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A Century of War
GERMANY TRIES TO OUTFLANK THE BRITISH This was the setting in which the Genoa conference was to take place, intended to become a victory for British interests in securing their grip on the enormous Soviet economic resources in the wake of the major setback for the American effort. But Rathenau and the Soviet foreign minister, Georgi W. Chicherin, had signed a comprehensive treaty in the midst of the weeks-long Genoa deliberations, without the prior knowledge of the British, French or American governments. Rathenau’s preferred option was by no means to deal with the Soviet Union. He had made repeated pleas and proposals to the British and other Allied governments, initially in his capacity as German economic reconstruction minister after Versailles, to allow the German economy to get back on its feet so that German export earnings could begin to pay the Versailles war reparations burden. Again and again, his pleas were rejected. Adding insult to injury, the British government in 1921 imposed a prohibitive 26 per cent tariff on all German imports, further obstructing German efforts to work out a realistic debt repayment process. Faced with this Anglo-French fist under his nose, Rathenau, scion of a noted German engineering family and former chairman of the large AEG electrical company, determined to develop a strategy of allowing German industry to rebuild itself through development of heavy industry exports to Soviet Russia. Since Versailles, deficit financing had been a necessary expedient of the German government, amid the ruins of the German postwar economy. The Reichsbank in effect printed money to cover the state deficits, creating a situation in which money supply expanded more rapidly than the productive output of Germany’s economy during the early 1920s. The result was an inevitable inflation, but the alternative options appeared limited, short of national economic suicide. As Rathenau well knew, the costs of the unsuccessful war itself had laid the seeds of an already dangerous inflation in the economy. The gold parity of the Reichsmark had fallen to half its prewar levels by 1919. Official statistics showed that the war had created a wholesale price inflation of 150 per cent, and black market prices were vastly higher. The war had been financed through the expedient of enormous state indebtedness to the German population. Unlike Britain, which had been able to finance its war costs from foreign sources, especially J.P. Morgan & Co. in New York, Germany had been blocked from these major credit markets.
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