I. PREFACE (a) Advances to the European Allies by the United States Treasury and Exports from the United 45 PREFACE It is now more than three years since the statesmen of the Allied and Associated Powers met in Paris to rearrange the boundary lines of Europe and to construct a peace which should be permanent and just. The results of their deliberations are embodied in the treaties of Versailles (Germany), St. Germain (Austria) and Trianon (Hungary). The Treaty of Versailles was signed on June 28, 1919, that of St. Germain on September 10, 1919, and that of Trianon on June 4, 1920. Several months passed after the signing of each treaty before it was ratified by the countries most concerned with its provisions, and in the case of the United States (as it is hardly necessary to say) no ratification has taken place and other agreements have been made.1 The fact remains, however, that most of the provisions of these treaties have been put into effect, and it is now the duty of students of international affairs to examine conditions in Europe and to decide how successful these treaties have been in settling the complex problems which have arisen as a consequence of the war. The purpose of this syllabus is to outline briefly some of the outstanding aspects of the European economic situation at the present time, and to suggest source material in which more detailed information may be found. The treaties which followed the Armistice have been completely unsatisfactory from the economic point of view. European economic life is still disorganized to a remarkable degree. The chief factors in that disorganization seem to be: First, the destruction and devastation of the war period which still makes it impossible for certain countries to function now as they did before the war (this is especially true of districts in the north-east of France, in Poland, in Austria, in Serbia and in Russia); Second, the fact that no one of the continental European countries is able at the present time to equalize government revenue and expenditure; Third, the difficulties involved in the reparation settlement; and 1 See International Conciliation, No. 170: Treaties of Peace between the United States, and Germany, Austria and Hungary. Fourth, the trade barriers which have been raised along the new national boundaries created by the treaties of peace. These four fundamental difficulties have given rise to an excess of imports over exports in every European country, to inflation of currencies throughout Europe with a resultant increase in prices, to complete disorganization of foreign exchange relationships, and finally to industrial depression and unemployment in most of the important European countries in 1920 and 1921. It is hardly necessary to dwell upon the physical destruction of the war period. The fields laid waste, the factories, bridges and railroads burned in France, Poland, Serbia, Austria and Russia are too well known to need comment. But the results of this devastation are sometimes not so clearly recognized. During 1919 and 1920, at a time when European production was reduced to a very low ebb and large exports were out of the question, all the countries in Europe were obliged to import large quantities of food and raw materials from abroad. The consequent disparity between imports and exports inevitably resulted in large debts from the European continent to the exporting countries. Unfortunately, in the period after the Armistice, these debts did not take the form of long term bonds which might be repaid when Europe was able to produce effectively again, but were in large part represented by credits on the books of exporting merchants or of banks who needed their funds in a relatively short time. It was natural that investment funds should not have been attracted to Europe in this period. In the first place, there were many opportunities for extremely profitable investments in countries which had not been greatly affected by the war, and in the second place, the political and economic instability of most European countries during the period following the Armistice was such that investors hesitated to place their funds in European securities. These unfunded debts began to assume very large proportions by the spring of 1920, and about that time it began to be evident that European importers would not be able to pay their debts for some time to come. Although a large part of the imports into Europe during the reconstruction period were made on private initiative, an important part of the import trade was consigned to the continental governments. Prices of essential foods and raw materials were very high, 2 Within the last three months German exports have been worth more than German imports. and most of the European governments felt it necessary to supervise, and in many cases to subsidize, their importation. These operations were very costly, and have added greatly to the burdens of states which were already heavily in debt.3 However, there have been other equally important factors which have contributed to the disorganization of European government finances since the Armistice. Interest on indebtedness incurred during the war period, the cost of reconstruction, the expense of the armies of occupation in Germany, of military operations in Poland, Upper Silesia, West Hungary and the Near East, and the cost of reparation payments have heavily burdened the budgets of the countries concerned with them. Great Britain was able to make her state revenues equal expenditures in the fiscal years 1920-1921 and 1921-1922. Czecho-Slovakia announces that she will be able to balance her budget during the current year, but whether the depression from which certain important industries in that country are now suffering will make this plan impossible remains to be seen. None of the other belligerent countries even contemplate balancing their budgets during 1922. The methods employed to make up the deficit in government finances have varied from country to country, but everywhere The following table gives an indication of the debts of the principal European countries at the latest dates for which they are available. It should be remembered that certain portions of the British and French war debts were assumed on behalf of allies who still owe large sums to the British and French governments. In general, inflation in Europe took the form of increased note circulation. The following table gives some indication of the increases that have occurred: |