After the initial frustration of the reparations crisis subsided in 1923, cooler heads prevailed for a time and the Weimar Republic started to address its immediate economic problems. The Weimar solved the fiscal crisis by replacing the devalued and disreputable rentenmark with a new currency, the reischmark. (146) The Dawes Plan eased reparations anxiety by bringing in American bankers to loan Germany hard currency to support the reischmark while overseeing the payment of reparations in reischmarks. (146)
Structurally, the Weimar government encouraged free trade and sought to restore Germany's historic trade surplus by favoring the production of goods for export, which eased unemployment greatly. (149) Germany's economic recovery was also aided by loans from investors in the United States, which underwent an extended boom throughout the 1920s owing partly to the economic gains it made during Germany's wartime absence from world trade. (158) By 1929, Germany had made enough economic progress to silence the political malcontents for a moment. In fact, the supposedly insurmountable reparations payments accounted for only 10% of Germany's GDP at that point. (148)
Although Germany was regaining its place as a powerhouse economy, it economy was not yet strong enough to withstand the unprecedented damage wrought by the Great Depression of 1929. (157) In fact, Germany's method of reintegration into the world economy might have made it more vulnerable to the Great Depression, as the cheap American financing it had relied on to rebuild its cities during the boom quickly dried up. (158)
As the money disappeared, the Weimar's national unemployment insurance fund collapsed, sending a collective panic into the country's numerous unemployed, at that time 14.5% of the population. (159) Actually, the unemployment insurance fund crisis would prove to be the undoing of the Weimar Republic as a parliamentary democracy. (159) The Reichstag's dominant coalition, that of the moderate-left SDP and the moderate DVP, would eventually implode while debating the means for financing the unemployment insurance fund. (159)
There was no political coalition strong enough...
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