The Impact of the Great Depression on Germany

This section explores the impact of the great depression on Germany. In October 1929, the Wall Street Crash on the US stock exchange triggered a global economic depression. Germany was among the hardest-hit nations in Europe because it had been heavily reliant on loans from American banks, which had been provided as part of the Dawes Plan in 1924. These loans had been essential to Germany’s economic recovery after the devastation of hyperinflation and were used to fund industrial development and reparation payments required by the Treaty of Versailles.

When the US banks abruptly recalled their loans, Germany’s economy collapsed. German businesses, which had depended on American credit, failed, industrial output plummeted, and a severe economic depression set in.

The Impact of Economic Collapse

The most immediate consequence of this economic collapse was a drastic increase in unemployment. Over the winter of 1929-30, the number of unemployed people surged from 1.4 million to over 2 million. By January 1933, when Adolf Hitler was appointed Chancellor, one in three Germans was unemployed, with the total reaching 6.1 million. Industrial production had fallen by more than half, exacerbating economic hardship.

Effects of Unemployment

• The rapid rise in unemployment significantly increased government spending on unemployment insurance and other welfare benefits, putting a severe strain on public finances.
• Many Germans lost faith in the democratic system, turning instead to radical political parties that promised quick and decisive solutions. Both the extreme Left (the Communist Party) and the extreme Right (the Nazi Party) saw significant increases in support.

Political Instability and Failure

The economic crisis led to political upheaval. In March 1930, Chancellor Hermann Müller resigned when his coalition government failed to agree on how to manage rising government expenditure due to the unemployment crisis. He was replaced by Heinrich Brüning, who pursued policies that worsened the situation:

• In July 1930, Chancellor Brüning introduced severe austerity measures, cutting government spending, wages, and unemployment benefits. These measures deepened the economic crisis, causing further job losses and increasing poverty.
• Brüning struggled to gain support from the Reichstag for his policies. As a result, President Paul von Hindenburg resorted to using Article 48 of the Weimar Constitution, which allowed the President to rule by decree without parliamentary approval. This undermined democracy and significantly weakened the power of the Reichstag, setting a dangerous precedent that Hitler later exploited.

The Rise of Extremism

When people face severe unemployment, hunger, and economic hardship, they often turn to extremist political movements that offer simple solutions and strong leadership. Between 1930 and 1933, support for radical parties grew significantly.

• By 1932, political parties opposed to the Weimar Republic controlled 319 out of 608 seats in the Reichstag, with many unemployed workers turning to the Communist Party.
• However, the biggest political gains were made by the Nazi Party. The Nazis promised to restore economic stability, rebuild national pride, and provide jobs, appealing to both the working and middle classes. Hitler’s rhetoric, propaganda, and promises of strong leadership resonated deeply with many Germans desperate for change.

The economic turmoil of the Great Depression ultimately played a crucial role in the downfall of the Weimar Republic. It paved the way for Hitler’s rise to power by undermining confidence in democracy and increasing support for extremist solutions. The instability and hardship of this period highlight how economic crises can have profound political consequences.