Chapter 36 German-Russian alliance throws off Britain

This was the general backdrop leading up to the Genoa Conference, when the United Kingdom intended a breakthrough in controlling the Soviet Union's vast economic resources after American efforts had been thwarted.But during the Genoa conference, which lasted several weeks, German Foreign Minister Rathenau and Soviet Foreign Minister Chicherin signed a comprehensive treaty without prior knowledge of the British, French or American governments. Dealing with the Soviet Union was definitely not Rathenau's first choice.After the Versailles Peace Conference, in his capacity as Minister of Economic Reconstruction of Germany, he repeatedly made proposals and requests to the British and other Allied governments to allow Germany to revive its economy so that Germany could use export revenues to pay the war reparations stipulated in the Treaty of Versailles burden.Again and again his requests were denied.To add insult to injury, in 1921 the British government imposed a prohibitive tariff of 26 percent on all German imports, further thwarting Germany's efforts to formulate a realistic war reparations payment scheme.

Facing the big stick waved by Britain and France, Rathenau, a descendant of a famous German engineer family and former chairman of the board of directors of AEG, a large electronics company, was determined to formulate a strategy for the reconstruction of German industry by developing exports of heavy industrial products to the Soviet Union. After the Versailles Peace Conference, in the ruins of Germany's postwar economy, deficit fiscal policy has been a necessary emergency response for the German government.The Bundesbank actually covered the national deficit by printing money. In the early 1920s, Germany's money supply was far greater than the actual output of the German economy, leading to inevitable inflation. However, alternatives The options appear to be limited and detrimental to the country's economic development.

Rathenau knew that the huge costs of the defeat itself had sowed the seeds of inflation throughout the economy.By 1919, the Reichsmark gold par had fallen to half its pre-war level.Official statistics show that the war caused a 150% increase in wholesale prices, and black market prices were much higher.In order to collect the funds needed for the war, the German government adopted an expedient measure and borrowed heavily from the people.While Britain had always been able to finance the war overseas, notably through Morgan & Co. in New York, Germany was blocked from these major credit markets.

Moreover, after the war, the Allied victors systematically deprived Germany of its most important economic resources.All the colonies that were valuable to Germany, like Tanganyika and South West Africa, were also taken over by the British.The growing economic market of the Ottoman Empire opened by the construction of the Baghdad Railway was also taken away.Germany also lost its most valuable source of iron ore for its steel industry: Alsace-Lorraine and the region to the east, including Silesia, rich in mineral and agricultural resources.After the Versailles Peace Conference, Germany lost 75% of its iron ore resources, 68% of its zinc ore resources and 26% of its coal resources.Alsace's textile industry and potash mines were also lost.After the Versailles Peace Conference, its entire maritime merchant fleet, one-fifth of its river fleet, one-quarter of its fishing fleet, 5,000 locomotives, 150,000 trams, and 5,000 trucks were all taken over by the Allied forces.All of this was done under the legal name of German war reparations, which were never strictly defined.

In May 1921, the Allied Reparations Commission met to draft a German "final" reparation plan known as the "London Ultimatum".The plan set Germany's war reparations to the victor at an astronomical figure of 132 billion gold marks, and even the British reparation expert John Maynard Keynes believed that this figure exceeded three times the maximum payment that Germany could actually afford .There is also an interest rate of 6% per annum on the reparations debt.All German export goods were levied a 26% duty on the declared value, paid directly to the Allied Reparations Office in Berlin.In addition, there are many harsh conditions, including several taxes as "guarantee deposits".The method of payment of any indemnity may be determined by the indemnity committee unilaterally.

The "London Ultimatum" is not just an ultimatum in name.For the incredible conditions put forward by the Allied forces, unless the German Parliament fully agrees within six days, the Allied forces will occupy and control the Ruhr industrial heartland of Germany.Not surprisingly, the German parliament accepted this extremely harsh ultimatum by a narrow majority. What was really alarming about the Treaty of Rapallo to some influential figures in London were some hidden meanings in its terms.A great deal of German machinery and equipment, steel and other technology was to be sold to the Soviet Union to rebuild and expand the Baku oil fields.

In turn, Germany will build a crude oil and gasoline distribution center jointly owned by Germany and the Soviet Union in Germany to open up the market for Soviet oil. This work will be undertaken by the German-Russian Oil Marketing Company (DEROP).This will help Germany get rid of the iron grip of the Anglo-American oil interests, which have completely monopolized German oil sales since the Versailles Peace Conference.Rathenau never rejected London's demands in the ultimatum.But he insisted on using practical means to achieve these demands.