Germany tries to outfl ank the British

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 fi st 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, defi cit fi nancing 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 defi cits, 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 infl ation, 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 infl ation in the economy. The gold parity of the Reichsmark had fallen to half its prewar levels by 1919. Offi cial statistics showed that the war had created a wholesale price infl ation of 150 per cent, and black market prices were vastly higher. The war had been fi nanced through the expedient of enormous state indebtedness to the German population. Unlike Britain, which had been able to fi nance its war costs from foreign sources, especially J.P. Morgan & Co. in New York, Germany had been blocked from these major credit markets.

Moreover, after the war the Allied victors had systematically stripped Germany of her most vital economic resources. All her valuable colonies, especially Tanganyika and South West Africa, were taken by Britain. The growing economic markets of the Ottoman Empire, opened through the expansion of the Baghdad Railway were gone. And Germany herself had lost her most valuable source of iron ore for her steel industry: Alsace-Lorraine and the east, including Silesia, with its rich mineral and agricultural resources. Germany had lost 75 per cent of her iron ore, 68 per cent of her zinc ore and 26 per cent of her coal as a consequence of Versailles. Alsatian textile industries and potash mines were gone. Her entire merchant fl eet, a fi fth of her river transport fl eet, a quarter of her fi shing fl eet, 5,000 locomotives, 150,000 railroad cars and 5,000 motor trucks were taken by the Allied powers after Versailles. All was justifi ed as part of an as yet undefi ned German war ‘reparations’ levy.

In May, 1921, the Allied Reparations Committee met and drew up what was called the London ultimatum, the ‘fi nal’ payments plan demanded of Germany. It fi xed Germany’s reparations debt to the victorious Allies at the astronomical sum of 132 billion gold marks, an amount which even British reparations expert, John Maynard Keynes, said was more than three times the maximum that Germany could possibly pay. The reparations debt was to accumulate an annual 6 per cent interest charge. A 26 per cent duty on the declared value of all German exports was to be paid to the Allied reparations agent in Berlin. In addition, numerous onerous conditions were imposed, including several taxes as ‘guarantee.’ Payment-in-kind for any part of the reparation sum could be unilaterally demanded by the reparations commission.

The ‘London ultimatum’ was not merely an ultimatum in name. The terms were that unless the German parliament fully agreed to the unbelievable conditions set forth, within six days, Allied troops would occupy and control the Ruhr industrial heartland of Germany. Not astonishingly, the Reichstag approved the draconian ultimatum by a slim majority.3

The really alarming aspect of the Rapallo Treaty, for certain infl uential circles in London, was the implications of its provisions. A major infusion of German machinery and equipment, steel and other technology was to be sold to Russia for the rebuilding and expansion of her Baku oilfi elds.

In return, Germany established a network of jointly owned German–Soviet oil and gasoline distribution centers in Germany to