Shifting the focus slightly to Germany, the economy, which had already been severely strained after World War I, never truly recovered. The post-war famine and Great Depression were more than enough to prevent any significant recovery.
Just when there seemed to be a glimmer of recovery, the economic crisis in the United States broke out, and by 1931, the crisis had spread globally. Almost every major economy was hit hard by the economic downturn.
Germany, which had already been in a bad economic state, only saw its situation worsen. Given the continuous deterioration, the Weimar Republic government had no choice but to attempt to salvage the market, or at least give the impression that it was trying to do so, in order to convince the German people that the government was still taking action.
The closure of Schmitt's aircraft company was just a small representation of the larger crisis in Germany. In truth, during the wave of bankruptcies affecting factories and companies, the closure of Schmitt's company barely made a ripple.
At this moment, Germany was under the leadership of President Paul von Hindenburg and Chancellor Heinrich Brüning.
This duo was nothing short of exceptional, akin to the "crown jewels" of the Weimar Republic.
The president was an ardent conservative. Though not entirely reactionary in all his actions, he epitomized a "feudal ruler" in every aspect, despite holding the title of president of the republic. In reality, the German Democratic Republic was neither democratic nor republican, but rather resembled a constitutional monarchy cloaked in the guise of democracy.
As for Brüning, his reputation in history as the "Hungry Chancellor" is well-deserved. But it wasn't just his inability to fix the economy that made him infamous. He was also weak and indecisive when it came to the Nazis. In fact, Brüning often tolerated the Nazi movement, allowing it to grow without intervention. Even worse, he dissolved the Reichstag and set a dangerous precedent for future leaders.
When Brüning was appointed by Hindenburg as Chancellor, many believed that, as an economist, he might not be able to save Germany's economy, but at least he could stabilize the situation and prevent further collapse. However, as a famous line from Yes, Prime Minister puts it, "He was just an economist, and he didn't understand economics."
On March 29, 1930, Hindenburg appointed Brüning, leader of the Catholic Center Party, to form a government. From the very start, Brüning embarked on his journey to "save" Germany. His policies involved increasing exports, raising taxes, cutting public spending, and reducing wages and welfare benefits to tackle the worsening economic crisis. However, these measures failed to reverse the economic decline and, in fact, exacerbated the situation. Brüning's anti-crisis measures didn't ease the material hardships of the German people, but instead, they intensified their burdens, plunging millions of Germans into despair and misery. Domestic conditions deteriorated, and public dissatisfaction soared, leading to Brüning being labeled the "Hungry Chancellor."
His disastrous policies further divided German society, creating rifts between all classes, and some pessimists even feared that civil war was imminent.
Thus, in the September 14, 1930 German parliamentary elections, the situation dramatically shifted. The Nazi Party garnered 18.3% of the vote, five times the number they received in 1928. This time, the moderate factions failed to form a coalition government or achieve a majority in parliament. This victory emboldened the Nazi supporters, encouraging them to escalate their violent and terror-driven attempts to seize power.
Upon learning of this, Brüning didn't panic. Instead, he appeared to treat the situation as an opportunity to further his agenda.
What was his response? He used the Nazis' growing support and the success of the German Workers' Party (also known as the Nazi Party) as a warning to the world, especially Britain, France, and the U.S. He demanded that they make concessions to Germany, or else risk a Nazi or Communist revolution taking power and potentially reigniting the war.
Germany had been defeated in World War I, and its war reparations weren't fully paid until 1931. Brüning had already realized that he had no solution to the economic crisis, so he decided to leverage Germany's economic misery as a threat to the Western powers.
He told them to forgive the remaining reparations, or risk facing the consequences of a Nazi or Communist revolution, which might lead to war again.
During this time, two major events shook Germany. First, the government issued a series of "emergency decrees," which included stopping the repayment of war reparations. This caused a massive outflow of foreign and domestic capital. Second, failed negotiations with the Austrian Creditanstalt Bank sparked a severe banking crisis.
With the German banks already weak from the economic decline, the rush of depositors withdrawing their money brought them to the brink of collapse. On July 13, 1931, the Darmstadt Bank was the first to suspend operations, followed by other banks, savings institutions, and exchanges, which closed for two days. Germany's gold reserves dropped by 80%, and the entire credit system was on the verge of collapse. The German government, with a budget deficit of 600 billion marks, had to inject 10 billion marks to restore the banks' solvency.
Brüning's handling of the crisis—letting the situation worsen and pushing Germany to the brink—was deeply unsettling for the victorious powers. U.S. President Herbert Hoover feared that Germany's financial and economic collapse would have disastrous long-term effects on the global economy. Based on this assessment, Hoover ignored France's objections and issued a "moratorium" on debt repayment on June 20.
The New York Federal Reserve Bank allowed Germany to extend the repayment of its one-billion-dollar debt, and several banks and governments in Europe began to make concessions, allowing Germany to delay its payments.
As Brüning thought he was achieving a diplomatic victory, he failed to realize that his actions were driving the German workers, farmers, and business owners into the arms of the Nazis.
By the time he had destroyed the banks, the German capitalists, bankers, and landowners finally abandoned the "wise" conservative leader and turned to the devil named Hitler.