The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class (28 page)

The final decision to sign the Russian treaty came during what was described as a ‘pyjama party’ in Rathenau’s hotel suite during the night of 15/16 April. Even then, to retain some shred of good faith, Rathenau wanted to inform Lloyd George of their intention before the event. It was only when the architect of the treaty, ‘Ago’ (an acronym for Adolf Georg Otto) von Maltzan, State Secretary and powerful head of the Foreign Ministry’s Eastern Section, threatened to resign, that Rathenau agreed not to tell the British. Thus it was ensured that the German–Russian deal would become one of the twentieth century’s most notorious diplomatic bombshells.
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Particularly in the German Finance Ministry, there remained serious doubts about the wisdom of the Russian alliance. Finance Minister Hermes, who had attended Genoa, still thought that preparing the ground for changes to the reparations settlement was more important than a treaty with Russia whose benefits were impossible to predict. ‘It’s not enough to have a treaty with Russia in our pockets,’ he wrote. ‘We should also be taking home a fund of trust with the Allies with regard to the reparations question.’ State Secretary Hirsch was snappier and more to the point, expressing his worry that ‘for the Russian bird in the bush’ Germany had sacrificed ‘the plump reparations bird in the hand’.
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A response to Rapallo was not long in coming. On 24 April, the French Prime Minister Poincaré gave a speech in which he openly declared the treaty a hostile act, and emphasised the possibility of French military action if Germany did not keep to her agreements. The French military and the Paris government discussed the possibility of forcing Berlin’s hand by occupying the Ruhr.

That the international exchange rate depended as much on political as on purely economic events, was witnessed by the mark’s gyrations in the spring and early summer of 1922. It had slipped to 326 to the dollar at the beginning of April, recovered a little as hopes of an agreement at Genoa rose, then surged back to 252 amidst the generally positive domestic reception to the Rapallo Treaty. By mid-May, however, with Genoa clearly a damp squib and the hostile French reaction to Rapallo clear for all to see, the mark’s value tumbled once more to 314. Then came a conference of bankers in Paris set for early June, and high hopes of an international loan for Germany that would break the reparations deadlock. These factors took the mark back up to 272 on 2 June. Then the bankers’ conference also turned out to be a disappointment – no one wanted to lend Germany money until it had sorted out its finances, for one thing – which meant postponing the matter of the loan indefinitely and depressing the markets. So, 318 to the dollar on 11 June . . .
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And then came a slightly weary comment from a financial journalist the next working day, Monday 12 June, concentrating on the strength of the dollar against the mark rather than vice versa:

On the foreign currency market today the effects of the loan postponement were sharply expressed. The dollar, which on Saturday had closed at 297, leapt up, and during the morning for a while touched a rate of 322. Later the tendency relaxed a little, because some speculators took in their gains. The dollar rate dipped as a result to 315, soon firmed once more, however, and then oscillated between 316 and 318.
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Although Germany’s politicians might have private reservations about Rapallo – even President Ebert had his doubts – the public’s reaction had been by and large positive. Germany had acquired a friend to the east and had shown that she would not be bullied by the Allies. The treaty was accepted by the Reichstag against only a few dissenting votes from the nationalist-conservative and virulently anti-Bolshevik German National People’s Party. The still small but increasingly vocal German Communist Party was, naturally enough, noisy in its approval.

Count Harry Kessler thought the whole thing a success, at least from Germany’s point of view:

Germany . . . had regained her status as a great power. Besides this, she was bringing home, in the teeth of French opposition, her treaty with Russia; and Rathenau had prepared the ground for a further advance on the path of negotiation and understanding by establishing relations of mutual confidence with some at least of the Allied statesmen.
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The strange economic ‘boom’, which still seemed, during the first months of 1922, to be carrying Germany through this difficult period, had done nothing to prevent both the far left and the far right from ceaseless agitation – in the case of the far left, against the capitalist, ‘national’ world of Stinnes and Rathenau, and of the far right against the socialistic, ‘anti-national’ world of Ebert, Chancellor Wirth – and Rathenau.

As a patriot and as heir to a major business empire, it was clear that Walther Rathenau, for all his evident intelligence and desperately needed political imagination, would always be a figure of suspicion for socialists and Communists. But for those at the other political extreme, the antipathy functioned on an altogether more violent level. As a Jew and supporter of the German Republic, the new Foreign Minister would never be able to avoid the sheer, toxic and ultimately irrational hatred of the nationalist right.

In the aftermath of Rapallo, a German National People’s Party deputy, Wilhelm Henning, published an article in which he poured pure poison over the reputation of his country’s Foreign Minister. Henning dredged up the assassination of the German ambassador, Count Mirbach, in Moscow in July 1918, exploiting that murky episode (which actually was carried out not by the Bolsheviks but by disaffected members of the rival Social Revolutionary Party) as a vehicle for abuse and anti-Semitic myth-peddling. The ‘honour’ of Germany had been trampled in the dust by a minister who would make pacts with the murderers of Mirbach, so Henning claimed:

Scarcely does the international Jew Rathenau have Germany’s honour in his hands than it is no longer spoken of . . . German honour is not some object for international Jewry to haggle over! . . . German honour will be avenged. You, however, Herr Rathenau, and those who stand behind you, will be brought to account by the German people . . .
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A nationalist drinking song of the time lumped Foreign Minister Rathenau, the Jew, and Chancellor Wirth, the Catholic, together as outcasts in language of sickening violence:

If just the Kaiser would come back,

Wirth to a cripple we would hack.

The guns would rattle, tack-tack-tack

Against the black
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and the red pack.

Whack that Wirth like no tomorrow,

Whack his skull until it’s hollow!

Shoot down that Walther Rathenau,

The God-accursed Jewish sow . . .
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The Spartacist Rosa Luxemburg, the Bavarian Prime Minister Kurt Eisner, the Independent Socialist Hugo Haase, had all been Jewish, and all been murdered. On the other hand, so had Erzberger, a Catholic Swabian, and the Bavarian Socialist Karl Gareis, who came from middle-class local stock, both of whom had fallen to the assassin’s pistol in the summer of 1921. On Whit Sunday, 4 June 1922, another ‘Aryan’ politician, the first Chancellor of the Republic, Philipp Scheidemann, had been the victim of an attempted assassination by a group of right-wing plotters. Like Erzberger’s murderers, they were young fanatics associated with the shadowy ‘Organisation Consul’ terror gang.

Scheidemann, now in political semi-retirement as High Burgomaster of his native Kassel, had been out for a Sunday stroll in the city’s Wilhelmshöhe park with his daughter and small grandson. One of the conspirators approached him, carrying a syringe device used in enemas, whose rubber balloon was filled with liquid cyanide. The would-be killer lunged towards Scheidemann, attempting to hold the syringe close to his victim and to squirt the poison into his mouth and nose at close range.

As it happened, Scheidemann had been subjected to numerous death threats, especially since Erzberger’s assassination, and so carried a pistol with him whenever he left the house. He staggered but managed to fire off two shots, forcing his assailant to flee, before collapsing to the ground. He was unconscious for some minutes before a passing doctor, correctly diagnosing the substance that had been used in the attack, managed to revive him. The ostensibly bizarre attack could, it seemed, have been fatal if a jet of the poison had been inhaled. Scheidemann, it seems, had not breathed in at the key moment.
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Fortunately he made a complete recovery.

As a Jew, an intellectual, a supporter of the Republic and yet once as close to the old imperial regime as his racial heritage allowed, Rathenau was the perfect target for nationalist extremists. He knew the personal risks involved in serving the German Republic. Even before he joined Chancellor Wirth’s administration in May 1921, as Reconstruction Minister, he had been subject to a steady undertow of anti-Semitic abuse and innuendo. The story goes that when the bachelor Rathenau accepted that ministerial post, he couldn’t bring himself to break the news to his formidable mother, who lived with him at his villa in Grunewald. Lunching with her as usual the next day, the atmosphere between them was uncomfortable. Finally, she broke the silence.

‘Walther,’ the matriarch said, ‘why have you done this to me?’

She had clearly read the newspaper.

The newly appointed minister could only reply, ‘I really had to, Mama, because they couldn’t find anyone else.’
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After he entered the cabinet, the tidal pull of anti-Semitism burgeoned into a wave.

Although everyone had been impressed with Rathenau’s performance there, the Genoa conference ended in almost total failure.

Hopes nevertheless persisted on the German side that the Bankers’ Committee appointed by the Allied Reparations Commission would come up with a scheme for the longed-for loan. This would give Germany the ‘breathing space’ that would enable the country to stabilise her finances while at the same time (supposedly) meeting her reparations commitments. On 2 June 1922 that hope, too, was disappointed, largely because of French opposition. Poincaré had been prepared to consider a loan for Germany, which according to the Bankers’ Committee should go along with a reduced reparations bill, only if America agreed to an equivalent reduction in France’s share of inter-Allied debt. This, as was affirmed by the mighty New York banker J. P. Morgan, she would not.
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There had been some progress, all the same. Although the Reichstag had still not levied the 60 billion marks’ worth of new taxes the Allies had demanded and was showing few signs of doing so, Germany had agreed to the Allies’ demand to release the Reichsbank from its control by the government. The deputies duly passed a Reichsbank Autonomy Law on 26 May, making the bank no longer directly answerable to the Reich Chancellor and absolving it from its automatic obligation to discount Reich Treasury bills issued to cover the government’s budget.
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To the Allies, this was a useful step towards Germany’s ‘getting her house in order’. It was considered a sufficient indication of progress for a 31 May deadline to pass without the penalties for Germany that had been threatened by the reparations commission, urged on by the ever-suspicious Poincaré. As it turned out, the Reichsbank’s President Havenstein would carry on printing money merrily of his own accord for a long time to come, but no one knew this yet (in any case, the law did not come into force until July 1922).

Meanwhile, from across the Atlantic came some slightly more hopeful news. The idea of a loan was still ‘in play’. Americans had taken a big hit from the continued depreciation of the mark. However, with their own economy now beginning to recover from the brief but savage post-war depression, they were looking to sell to and invest in Europe. But first they needed Europe to recover properly. For that to happen, it was now generally agreed on Wall Street and in Washington, the problems with Germany needed to be dealt with on a level-headed, businesslike basis.

J. P. Morgan, Jr, one of America’s most famous (or infamous) bankers, had been sent over as Washington’s representative on the Bankers’ Committee. It was in this capacity that he had delivered the bad news to the French about the loan forgiveness, or lack of it. Even after the announcement that the loan for Germany had been indefinitely postponed, he and other American financiers were concerned that something be done.

Morgan’s views were interesting. Well-known as an Anglophile and an enthusiastic organiser of transatlantic loans for Britain and France during the war, Morgan harboured strong anti-German sentiments, asserting that his firm would never do business with the Reich and even refusing to buy paintings for his collection from German sources.
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Nevertheless, he was nothing if not a hard-headed operator. At a high-level meeting in London on 19 June 1922, with the French Prime Minister Poincaré present as well as the British Chancellor of the Exchequer, Sir Robert Horne, Morgan put his views forward frankly, as the account of the meeting recorded:

Broadly speaking, Mr Morgan appeared to think that the Allies must make up their minds as to whether they wanted a weak Germany who could not pay, or a strong Germany who could pay. If they wanted a weak Germany, they must keep her economically weak; but if they wanted her to pay they must allow Germany to exist in a condition of cheerfulness, which would lead to successful business. This meant, however, that you would get a strong Germany, and a Germany that was strong economically would, in a sense, be strong from a military point of view also.
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