REALM OF FEAR

Evening Star, Issue 21007, 22 January 1932, Page 11

REALM OF FEAR

EUROPE'S PROBLEMS THE DEFEATED NATIONS NEED OF CAPITAL For many months the world has been grievously sick. The illness which afflicts it has many diverse and distressing symptoms, but in itself _ is simple and everywhere uniform. The name of this illness is distrust, or, to put it quite bluntly, fear. It is an infectious illness. Indeed, therein lies its chief terror, writes E. H. Wilcox, Berlia correspondent of the ‘ Daily Telegraph,’ in that paper. Some day the seat of the first outbreak may be determined, from which its maleficent influence spread in all directions. At any rate, the area, of its prevalence was at first confined, and only by degrees did the entire world come beneath its sway. But just at the moment when it seemed almost incurable a sudden and remarkable improvement occurred in a vital organ. It was the British election of October 27, With the rapidity, of a miracle, one of the greatest industrial and commercial nations of the world passed from despair to hopo and from distrust to confidence. The question naturally arises whether the course of the cure will resemble that of the disease, and the one sound spot diffuse its health in all directions. This is possible. But it is also possible that a recrudescence of the disease elsewhere may reinfect the healthy area and entirely undo the cure. If we are to guard against this danger wo must realise the condition of the world that surrounds ns. THE BEGINNING. It is arguable that the greatest of all world slumps started with the bursting of the American speculation bubble in the fall of 1929. However that may bo, its critical symptoms first appeared in Europe, in the spring of the past year, with the insolvency of the CreditAnstalt, the financial heart of tho economic organism of Austria. That was, however, only the beginning of the high fever stage of the disease. The germs had long been developing in tho favourable ground of the political unsettlement left over by the war and the commercial demoralisation caused by headlong inflation. In the second half of 1929 the defalcations in the Frankfurt General Insurance Company first revealed tho negligence in the control of German public companies, which has since been made notorious by the affairs of the North W'ool combination and the Schultheiss Brewery. The international reputation of the Frankfurt General was as high as that of any German undertaking. Much foreign money was invested in the concern, and its collapse was tho first really serious shock to Germany’s commercial credit abroad. In the autumn of the following year tho election to tho Reichstag of 107 National Socialists, who hitherto had both professed and practised revolutionary methods, gave a very gloomy tone to Germany’s political prospects. Still, the failure of Herr Hitler to load his buff battalions against Berlin, and his apparent preference for Ministerial offices rather than revolutionary battlefields, gradually reassured the world, and in February last French money was fo:- tho first time in history lent directly to tho German Government. FRANCE SCARED. The very moment of this most promising symptom that had appeared in Europe since tho war was chosen by the German Government for “ giving Franco a fright ” with the Customs Union agreement. It would be uftfair to lay the whole of the blame for this blunder on Herr Curtins, for ho was .undoubtedly pushed into it by Herr Bruening, who demanded “ a success in tho field of foreign politics ” to give him tho prestige ho could not win by his salutary domestic policy of increasing taxes and diminishing wages. Unfortunately this attempt to raise Germany’s prestige had results diametrically opposite to those hoped from it. Within a Few mouths Germany’s international standing had sunk to a lower

point than it has reached since the war, and the head of her Heichsbank, making the first recorded use of the aeroplane for the purpose of mendicancy, was flying around Europe, hat in hapd, in a vain attempt to save at any rate the face of the lleichsbank. Herr Curtius’s unsuccessful bluff and Herr Luther’s futile flights set the halffinished structure of the new Europe rocking to its foundations. The former destroyed at one blow all that had been done by Herr Stresemann to bring about Franco-German reconciliation, the only possible basis for political settlement in Europe. The latter demonstrated that the cheap money which Germany must have to complete her industrial reconstruction was not to be obtained from the only quarter in Europe where it existed. BLOW TO CONFIDENCE.

The climax came with the collapse of the Danat and Dresdener Banks, two of the Germaq looked upon as the bedrock foundations of his country’s ,economy. Public confidence vanished. The* rush to withdraw money from the banks was checked only by the temporary closing of these institutions. The flight of German capital to apparently more stable countries was retarded only by ferocious and fantastic penalties. Actions perfectly innocent under normal circumstances incurred punishments otherwise reserved for the most hideous of crimes.

Naturally the distrust of Germany’s foreign creditors, which had come into operation some time before the bank crashes and had been largely responsible for them, now became blank disbelief, and there was a rush to withdraw all the terminable loans granted from abroad to her banks and industry, estimated in a recent Reichbank return at 12,000,000,000 marks. Sheer physical inability placed Germany in the dilemma of either declaring herself bankrupt towards the outside world or coining to some agreement with her foreign creditors. The latter alternative was adopted as less injurious to her moral and commercial repute and less risky for the creditors. The date at which these debts fall due was deferred, but already the world is perplexed with the problem how they are to be redeemed when they remature. It may be pointed out in passing that the whole of this problem would vanish if the lenders had sufficient confidence in Germany to entrust their money to her on long terms at the very high rates of interest which she would'gladly pay for it. The epidemic of fear which thus appeared in Central Europe spread with explosive force_ and speed. German events were mainly, if not entirely, responsible for the mishap to the British pound, for our bankers had lent to Germany money which they had obtained in Paris and New York, and the French and American lenders now became nervous ns to the solvency of the British borrowers. • German complications were also largely concerned in causing the astounding and paradoxical phenomenon that the population of the United States, whp little more than two years ago were convinced to a man that they had finally solved the problem of “ stabilising prosperity,” are now hoarding some 800,000,000d01, in addition to providing 400,000,000 for the hoarding of other nations. ■ The signature of our time is, indeed, that both men and money are idle and unproductive to a degree, both absolute and relative, without precedent in the world’s history. Heaviest of all sufferers from Germany’s debacle were Austria and Hungary, with whom centuries of business connection had united her to form one economic organism. With the exception that the exports of Hungary are mainly agricultural' produce and those of Germany and Austria for the most part manufactured articles, the present urgent problems of the three countries are almost identical. FOREIGN CAPITAL. These three States are now like insolvent manufacturers, who have been granted a respite for the payment of their debts, but must borrow additional money from their creditors to keep their undertakings going. In Germany, at any rate, the productive apparatus is fundamentally sound and exceedingly efficient. Skilled and industrious, hands aro available to operate it. All that is lacking is the floating capital to pay wages and buy raw material till the returns from production begin to come in. Germany destroyed her existing capital by inflation, and, though she accumulated fresh savings with amazing rapidity, years must yet pass before she can finance her expanding industry entirely out of her own resources. Before she can obtain on long terms and at practicable rates of interest the foreign capital she requires for this purpose, the world as a whole. must recover from its present epidemic of fear. And this recovery cannot be complete

till her own political future is settled for some years ahead as that of Great Britain has been settled by the elections of October 27.

But such settlement for her is impossible so long as the future development of tho National Socialist movement is uncertain. Foreign capitalists w 1 not again entrust their money to her care till it has been conclusively proved, either that the Hitlerites will never secure control over her destinies, or that, if they do, they will abandon their professed policies of, confiscation at homo and provocation abroad. Unfortunately the immediate political horizon of Germany is obscured with dark and impenetrable clouds.