In the chaos of independence, once the monetary reforms completed, divergent economic choices will soon to emerge among the successor states of Austria-Hungary.
The central question which then arises is that of inflation. Prices have soared during the war and have hardly slowed in 1919 The question for the new country, then whether to take action against rising prices.
This debate will oppose Czechoslovakia and Yugoslavia to Austria and Hungary however is not unique to this region of Europe. He opposes a particular France in 1920 which continues its inflationary policy to the UK that seeks to recover the gold standard to the level of 1914 at the earliest.
Political Choice inflationary
The refusal to take drastic measures to stabilize its currency is especially the vanquished states whose governments have a clear responsibility in this policy. First, because they continue to display highly unbalanced budgets. Sometimes, especially in Hungary, where the government of Count Bethlen – up after the fall of Bela Kun in September 1919 – is very close to the large landowners, it is a way of reducing real wages and maintain profits, but also to compensate for the absence of foreign capital.
But it is also, in these war-ravaged country, a refusal to manhandle a deflationary policy a society on the brink of chaos. We saw strong Communist agitations in both countries in 1919 No question then feed social discontent by reducing the public service after the empire and pursuing a policy of deflation and credit crunch. Especially since this is also a way to support agricultural exports to Hungary, industrial for Austria. Printing money thus continues to turn.
The cost of defeat
But the defeat to its share of responsibility. Both countries are first subjected to the uncertainty of the treaties and the obligation to pay reparations and a portion of the debt of Austro-Hungarian war. Until the end of 1921, the allies have control – as a token -. Part of the productive potential of the two defeated
Besides, in the Austrian case, the uncertainty about the very viability the country. Under these conditions, currency naturally leave the country while paper money is becoming more important
1922. Dark hyperinflation in Austria
Austrian crown is the first to collapse, because his Hungarian counterpart enjoys the relative hardness of the trading conditions of 1920 In March 1919, there were 5.2 Austrian crowns for a gold crown from 1914 (or already depreciation of 80.8%). Three years later, in March 1922, it takes 1527. An additional impairment loss of 99.66%.
The phenomenon then turns to hyperinflation. Imports become impossible by the scarcity of foreign exchange. The activity stops, unemployment is soaring, the standard of living collapses and the shortage develops. The falling currency is self-sustaining, and prices reach crazy levels. In July 1922, the gold crown is estimated at 15,000 paper crowns
The new Chancellor Ignaz Seipel, appointed in May 1922, decided to finish. But he ran into a wall. To stabilize the currency, we need a central bank with shareholders. But nobody believes in the sustainability of Austria. The country’s banks – foreign owned – refuse to file “solid” values from a central bank of a state they believe dying. Despite the privileged treatment which are foreign creditors of the late Austro-Hungarian Bank, they fear such a fate for the new facility. This time without the goodwill of allies to save them …
The call for international assistance
August 7 Ignaz Seipel called Lloyd George, the British Premier, and threat to resign. “Parliament does not elect new chancellor, the state will cease to exist and the allies must do with an explosive situation,” he explains. London promises to act. Seipel is negotiating with Italy and Czechoslovakia and gets 4 October an international loan of 650 million gold crowns (price 1914) to stabilize the situation. The League of Nations (SDN) requires the renunciation of the Anschluss and a drastic restructuring plan which will be controlled by a commissioner.
The “Geneva protocols” that will inspire the IMF and the modern troika are a success. A new central bank, the Austrian National Bank (ÖNB) is created. It can not lend to the government and is strictly independent. On 18 November, the credit tap is stopped. The crown quickly stabilizes. In January 1925, a new currency was launched, the Schilling, worth 10,000 crowns.
The Hungarian case
The Hungarian case is very close to the Austrian case, but it is later . A stabilization attempt took place in 1921, but had failed in the political opposition of the magnates and the importance of money in circulation (prices of Hungarian slow to abandon the Austro-Hungarian). It was at the end of 1923 that hyperinflation hits Hungary (and at the same time Poland). Magyar crown worth 15,000 times the value of 1914 in March 1924 Budapest must also be resolved in July 1924 to seek help from the League of Nations which, by releasing an international loan of 250 million gold crowns under the same conditions as those imposed on Austria, manage to stop the fire.
But Hungary will have until 1928 to see a new currency, the pengö (which will disappear in the most violent episode of hyperinflation in history 1947). In both cases, it is the international solidarity – under severe circumstances – which helped stabilize the currency and prices. However, difficult to see in it a consequence of the end of the Austro-Hungarian union. Germany had also – and more violent – hyperinflation. Above all, some successor states have succeeded in stabilizing their currencies.
The deflationary policy of Czechoslovakia
This is especially the case in Czechoslovakia. In 1918, the country has refused the Austrian inflation policy. Heir to the bulk of the Austro-Hungarian industry, it must find new markets and adapt production to peace. So he needs foreign capital. From the outset, when monetary reforms, Finance Minister Alois Raschin aims to reduce the money supply.
Quickly, credit is rationed, government spending reduced by cuts in the number of civil servants and Issuing Institution, embryo central bank became independent from spring 1919 strategy seems to be paying. The new currency will display a premium of 60% over the Austrian currency and in April 1919, Skoda, threatened with bankruptcy was bought by the French Creusot-Schneider, proof of the confidence of international investors.
The period is difficult, but the country is beyond inflation and its exports are growing rapidly. Frightened by the Austrian experience, Alois Raschin yet wants hurry up. In 1922, its very restrictive policy brings the Czechoslovak crown to his 1920 level, or 6 for a gold crown. This level is too high. The country plunged into deflation and unemployment. Alois Raschin pays his haste to his life. Was assassinated in January 1923 his successor decides to slow down the growth returns, but the currency remains stable
In 1923, Czechoslovakia returned to the level of pre-war life and the mid-1920s, the country is clearly stronger and richer than in the days of the Habsburg monarchy.
Yugoslavia and Romania escape hyperinflation
As for “Yugoslavia”, she will know that a moderate inflation in relation to its neighbors. The vagaries of monetary reform and political difficulties have not allowed him to succeed around Czechoslovak force, but the existence of an independent central bank and taxation of deposits in 1920 avoids hyperinflation.
From 1922, the dinar has stabilized at around 15 to 17 for a gold crown. International borrowings from private investors (“Loan Blair”) strengthen the financial position of the kingdom in the absence of the political situation. Romania experienced the same trend, with a little more inflation, but not hyperinflation. Proof that even in predominantly rural countries, the collapse of the Austro-Hungarian union did not lead inevitably to hyperinflation
& gt;. & Gt; & gt; Tomorrow: The Lessons of History (8/8)
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& gt; & gt; & gt; Read also:
The Global Economy in 1914 (1/5), a world of growth and progress
The world economy in 1914 (2.5), the golden age of globalization
The Global Economy in 1914 (3.5), Rule Britannia. .. but for how long?
The world economy in 1914 (4-5), The Crisis of the Old Order
The Global Economy in 1914 (5.5), the economy has she led Europe to war?
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