Mussolini's position was shaken. But his assurances to the Chamber secured him renewed votes of confidence. He realised, however, that a change of policy was necessary, and he has already given an earnest of his intentions by his proposed reform of the Militia, and by the new Press Law laid before the Chamber early in December, and intended to supersede the obnoxious emergency decree of last summer.

On December 5 negotiations were opened for a new trade agreement with Germany on the basis of most-favoured-nation treatment and reciprocity. A favourable issue is expected in the near future.

Just before the end of the year (December 20) Signor Mussolini electrified Parliament and the public by announcing that he intended to introduce a new electoral law, but he did not mention any details. Opinion in Italy regards the proposal as a leap in the dark, and it remains to be seen whether Signor Mussolini will weather the storm which appears to be brewing.

CHAPTER IV.

GERMANY AND AUSTRIA.

GERMANY.

THE French occupation of the Ruhr in 1923 had been disastrous to Germany without bringing substantial benefits to the occupying Powers, and its lessons were not lost on the statesmen of both sides. The Entente countries had learnt that the economic restoration of Germany was to be regarded not merely as a favour reluctantly and guardedly granted to an enemy and a debtor, but as a step dictated by sound economic principles and as the true basis of future friendly relations between themselves and a Germany, which had emerged from the Ruhr conflict with her unity unbroken. Germany on her side had to reconcile herself to the sacrifices of independence which would be required to secure an international settlement of her difficulties. She had learnt from recent events the dependence of her political status on international finance: her currency had been ruined, and the disintegration of the Reich was threatened as a consequence. She was faced with the fact that the financial support required to preserve her national unity could be obtained only through international co-operation.

Thus the ground was prepared on both sides for a better understanding and for a combined effort to restore Germany's financial and economic stability. This effort was successfully launched during the year, and will always be associated with the names of Stresemann, Marx, Luther, and Schacht in Germany, with the British and French Premiers, MacDonald and Herriot, and with the American, General Dawes.

In

When the year opened there were still some remnants of the movements of revolt which in various parts of the country had followed the defeat of the Reich in the Ruhr contest. The object of these movements was in some cases to obtain merely local autonomy, in others complete severance from the Reich. A number of Rhineland capitalists cherished the project of a separate note-issuing bank for this district; but the plan was foiled by the action of the German Government in making its consent depend on certain conditions which France refused to sanction, and the growing confidence which the German currency inspired soon took the wind out of all such efforts. the Palatinate the Separatist movement was still carried on by a small band of adventurers who, under the protection of the French garrison, terrorised the inhabitants. The Bavarian officials in the country were powerless, as the police was disarmed. There was no other way for the oppressed and pillaged population to protect itself against the bandits than by taking up arms in its own defence. On January 5 the Separatist flag was hauled down in Zweibrücken. The French district governor had given his consent to this step, but the Separatist leaders induced him to withdraw it. The population thereupon proceeded to extremes; on January 9 Heinz Orbis, head of the so-called independent Palatinate Government, was, along with many of his comrades, attacked and shot. As the French Government could not bring itself to drop the rebel leaders, the English Government bestirred itself to put an end to a situation so discreditable for the Allies. The British Consul in Munich, Mr. Clive, was commissioned to investigate conditions and political feeling in the Palatinate. On the ground of his report, England declared that the Rhineland Commission had no right to recognise the autonomous Government of the Palatinate. France retorted on England's intervention by instituting an inquiry in the Cologne zone; but in spite of this, and in spite of the defence of his conduct set up by M. de Metz, its military representative in the Palatinate, it could no longer effectively protect the Separatists. The police were armed again, and the papers again came out. M. Poincaré stigmatised as a slander the statement that he had supported the Separatists. France, however, was dilatory in restoring normal conditions; the Separatist outrages lasted some weeks longer, and the administration of the country was not restored to the Bavarian authorities till February 17, and then only after bloody street fights in Pirmasens, in the course of which the rebels entrenched themselves in the Government House, had shown that no other course was possible.

The Bavarian Government, in spite of the proof which these events had given of its powerlessness, felt itself impelled at this time to press further on the attention of the Reich the federal principles to which it had obtained assent in the previous autumn. On January 4 it transmitted to the Central Government a memorandum in which it called for a thorough reform of

the Constitution. What it principally wanted was the restoration of the rights which had been reserved for the separate States and for their representative assembly, the Bundesrat, in the Bismarckian Constitution. The Central Government appeased its discontent by granting its wishes in regard to the Bavarian contingents of the Reichswehr, the position of which it altered in certain points, viz., the taking of the oath, the recall of the provincial commander, and the employment of the troops outside of Bavaria. With these concessions Bavaria felt her prestige safeguarded, and the more fundamental but less pressing questions of administration and finance were shelved for the time being. At the same time (in February) the Bavarian General-Commissariat, whose exceptional powers had been so disquieting for the Central Government in Berlin, came to an end. Herr Kahr, who was about to appear as a highly implicated witness in the Hitler case, handed in his resignation. For the same reason General Lossow, who in the previous autumn had openly defied the high command of the German Reichswehr, also retired.

Thus the danger of territorial disintegration, which had shown itself once more momentarily in a number of forms, was finally removed, and the road was left clear for those efforts of rational economic policy in which, as has been pointed out, the interests of Germany and of the outer world concurred. At first the prosecution of these interests was almost entirely left to financiers and financial experts. On the side of the Allies the work was in the hands of the two International Committees of Experts, which had to examine the financial conditions for restoring Germany's capacity to pay reparations. The resolution of the Reparations Commission of November 30, 1923, which had called them into being, had narrowly circumscribed their powers, and it seemed as if they would not have to concern themselves with the actual sum total of the reparations. But as a rational fixing of the amount to be paid was itself a condition of Germany's continued capacity to pay, their task had to be extended in such a way as to make the experts to a large extent the arbitrators between Germany and the Reparation Powers. This was especially the case with the first Committee, presided over by General Dawes, which first met on January 14. It immediately got into touch with the persons responsible for the financial and currency policy of Germany. Herr Schacht, the President of the Reichsbank, was repeatedly called to its deliberations, and, in order to procure exact information, the experts stayed for a time in Berlin. The work of amassing facts was not disturbed by any political differences. The Dawes Committee from the beginning adopted the standpoint that it had to make an arrangement not between conquerors and conquered, but between creditors and debtors. The German officials had the less cause to hinder such an investigation, as the Cuno Ministry, in its Note of June 7, 1923,

had already recommended a report to be drawn up by some neutral party.

But these officials had the further duty of finding temporary means for stabilising the currency and balancing the Budget till the experts should have devised methods for achieving these ends permanently. The "Rentenmark," the concrete result of the currency catastrophe of 1923, gained, it is true, almost daily in public confidence; but a new inflation was only avoided by supplementing the issue of this popular money token with measures which inevitably caused great hardship. The Rentenmark was covered not by gold but by mortgages; the secret of its stability lay in the fact that it was issued only in very limited quantity. To Dr. Helfferich belonged the credit of having first shown the way to create a new currency by his project of a "rye currency;" it was his political opposite, Dr. Hilferding, who drafted the ordinance for the Rentenmark; but the practical restriction of the note circulation was the particular achievement of the Reich's Finance Minister, Dr. Luther, who tackled successfully the problem of enabling the Reich to function on this narrow basis. A similar problem which faced him was that of allowing for public and private claims which had been rendered valueless by the inflation. In seeking to give these a fair value, care had to be taken not to undertake obligations which the State had at present no prospect of being able to meet. The solution was found by giving an extreme preference to the claims of the State over those of its paid officials, and to the claims of debtors over those of creditors. Salaries and wages were cut down to a bare subsistence minimum; many employees were dismissed, and numerous officials were put on pension pay. Those sections of the "third emergency taxation ordinance which contained the principles of the restoration of the value of private and public debts, were practically equal to a declaration of general bankruptcy. Meanwhile the President of the Reichsbank, Herr Schacht, had to satisfy the demands of the business community for credit, and to see that no inflation was surreptitiously introduced in the process. With the consent of the experts he established on March 13, an institution for providing Bill credits for German commerce in the shape of the "Golddiskontbank." Skilfully as this institution was devised, it did not make the credits of the Reichsbank superfluous, and as these threatened to reach too high a figure, Dr. Schacht, on April 8, issued an order forbidding the increase of credits as from that day. This step at last brought the activities of the note press to a stop; but it increased the number of those who found the new system hard to bear.

It was just at this time that the experts completed their work. They handed their report to the Reparations Commission, which called upon the German Government to declare forthwith if it would accept the conditions laid down in the report. An affirmative reply was given to this question on April 15. The

report, it is true, contained many points which made such a decision hard for the Government. It threatened Germany for decades not merely with what appeared to be intolerable burdens, but also with the danger of foreign interference with the control of its currency and its railways, and in spite of all the total figure of its liabilities still remained undetermined. But on the other side the report in two vital points expressly recognised the interests of the Reich as conceived by the Germans themselves. The conditions laid down for the gold loan and the gold note bank, and the technical regulations which hedged round the transfer, were a guarantee that Germany would not have to pay reparations at the price of ruining her currency and commerce. And further, it was laid down as a fundamental condition for the plan that the Reich should retain its economic sovereignty over the whole of Germany. This meant that Germany's neighbours were not to be allowed to seize for themselves individual provinces as "special pledges' in place of the "general pledge" which covered the whole country. How oppressive such a "special pledge" could be was shown by the conditions in the West, where the customs barrier between occupied and unoccupied territory was still in force, and where the Ruhr industry was compelled to renew repeatedly the "Micum" agreements with France and Belgium.

These guarantees for the existence of the Reich decided the attitude of the Government. But the question had to be submitted to the whole nation. The Reichstag was no longer in session; as in any case its period was due to expire shortly according to the Constitution, the Government had dissolved it, and fixed May 4 as the day for the General Election. The Government was strongly criticised in Parliament for having in spite of this given a binding answer to the question of the Reparations Commission. As a matter of fact, there was every indication of the opposition being strong in the country.

The parties of the Opposition were in the main the same as before the German National People's Party, the Communists, and the German "Racialists" or National Socialists. The last-named were represented by only three members in the Reichstag which had just been dissolved, but their following in the country, particularly among the youth, was continually growing. The Hitler trial held in Munich in March, the last trial brought before the so-called "people's courts" in Bavaria, political rather than juridical in character, had been turned into one long glorification of the heroes of the party, who were there brought to trial. They had found opportunity to exchange rôles with their prosecutors, and to denounce in moving terms both the German Government and Kahr and Lossow. Hitler and a few others had received mild sentences; Ludendorff had been acquitted, and was now leader of the party. The symbol adopted by the party was the Swastika, which as a supposed "Aryan" symbol enjoyed in Germany a curious popularity of doubtful

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