BANKRUPT GERMANY.

Evening Star, Issue 21748, 16 June 1934, Page 14

BANKRUPT GERMANY.

Germany has defaulted again. This time it looks like the equivalent of putting the shutters up and living in seclusion behind them on whatever can be scraped together in backyard and back garden. . The Germans, under Hitler, have shown an increasing tendency towards isolation in international affairs, and now the nation essays or is forced to make this apply to trade also. The probability of this has long been foreseen and discussed. Three months ago Professor H. A. L. Fisher, a British ex-Minister of Cabinet, discussing in Lloyd’s Bank monthly the trend of Germany towards- self-sufficiency, wrote: “ The Germans, however, are not made in that way. They are world traders, and will continue to be so. Foreign markets are for them, almost in the safne degree as for us, an economic necessity.” Since the war Germany has undergone a series of shattering economic convulsions. After her mammoth inflation, by means of which she at once impoverished her rentier class and shook herself free, of a vast load of foreign debt, there followed a boom because of the enormous influx of American loan money. New men became suddenly rich, new factories and bank buildings sprang up, there was lavish private and public expenditure, indicating a lack of self-control and the breakdown of moral discipline. In 1929 the great American crash was inevitably followed by a simultaneous crash in Germany. Since then she has lived from hand to mouth. Some distraction from material misery has been sought by a people, described as suffering from hysteria, in the traditional recreation of mass drilling. Hitler ■ has played upon this constitutional characteristic. Those who have studied recent German periodicals, with their descriptions and illustrations of monster Nazi demonstrations,'in some of which twelve million people have assembled in one place, have been constrained to wonder when the Germans found time to work. But for many there was no work to do. From about the New Year a change in Germany’s commercial policy began to be. evident. Whereas previously she had. struggled to maintain a favourable trade balance, during the first quarter of. this year she made exceptionally heavy imports of raw material. In vulgar parlance, she went for her life while the going was good. Then, towards the end of March, she suddenly imposed drastic import restrictions, and this step at once aroused outside fears as to her ability and willingness to maintain her external debt service payments, scaled down as they had been. The spurt ; in purchases abroad depleted the Reichsbank’s gold reserves until the cover of its note circulation at the end of March was only 8 per cent, as against 11J per cent, at the New Year. Dr Scbacht ‘then broadcast the announcement that cash payments on Germany’s foreign debt could not"' be continued. Her creditors assembled in Berlin to negotiate. The German attitude at that .conference was to try and 'make temporary default as acceptable to foreign creditors as possible so that there should be no obstacles imposed on her getting supplies of raw materials. At the conference threats to apply a compulsory clearing system left Germany unmoved. She insisted upon the necessity to increase her foreign trade, as she could pay her debts only in goods, and she announced that, if made necessary through exchange restrictions, she would resort to direct international exchange of goods —i.e., barter—to safeguard her supplies of raw materials.

Germany, found her creditors averse to compounding on her proposed lines. The more pressure they put on Dr Schacht, the more pressure was exerted on him by the Left-wing section of the Nazi Party to repudiate out and out. Between these two forces the unhappy financier appears to have resorted to a middle course. German credit abroad deteriorated rapidly, and it appears that the opportunity has been seized 'to buy up her depreciated bonds abroad, leaving hardly any foreign exchange available for the .purchase of raw materials. Not only that, but contemporaneously (so it is reported on good authority) Germany has also been realising her foreign commercial assets and thus amassing a considerable foreign exchange and gold reserve, not in Germany, but abroad. The tactics are not unfamiliar in ordinary business where a concern is very shaky and its principals are unprincipled. The creditors are invited to walk- in, and they find nothing liquid, but “ nest eggs ” have been safely put away in various hiding places elsewhere. Now that Germany is thus prepared, she has made the unequivocal announcement of total default—for that is how we the six months’ moratorium. The precautionary measures now being promptly taken by the British Government, which have for some time been regarded as inevitable, merely amount to preventing Germany or her nationals getting any deeper into debt with Britain or her nationals. All avenues of credit are closed up, and every German account will be met by a contra-

account. How the German industrial population will continue to exist when stocks of raw material run out and are not replenished is highly speculative. Her farmers may be in a position to cover requirements in foodstuffs, but scarcity of foreign exchange derived from exports may prevent purchases of cotton, wool, silk, ore, copper, rubber, petrol, oils, and hides. Such a development would result in a dearth of various kinds of clothing, boots, rubber tyres, petrol, electrical material, soap, tobacco, tea, and coffee. The grave problem, it is feared, will then arise of providing many thousands of unemployed in the textile and clothing, steel, automobile,’ and other industries with some other 1 ind of work.