being clueless; the Europeans cannot. Hitler and Goebbels were only second-rate opportunists, but the vapidity of the bankers and governments gave them their chance. There was no dearth of social science at the time either. Hard choices were available, but cowardice and cluelessness ruled the day.

[Grant · Rating 5 out of 5]

Straumann details the financial, political, and social crisis that severely weakened Weimar Germany and brought the previously obscure Hitler to public prominence. There were certainly steps both the German government and the international community could have taken to alleviate the crisis earlier but few if any world leaders understood the seriousness of the situation and tended to overemphasize minor signs of recovery and stability while prioritizing their own national interests.

[Lorenzo Carrieri · Rating 5 out of 5]

Great journey across the time that spans from Versailles Treaty and the vexatious conditions imposed upon Germany, the struggle of the debt-laden Weimar Republic to juggle between debt servicing and maintenance of decent standard of living at home, and the austerity measures needed to pay back the war reparations which brought about the rise of Hitler.

[Kahscho · Rating 2 out of 5]

Cursory overview of German economic crisis

The book provides a high level overview re: the economic conditions in Germany in the early 1930s. But much of the text focuses on political events (e.g., negotiations between German leaders and other countries) with less focus on the underlying economic conditions. I was looking for more details on the economic history.

[Patrick · Rating 3 out of 5]

While I found this book both illuminating and persuasive, I cannot help but feel that the play-by-play style that the author relies on does more to complicate things than it clears up. The minute details of the financial discussions tend to run together, at a certain point.

[Ian McGaffey · Rating 4 out of 5]

This was a very interesting look at the crisis that led to the rise of Hitler. I enjoyed the in depth look at the mismanagement of the the aftermath of the treaty of Versailles, and how that led to the economic collapse of Germany.

[Ian Wagner · Rating 4 out of 5]

A bit dull / slow in parts, but a very thorough account of the economic and political issues (and their linkages) that plagued the final years of the Weimar Republic. Politicians of the 21st century should pay heed to their mistakes lest they cause history to rhyme yet again.

[Greg · Rating 5 out of 5]

A very well written, easy to understand account of the events of 1931 against the background of the German war reparations crisis, the Great Depression and the rise of the Nazis. Suitable for readers who already have a general knowledge of the period and would like to go into more detail.

[Kale · Rating 4 out of 5]

I am not sure why our society never tells us how Germany got to the economic situation in where a small political faction out voted large democratic parties.

If you don't know yourself, honestly, the book peeks into that blackbox that allowed such a thing.

[Joseph Sverker · Rating 4 out of 5]

As one who is mostly interested in the church response and lack of response to nazism it was very interesting to follow the economics behind much of the crisis.

[Crt · Rating 4 out of 5]

Not bad and not actually boring. Describes the lead up to when Hitler became chancellor in the context of the debt that Germany owed the allies after WW1.

[Alexander Stover · Rating 5 out of 5]

Great piece of history.

[Rich East · Rating 5 out of 5]

Fascinating and detailed