GERMANY'S BLACK FUTURE

Radio Record, Volume V, Issue 17, 6 November 1931, Page 7

GERMANY'S BLACK FUTURE

Professor Locker outlines the F.conomics of the German Crisis A Talk from 3YA Broadcast on October 29

N order to outline the main features of the present economic crisis in Germany, one must. first fil! in the background.

Detore the War, Germany had become economically the most important country on the mainland of Europe. The population of Germany alone was 68 millions, while the population of Germany and Austria-Hungary combined was about equal to that of the whole 4p North America. Now the population of Germany is about 63 millions, while the Austria-Hungarian empire, which was formerly very closely linked with Germany, has been dismembered. But Germany still holds a very important position in the Economy of Europe, and. Europe’s prosperity is closely linked with hers. Under the conditions laid down in the Treaty of Versailles, reparations payable by Germany were fixed at £6,600,000,000 plus the amount of the Belgian War debt.. At 5 per cent. this amount would involve a payment of £330,000,000 per annum, a burden which events proved it impossible for Germany to bear. The attempt to collect reparations on this scale Jed to the extraordinary period of 1920-23, during which the Ruhr district was occupied, the German currency was inflated until it became practically worthless, and the economic and financial organisation of Germany reached a stage of collapse. In 1924 the Dawes Committee evolved a plan for the rehabilitation of Germany, which included an international loan for the restoration of sound currency, and a scaling-down of reparation payments, which were to start afresh at a low figure and rise gradually to a maximum of £125,000,000 per annum. In 1929 the Young Plan again revised reparation payments, and again set a new scale extending over 58 years, beginning with £85,000,000 and reaching, a maximum of £120,000,000 per annum. ¥ DUNG the years between be 1924 and 1929, Germany made great economic progress. Much of he: indusuy was reorganised and rationalised, her production and trade increased, unemployment was reduced to low levels, and though wages and standards of living were low, it began to appear that a fair measure of prosperity and stability had been attained. Much of the appearance of prosperity, however, was due to factors that did not appear on the surface. A survey of trade returns and capital movements shows that between 1924 and 1928, when the average payments made by Germany on account of reparations were wel! below £100,000,000 a year, the average import . of capital from loans raised abroad averaged about £180,000,000 a year. The broad con-

clusion is, therefore, that Germany was not only paying her reparations out of loans raised overseas, but she was getting in addition a very substantial net import of overseas capital. These imports of foreign capital made a substantia! addition to the purchasing power and the internal prosperity of Germany, and the prosperity and purchasing power so created attracted further imports of capital for investment ir German industry. A secondary effect was that a political debt to foreign Governments was being replaced by a greater commercial deh: due to private foreign citizens, of whom the bulk were in America. There was alway some chance that the political debts to Governments might be cancelled or reduced, but it would be difficult to secure cancellation or reduction where the debt contracts existed between private citizens of different countries. As a result, therefore, Germany was increasing both the amount and the certainty of her external liability. .

¢ At the same time, Germany invested to some extent abroad, but during the seven’ years, 1924-1930, her net foreign indebtedness to other countries increased by £900,000,006.

Against this inflow of capital she paid reparations amounting to about £500,000,000 paid for a surplus of imports over exports amounting to £300,000,000, paid interest on her net indebtedness abroad, and accumulated certain funds in foreign centres for financing her overseas trade. HH general economic ‘ organisation, however, had become accustomed to a very heavy inflow of overseas capital, and this inflow not only enabled her to pay reparations, but to enjoy a substantial measure of increased prosperity. With the development of heavy stock speculation in America in 1928 and later of the stock exchange collapses and falling prices which ushered in world-wide depression, foreign loans to Germany declined very greatly. The position is now that she can no longer expect to borrow large sums from abroad. On the . other hand, she has to find in the future for reparations round about £100,000,000 per year, and, in addition, an amount probably exceeding £50,000,000 per year in order to pay interest on private debts accumulated during the last seven years and held overseas. It follows that where Germany has enjoyed for some years past a net import on capital account in the neighbourhood of £100,000,000 per annum, she will have in the future to find a net export of at least £150,000,000 per annum, unless conditions change in some unexpected fashion. The only way in which this change can be effected is by increase of exports or decrease of imports. In 1929, a prosperous year, her _exports and imports balanced at about £680,000,000 each. It has been estimated in Germany that she can secure the balance’ of — exports necessary to pay overseas obligations under present conditions only by reducing her imports by more than half. Owing to the fall in general world prices and present depressed conditions, it is considered that the maximum ‘total she can secure for her exports is about £450,000,000. In order to achieve the necessary surplus of exports, her imports would have to be reduced to about £300,000,000. But it is very uncertain whether such a surplus can be secured, particularly under present depressed conditions. Even under normal trade condi-. tions it has been suggested that a substantial expansion of German exports could be obtained only at the expense of a fall in export prices so severe that the total value of the greater volume of exports might possibly be less than the total value of a smaller volume. With a national income (Concluded on page 8.),

S00 SESE 0 ED 0D Few are more fitted to talk on Germany’s present crisis than Professor Tocker, who occupies the chair of Heonomics at Canterbury College. The professor was a New Zealand delegate to the MInternational Labour Conference held in Geneva. during 1930, and whilst there gained a first-hand knowledge of European affairs. Since then he has followed the trend of events of that continent in detail. His article makes interesting reading. =O 000

estimated by the League of Nations at £48 per head in 1928, compared with £90 per head for England, Germany has had to adjust herself to the drastie fall in national income occasioned by the severe world depression from which all countries are suffering. Superimposed on this is the necessity to adjust her affairs to the change from a substantial import of capital to a substantial export for overseas payments, which means a change from a national income enjoying a heavy subsidy to a national income already severely reduced by depression and further subjected to severe taxation. Depressing Effects. It is impossible to separate the effects of these two movements combining to promote difficulties in Germany. These difficulties have brought severe restriction in industry with declining output and greatly increased unemployment, The unemployment figures alone give a fair indication of the broad effects. In the summer of 1927 about 5 per cent. of Trade Unionists were unemployed. In the early part of 1931, 393 per cent. were unemployed, while in May, 1931, 34 per cent., or more than one-third, were unemployed. In addition, certain important banking groups have broken under the Strain not only in Germany but in Austria, Hungary, and ‘Roumania. There have been casualties in big industrial concerns and difficulties in public finance have been increased by political unrest and general insecurity. All these have added to the distress and difficulty.

Since 1926, public revenue has generally been unsatisfactory and deficits have been the rule. |. Within the last two years taxation has fallen considerably below the estimates, and despite heavy increases in taxation and drastic economies in Government expenditure, further Budget deficits have .occurred and are expected to occur. Banking difficulties have been increased by the tendency of foreigners to withdraw funds held on short term in Germany, and even the Germans themselves have been striving to transfer balances abroad for investment in countries where conditions are more secure. The currency situation in Germany, as’ in London, has been difficult owing to the fact that foreigners held heavy balances on short term there, and the withdrawal of these balances has made it extremely difficult to maintain the exchanges at par. But Germany, having experienced the full effects of inflation in 1923, appears to be unanimous or one point at least -that inflation must not on any aecount occur again; and the country as a whole appears prepared to make almost any sacrifice to preserve the stability of exchange and the soundness of her currency system. Social Outlook. Germany has thus been passing through a period of extraordinary strain which has had remarkable social and political, as well as disastrous economic, effects. A correspondent of the London "Economist" sums up the social outlook among typical city people in Germany in these words: "As one goes about the city talking

to the people, one becomes more and more conscious of the tension, the sense of nervous expectancy, and the inability to penetrate the darkness which shrouds the coming winter. Germany has just emerged from the winter of 1980-31, and in this moment her people might be supposed to be feeling ‘sufficient unto the season is the evil thereof.’ Actually, the shadow of the winter of 193132 has already cast its chill and gloom over this early summer’s light and warmth. In German minds to-day the advent of next winter portends the end of the world. ‘I am thinking of sending my boy to a German university,’ I said to one of my friends. ‘When? ‘Say, about two years from now.’ ‘Two years! Why, what is the use of talking about anything in Germany two years hence? Incidental ejaculations of this kind, made spontaneously, without any thought of political effect, reveal how deep and genuine is the foreboding of disaster. ‘What do the Germans fear? They fear an almost automatic political revolution when the economic pressure which the Government is putting upon individuals becomes at last quite intolerable. The Government are deter: mined, as far as they are concerned, not to repeat the history of 1922-23. They are taking draconian measures to keep the public economy and the public finances of Germany sound. But these measures are all taken at the private individual’s expense, in the form of drastic. rationalisation, which swells the ranks of the unemployed in the middle as well as in the working class; drastic reduction of unemployment benefits (already startlingly low

on English standards) and of official salaries; drastic increases in taxation, direct as well as indirect. The fear is that, at the sharp touch of next winter, the individual may be goaded into political revolt against the personal economic sacrifices that are being demanded of him by the State." Assistance Needed. The situation thus developed in Germany is one that can be met only by some measure of foreign assistance. President Hoover’s proposal for a year’s moratorium on reparations and war debts was the direct result of the worldwide depression and the consequent difficulties from which all countries were suffering. It was expressly stated that this proposal was intended to stimulate recovery from depression. The moray torium meant that for a period the countries concerned should be relieved of the whole burden of external obligations on war account. The proposals were accepted with some modifications, and as a result the position in Germany is a little less difficult than it might have been. But the relief given in reparations was in itself insufficient to meet the situation. Hence, in addition, substantial credits have been advanced to the Reichsbank by the Bank of International Settlements. These credits are intended mainly to support the mark exchange, but there has also been an International Banking Committee to inquire into and report upon the financial crisis in Germany. That committee finds that in order to remedy the situation in Germany, & (Concluded on page 380.)

Germany's Black ‘Future: (Continued from page 8.) .:

greater measure of financial stability niust first be achieved. The conditions to be met and the measures proposed are more or less. technical, but they all depehd on one or both of two things, further loans to Germany from abroad, or a rise in general world prices, which would lift Germany, together with other countries; out of the present trough of depression. Both of these remedies, however, depend very largely on public confidence, and the general conclusion is inescapable ‘that the restoration of prosperity and sound economic conditions in Germany, and .in Europe as well, must emain very. difficult until both natural affairs and international relations are so arranged as to permit the restoration of general confidence. ¢ ; Report of International Committee. . The committee’s report on Germany

concludes: "It is evident from the price at- which German securities are quoted on the stock exchanges of the world that, without a restoration of confidence in the financial future of Germany, it is impossible to raise any longterm loan on the credit of Germany alone. The funding of excessive shortterm indebtedness would itself help to improve the position. ' But two fundamental difficulties remain which must be frankly stated. The ‘first is the. political risk involved. Until the relations between Germany and other European Powers are firmly established on a basis: of sympathetic co-operation and mutual confidence and an important source of internal political difficulty for Gerniany thereby removed, there can be no assurance of continued and peaceful economic progress. This is the first and, most fundamental condition of credit-wor-thiness. : The second relates to the external obligations of .Germany. So long as these obligations, both private and public, are such as to involve either a continuous increase in a snowball fashion of the foreign debt of Germany, or, alternatively, a (disproportion between her imports and exports on such a scale as to threaten the economic prosperity of other countries, the investor is unlikely to regard the situation as stable or permanent. Until the existing or potential creditors of Germany are in a position.to foresee what her future situation is likely to be in these respects, a most serious obstacle exists either to the extension or even to the renewal of short-term credits, or to the raising of a long-term loan. "But time is short. The body of the world’s commerce-whose vitality is already low-has suffered a severe shock in one of its chief members. This has resuited in a partial paralysis

which can only be cured by restoring the free circulation of money and of goods. We believe that this can be accomplished; but only if the Governments of the world will realise the responsibility that rests upon them and Will take prompt measures to re-estab-lish confidence, Their action-alone can restore it. We think it essential that. before the period of prolongation of credits recommended by the London Conference comes to an end, they should give to the world the assurance that international political relations’ are established on a basis of mutual. confidence. which is the sine qua non of econoniic recovery, and that the international payments to be made by Germany will not be such as to imperil the maintenance of her financial stability. "Secondly, we would point out that the case of Germany provides the most forcible illustration of the fact that in recent years the world has been endeavouring to pursue two contradictory policies: in permitting the development of an international financial system which involves the annual payment of large sums by debtor to creditor countries, while at the same time putting obstacles in the way of the free movement of goods. So long as these obstacles remain such’. movements of capital. must. necessarily throw the world’s financial balance out of equilibrium. Financial remedies alone will be powerless to restore the world’s economic prosperity until there is a radical change in this policy of obstruction, and international commerce-on which depends the progress of civilisationis allowed to resume its natural development, "We wish, however, to add that if a situation were brought about, in which the confidence of the investing public in the future economic. and political stability of Germany could be restored, we are satisfied that the consolidation of a part of her short term debt and the provision. of the additional working capital needed by her trade and industry would present no serious difficulties. "We therefore conclude by urging most earnestly upon all Governments concerned that they lose no time in taking the necessary measures for bringing about such conditions as will allow financial operations to bring to Germany-and thereby to the world-sorely-needed assistance."

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PROFESSOR TOCKER.