The First Bailout – The Financial Reconstruction of Austria 1922 – 1926 Submitted for the degree of Ph.D By Barbara Susan Warnock Birkbeck College University of London 2015 1 I declare that this thesis is all my own work ……………………………………………………………………………. 2 Abstract This thesis examines the League of Nations’ project for Austrian financial reconstruction 1922- 1926. By 1922, the First Austrian Republic (1918-1938) was experiencing enormous problems, including hyperinflation. Little confidence existed that the country could survive as a unified and independent entity. In this context, the Economic and Financial Organisation (EFO) of the League designed a financial reconstruction scheme for Austria. The scheme was the first such project carried out by an international institution and this thesis explores its genesis, attributes and impacts. This thesis argues that this programme came into existence less, as is sometimes argued, because of the work of idealistic internationalists at the League of Nations, and more because the governments, diplomats and officials of certain powers, particularly France, but also Britain and others, wished to see Austria survive because they regarded its continued existence to be an important part of upholding post-war European order, and furthering their interests and diplomatic strategies. Furthermore, the support of financial elites was crucial in successfully launching the scheme, and representatives of these groups were centrally involved in the design and implementation of the programme via the EFO’s Financial Committee. The programme reflected their beliefs about the proper operation of finance and economics, and introduced to Austria orthodox financial measures that had a mixed, in many ways negative, effect on the Austrian economy and on Austrian prospects for stability. This thesis explores the often neglected political and social impact of the programme, such as the detrimental effects of unemployment, and the tensions generated between central government and the regional governments of Austria, particularly the City Government of Vienna. Ultimately, a programme that was created as an extension of the peace settlement worked in some respects to exacerbate the difficulties that would lead to crisis in Austria and in Europe in the 1930s. 3 Table of contents Abstract……………………………………………………………………………………. 3 Table of contents………………………………………………………………….. 4 List of figures………………………………………………………………………….. 6 Chapter One Introduction……………………………………………………………………………. 7 Chapter Two Why the League?....................................................................... 31 ‘You can thank your stars you do not have to live in Vienna’ – Austria 1918-1922…………………. 34 Why the League? o The absence of alternatives……………….. 40 o The role and motivations of European powers………………………………………………. 48 o The role and motivations of bankers and financiers…………………………………….. 60 o The role of the League……………………….. 67 o The role of Austria …………………………….. 71 Conclusions…………………………………………………….. 75 Chapter Three The Nature of the Scheme………………………………………………… 79 The process of designing the scheme for Austrian reconstruction………………………………….. 83 The key features of the scheme……………………… 88 o Budgets, deficits and ‘sound’ finance…. 91 o Control, confidence and sovereignty….. 95 o Money and gold…………………………………. 103 o The loans and the guarantees……………. 105 Assumptions, interpretations and ideologies….. 108 The role of the Financial Committee and the role of nation-states……………………………………….. 116 Conclusions – what did the scheme represent?. 122 Chapter Four Sanierung und Abbau: the financial, economic and administrative impacts of the scheme on Austria 1922-1926………………………………………………………………………………… 126 4 Confidence, speculation and the Krone…………… 132 The wider economic implications of the scheme………………………………………………………...... 144 The reform of budget and administration………. 161 Conclusions……………………………………………………. 167 Chapter Five The political impact of the scheme on Austria 1922-1926……………………………………………………………………………….. 169 The impact of the League’s scheme on national politics o Press and public…………………………………. 172 o Parties and parliament………………………. 181 o Viability and autonomy……………………… 200 The impact of the scheme on the politics of the provinces………………………………………………………… 206 Conclusions…………………………………………………….. 225 Chapter Six Conclusion: Austrian Financial Reconstruction – Afterlife and Post-Mortem……………………………………………….. 228 Developments in international financial diplomacy o League programmes…………………………… 232 o Non-League programmes…………………… 235 Destabilising developments in the wider world – debt, credit and markets……………………………… 246 Political problems – Austria and the wider world………………………………………………………………. 248 Ideology, the experts and internationalism…….. 251 Bibliography………………………………………………………………………….... 258 5 List of Figures Figure 1. Der Arbeitslose (unemployed person), Arbeiter- Zeitung, 11 March 1924…………………………………………………………… Chapter Four, 149 Figure 2. ‘Nicht an Vergangenes Denken!’………………………………. Chapter Five, 202 Figure 3. Map showing the Austrian Provinces……………………….. Chapter Five, 212 Figure 4. Bruno Frei, Die aus Galizien geflüchtete Familie des Kantors Josef Schruber in Wien, 1920......................................... Chapter Five, 219 Figure 5. Vienna housing development on Possingergasse, Auf der Schmelz, Vienna, built 1922-1923…………………………………….. Chapter Five, 221 Figure 6. Housing development on Pilgramgasse in Chapter Five, 222 Vienna……… Figure 7. Housing development on Pilgramgasse in Chapter Five, 222 Vienna……… Figure 8. Rabenhof, Vienna……………………………………………………. Chapter Five, 224 Figure 9. Health centre, Rabenhof, Vienna…………………………….. Chapter Five, 225 Figure 10. Rabenhof, Vienna…………………………………………………. Chapter Five, 225 6 Chapter One Introduction In his memoir, written in the context of his flight from Europe as a refugee and shortly before his suicide, Stefan Zweig produced an idealised portrait of fin de siècle Habsburg Austria as a land basking in a ‘golden age of security’. He looked back to his youth and recalled a ‘serene epoch [in which] individual freedom was at its zenith’. Zweig depicted Vienna as a citadel of culture, where people had a ‘fanatical love of art’ and lamented that: the world in which I grew up and the world of today, not to mention the world in between them, are drawing further and further apart and becoming entirely different places… all the bridges are broken between today, yesterday and the day before yesterday.1 Zweig’s memoir creates a dramatic sense of caesura between pre-First World War Austria and later eras. He reflected upon the ‘pale horses of the apocalypse [which] have stormed through my life: revolution and famine, currency depreciation and terror, epidemics and emigration’. It was the First World War and its immediate aftermath that presented for Zweig the first traumatic break with what he regarded as the lost civilisation of the Habsburg era. Zweig’s perceptions may not have been as universal as he assumed,2 but nevertheless, his portrayal of the contrast between pre and post-war Austria dramatizes the bereft and desperate condition of Austria in the aftermath of the First World War, a country characterised by Stephen Beller, echoing Austrian novelist Robert Musil, as a ‘land without qualities’.3 1 Stefan Zweig, The World of Yesterday, trans. Anthea Bell (London, 2009). First published in German as Die Welt von Gestern (Stockholm, 1942). 2 Zweig talked of ‘those of us’ and ‘our generation’ and ‘we [who] have experienced more history than any of our forefathers did’. His perceptions were rooted, however, in his background as an intellectual Viennese bourgeois, and in his experiences as a Jew and a liberal of Nazi takeover, and consequent exile from Austria. 3 Stephen Beller, A Concise History of Austria (Cambridge, 2006), 197. Musil’s novel was A Man Without Qualities, trans. Sophie Wilkins and Burton Pike (London, 1997), published in German between 1930 and 1943 as Der Mann ohne Eigenschaften. 7 Conditions in post-First World War Austria were highly unstable, and, as the writing of Zweig and other Austrian authors reveal, traumatic for its inhabitants.4 The newly empire-less country, previously the dominant entity in an imperium of some 52 million people, now contained only 6.4 million inhabitants. Vienna was a ‘giant city in a dwarf state’.5 The war, the defeat and the collapse of the monarchy and the empire created an almost overwhelming multitude of problems for Austria; refugees, political unrest, demobilisation, trade problems, shortages, Spanish Influenza, TB and starvation amongst them. At this stage, it was commonly felt within Austria itself that the new country was lebensunfähig: unviable.6 By 1922 inflation was running at over forty per cent a month and a desperate Chancellor Seipel toured Europe, according to Maurice Fanshaw, ‘practically (offering) Austria in return for financial assistance’.7 This thesis explores the significance of the events that followed, as, in an unprecedented move, the League of Nations determined to help Austria. This was the first ever intervention by an international organisation in the reconstruction of a country’s finances and represented a major extension of the League’s remit. The scheme for Austria, which ran until 1926, was designed and implemented by the League’s Economic and Financial Organisation (the EFO). It involved the provision to the country of a League-backed international loan, measures to ensure currency stabilisation and a balanced budget, and the appointment of a League High Commissioner