Price scissors

The crash of the United States stock market in 1929 heralded the beginning of the Great Depression, but the crisis in Eastern Europe began in earnest with the collapse of the Creditanstalt in Vienna in 1931.

Any mechanization of agriculture would have meant an increase in rural unemployment, a move that, in combination with the dire conditions imposed by the Depression, would have been political suicide for any ruling regime.

While policy responses such as taxing the peasantry and banning mechanization may seem counterproductive in hindsight, the price scissors had effectively tied the hands of the Eastern European governments, leaving them with few if any options.

[8] As with a similar decree in Bulgaria, this Romanian policy gave some much-needed relief to the peasantry, which, like the government, was generally burdened with high levels of debt.

Worse, the Czechoslovak government raised protectionist barriers to shelter Czech industry, leading to a trade war with Hungary that was primarily damaging to Slovakia.

Faced with few policy options and deteriorating political situations, the nations of Eastern Europe looked to the West for aid in fighting the price scissors.

In 1935, Gömbös concluded a treaty wherein Germany agreed to buy Hungarian agricultural goods, giving the country an economic boost but also strengthening pro-German sentiment.

In so doing, Germany effectively brought all of agricultural Eastern Europe into its economic orbit, gaining access to foodstuffs and raw materials while opening a dedicated market for its industrial goods.

Germany’s assistance did legitimately help the Eastern European economies out of the crisis brought by the opening of the price scissors, and public sentiment was therefore swayed in favor of the Reich.

Here was Germany’s ulterior motive: as David Kaiser puts it, “the Foreign Office was determined to extend German influence in Southeastern Europe with or without any clear economic rationale”.

The economic hardship brought about by the deterioration of the agricultural states’ terms of trade had paved the way for increasingly radical right-wing governments, shaken their faith in the commitment of the Western powers, and shaped the entire region into a cog in the Nazi war machine.