Was the economy doomed to fail?

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Members of the German middle classes enjoying the economic recovery during the late 1920s. However, with so much depending on foreign loans the German economy had imported problems for the future.

During the First World War, rather than raise taxes, the Kaiser had borrowed massive amounts of money by selling ‘war bonds’ to the public. By the end of the war the country was heavily in debt.

The economic terms of the Treaty of Versailles involved Germany paying huge sums in reparations to the allies. Once again loans were used to prop up Germany’s economy and government spending. Whilst the Dawes Plan restructured the payments Germany had to pay, it did not reduce the total amount Germany owed to the Allies.

In addition, the Dawes Plan gave the German government access to American loans to support the German economy. This money was used to support the building of roads, railways, housing and to pay for social security payments. Private companies also took advantage of these American loans.

However, with so much depending on foreign loans the German economy was importing problems for the future. Germany had become far too dependent on the American economy. Should the American economy have difficulties these would also be experienced with Germany.