Courtesy Reuters

THE foreigner who wishes to understand Germany's present situation must first of all remember the disasters which have overtaken the German people during the last twenty years. For four and a half years Germany waged war against almost the entire world, and in the end lost. The sacrifices in manpower and materials which this war demanded were terrific. These sacrifices Germany had to bear alone; she did not, like the victorious nations, receive any partial compensation.

The Versailles Diktat tore away portions of Germany's land and people which were of vital importance to her existence -- West Prussia, Posen, Danzig, Memel, Upper Silesia, Alsace-Lorraine, Eupen-Malmedy, North Schleswig. She was deprived of all her colonies, whose finances were in a satisfactory condition at the beginning of the war, and which were not only an important source of raw materials but also offered an increasing outlet for exports. All German private capital invested abroad was stolen, thereby depriving us of one of the most important sources of revenue from which we had formerly maintained our balance of payments. To these losses must be added the monstrous deliveries of materials which Germany had to make after the war: machinery, coal, railroad equipment, cattle, chemical products, etc. We had to surrender almost the entire German merchant marine. Finally, under the name of "reparations," cash payments for war damages were imposed in excess of anything ever heard of before.

In reparations alone Germany paid $12,000,000,000 up to the end of the Ruhr struggle, and a further $4,000,000,000 after the Dawes Plan came into effect. For the costs of occupation, the destruction of industrial plants, etc., she had to produce $2,000,000,000. Confiscated private property abroad amounted to $4,000,000,000. The lost colonies represented a value of between $32,000,000,000 and $40,000,000,000. In addition to all this, Germany had her own war costs, some $60,000,000,000 in round numbers.

Almost more hard to bear than these material losses was the Versailles Diktat's moral discrimination against Germany, which in many respects last up to the present day. After being solemnly promised, Wilson's Fourteen Points were disgracefully violated. Germany alone, contrary to all historic truth, has been held responsible for the war. The theft of our colonies has been justified by the charge that we are morally unfitted for colonial activity, although all expert foreign opinion accorded German colonial policy the highest praise. The right of self-determination in Upper Silesia, Memel, and Eupen-Malmedy, granted in the dictated Versailles settlement, has been disregarded. Worst of all, the promise of disarmament has been meanly broken, and an attempt has been made to keep Germany defenseless, the while her neighbors not only do not reduce their armaments but have been continuously increasing them.

In the circumstances, how can anybody be surprised that Germany has lost all confidence in the justice of a world opinion dominated by the victorious Powers? How can anybody still be surprised that Germany should concentrate all her energies on regaining that position which, as one of the oldest and greatest of civilized nations, she has occupied through more than a thousand years of history? Is it not a blessing for the entire world that the present German Government, desirous only of peace, has restored domestic national unity, and has thrown itself into the struggle against bolshevism and unemployment with unheard of energy and absolutely astounding success?

What weighs most heavily on the international economic relations of Germany today is the after-effects of the reparations policy. Not only was Germany compelled to surrender all the movable property in her possession, but in addition, owing to the compulsion of reparations payments, she had to contract a foreign commercial debt which is out of all reasonable proportions. In the space of seven years, from 1924 to 1930, Germany contracted a foreign debt of some $10,000,000,000, at an average interest rate of six percent. This is an obligation which approximates to the highest point of foreign indebtedness contracted by the United States of America in the course of its development during decades. But the United States is, or was, the country par excellence of raw materials, and developed its raw material resources with foreign money; whereas Germany is a highly advanced manufacturing country, and is and was completely supplied with ample industrial machinery.

It is absolutely right that the socialist governments which ruled Germany before the advent of the Hitler régime should be made to share in the guilt for this course of events. But they acted under political pressure from the victorious Powers; whereas those foreign interests which encouraged the granting of these credits to Germany have no excuse to offer. Of the amount realized by Germany out of the $10,000,000,000 borrowed, approximately half was used in reparations payments to the victorious governments, while only half remained for investment in Germany. Now it is extremely interesting to note that, in the crisis of 1931, when demands were received for repayment of Germany's outstanding foreign debts, Germany was in a position to pay back in foreign valuta, within three years, the entire amount which had been placed in German investments. But the problem before us today is this: It is impossible to repay in a similar manner those sums which were once transferred for reparations payments. Apart from the German people themselves, those who will now have to suffer are the foreign credit institutions and capitalists who acquired German loans, although not half the net proceeds of the entire foreign indebtedness of Germany has gone into Germany's pockets, but into the pockets of the victorious governments.

The situation appears in a very crude light when note is taken of the fact that the indebted Allied Governments fulfilled their own obligations to the United States only so long as they received the money for that purpose from Germany -- and stopped their payments when Germany's transfer payments ceased. Let it be remembered that Germany had to surrender her total foreign possessions, but that England today has still some $19,000,000,000 in foreign investments and France some $8,000,000,000. The effect upon the German people is absolutely grotesque when they constantly read in the foreign press that Germany is a bad debtor, while England and France, though they have no transfer difficulties whatever, still do not pay.

Although Germany finds herself confronted by all these injustices, she has never abandoned the point of view that private investors who bought German loans or otherwise furnished Germany with credits have a full right to the payment of their claims. They gave these credits in good faith and their demands are private, that is, private property. Germany, unlike the "victor nations," has always been at one with the United States in believing that damage to the rights of private property is the basis of bolshevism.

Germany will meet her obligations, but is not in a position to do so at the moment. The problem -- and it does not confront Germany alone, but concerns all Germany's creditors and their governments -- consists in how to restore Germany's capacity to pay. I need not here again go into the economic principles which have long since been recognized by all experts, that a debtor country can pay only when it has earned a surplus in its balance of trade, and that the attack on German exports by means of tariffs, quotas, boycotts, etc., achieves the opposite result. Whoever boycotts Germany is preventing the payment of German coupons.

The present position of Germany has become so acute that the country is stripped of all gold and exchange reserves, and is obliged to reduce her own imports. Possibly the rest of the world is not interested. Possibly a people of seventy millions in the heart of Europe, with a high standard of living and a powerful demand for raw materials, must withdraw from the commerce of the world. So much economic nonsense has already been caused through politics that this folly may also be perpetrated. One thing, however, must be stated. Those politicians who think they can change the domestic evolution of Germany by exploiting her economic difficulties are indulging in a colossal fallacy. When the American people in their War of Independence declared for a new, progressive conception of life as against that of dusty Europe, it was the great King of Prussia who first proved his sympathy for the American movement in word and deed. It seems to me unworthy of the American people to oppose the new Weltan-schauung which has been built up in Germany today, the more so as this new conception of life rests upon the noblest human sentiments: fidelity to duty, national unity without differences of class, contempt for all privileges of birth, rank and position, but recognition of all personal achievement. This conception of life cannot be altered by reason of any possible material disadvantages.

Through unparalleled sacrifices on the part of all classes we have succeeded in finding useful employment for nearly two-thirds of Germany's unemployed. Disorder and tyranny are being stamped out with iron discipline. True, every revolution -- and therefore Germany's -- has elements of dross and makes mistakes; but it is precisely the recent events in Germany which have proved that the Government can firmly control these elements and correct these mistakes.

If international politics continue along the route they have been going, I can see no hope of a settlement of the German debt problem. But if a policy were adopted whose aims were the restoration of world trade, the elimination of unemployment, and social stability in all countries, then I should like to make a positive proposal.

The debt problem has been the cause, not only in Germany but in a whole series of other countries, of the present stagnation of international commerce, of unemployment, and of the social unrest which is permeating the entire world and which will put all governments to a hard test this coming winter. On principle, any proposal would have to assume that the debt problem can only be solved either by increasing exports or by cancelling the debts. In practice, however, a middle way must be found. In order to increase exports, the first and most urgent condition is that freer trade and free monetary exchange be restored. Further, short-term credits must be maintained, in so far as they help to finance the international exchange of goods; and in proportion to the increase of that exchange they should be extended as necessary. On the other hand, the settlement of long-term debts must wait. They must be put on the ice for a while, until world trade has so far recovered as to make it possible to pay the interest and settle them.

It will be necessary, then, to declare a moratorium for a few years for long-term creditors. Moreover, in view of the structural change in world trade and the decline in prices, it seems scarcely likely that after the moratorium interest payments could be again raised to their former level, especially if the interest accumulating during the period of the moratorium were added in full to the capital. It would be to the advantage both of the creditor and the debtor, therefore, to keep the interest which accumulates during the moratorium at as low a figure as possible. Furthermore, the resumption of interest payments after the moratorium would be facilitated if the existing foreign debts could be converted, under reasonable conditions which effectively promoted the great objective of restoring the world's economic relations.

  • HJALMAR SCHACHT, President of the Reichsbank and Minister of Economics in Chancellor Hitler's cabinet
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