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1938
Senior military leaders met with Hitler in November 1937 and he set the tone for the following year. Germany had to act prior to 1943-45, when it’d lose its advantage in the arms race. More concretely, it had to make a move on Czechoslovakia immediately.
At home, a “second seizure of power” took place. The Defense Minister and CiC of the Army were evicted after scandals and OKW created to further subordinate the military. Von Ribbentrop assumed the Foreign Ministry. Schacht lost the RWM, which was then staffed by politically reliable men close to Goering; senior civil servants called them a “council of workers and soldiers” in reference to the revolutions of 1918-19.
Prior to taking on the Czechs, the Anschluss took place. Austria suffered from the same balance of trade problems as Germany and did not provide long-term relief to its economic woes, but its 401,000 unemployed joined the workforce and its national bank provided 345 million Reichsmarks in gold and foreign currency. This allowed Germany to import a lot more and run a deficit, but only temporarily as that was a one-off source. Geopolitically, the Anschluss encircled Czechoslovakia and projected German influence into the Balkans.
With more imports the Wehrmacht’s steel hunger was satisfied and once again rearmament accelerated.
Already after the Anschluss there was mobilization fear of war in Prague, though there was no intention to make a move that early; Germany’s inaction then created the false impression that it had backed down. Britain and France stood by the Czechoslovaks, leading Hitler to conclude a war in the west would be necessary before attacking the Soviet Union. Disappointingly, despite his vision of achieving a neutral Britain, its hostility was now a given. America had its eyes on Europe and FDR was determined to overcome internal isolationist pressure to provide weapons to the French and British.
And those two had now set their military buildup in full gear. They had overwhelming naval superiority that only increased, not decreased through the 30s, parity the ground and inferiority in the air (having started its aerial buildup late, Germany was technologically ahead and could boast of a sizeable air fleet), but even that wouldn’t last long. The Soviet Union, too, could not be left out.
One reason for appeasement is this dynamic of the arms race: the allies were buying time and stalling Hitler so their superiority in the economic field could be materialized into the military.
After the May crisis the time horizon was shortened to a war already in early 1939 and, if needed, force would be used against Czechoslovakia even earlier.
Ever higher military buildup was putting a strain on the economy.
At this year unemployment was nearing zero. As mentioned in Inflation, the continuation of the economic boom meant there was a repressed threat of inflation. It was controlled by suppressing prices, but that in turn prevented the reallocation of workers to the most important sectors, which had to be addressed by bureaucratically assigning workers and that did not proceed smoothly.
Mefo bills ended in this year, and uncontrolled spending now relied on unsafe funding. This, too, was an inflationary threat.
Railways were falling apart.