Credibility, Confidence and Capital: Austrian reconstruction

"This dissertation focuses on Austria, which in spite and because of its small size, played a pivotal role in the financial and diplomatic history of inter-war Europe. The author argues that three basic principles of post-war reconstruction – credibility, confidence and capital – were established in Austria, but not pursued wholeheartedly, so that Austria collapsed when European reconstruction failed in 1931. Austria regained credibility in the eyes of its citizens and investors through the help of the League of Nations. Following the League’s intervention in late 1922 hyperinflation in Austria was terminated and confidence in the country’s future improved, not least because the League assumed control over Austria’s fiscal policies. For political reasons, however, control was terminated prematurely and before Viennese banks had obtained sufficient levels of long-term capital. The League’s departure removed the vital credibility bestowed through its control and at the same time political conflict in Austria grew fiercer. In 1929, fears of civil war led to a decline of confidence and to the withdrawal of foreign capital and savings by concerned depositors, bringing down the second largest bank in Vienna. Confidence was ultimately shattered in 1931, when the Credit-Anstalt had to be bailed out by the Austrian government. The Austrian National Bank, however, managed to contain the crisis within less than a month. Only after much larger problems surfaced in Germany and Britain did an attacked on the Austrian currency ensue, which led to the collapse of the gold-standard. Rather than claim that the Credit-Anstalt rescue was a failure and that the bank’s collapse was the first in a series of events leading to the Great Depression, the author argues that international efforts to save Austria in 1931 were promising, and that only larger developments, particularly the unfolding crisis in Germany and Britain, brought about the end of global finance. The thesis brings together primary documents from public and private archives, originating with governments, diplomats, the League of Nations, central banks and private financiers, both in Austria and abroad. The narrative account is complemented by a continuous analysis of financial data, illustrating and substantiating the claims."