Financial Reconstruction in Central and Eastern Europe after World War I: The Case of Hungary

The First World War and the dismemberment of the Austro-Hungarian Monarchy had profound impacts on the further development of East Central Europe both economically and politically. In October 1918, the former self-sufficient economic unit broke into six different entities, which meant that the countries of the region had to adjust to the new circumstances. Post-war economic chaos was exacerbated by rampant inflation – except in Czechoslovakia – coupled with increasing budgetary problems caused by war expenditures. Additionally, the Kingdom of Serbs, Croats, Poland, and Romania had suffered very considerable war damages, which hindered their economic recovery. At the beginning of the 1920s, financial consolidation became an urgent task for all countries of the region, which coincided with the interests of the victorious Great Powers in the post-war years. This paper seeks to evaluate the consequences of the reconstruction schemes in the countries of East Central Europe. Because of the low level of domestic accumulation, stabilisation could be carried out by the loans of the League of Nations. The only exception was Czechoslovakia, which was able to halt inflation and introduce stable currency in April 1919 without any external assistance. As far as financial consolidation is concerned, the study also focuses on analysing the case of Hungary by introducing the main features of the stabilisation measures in the 1920s. The Hungarian stabilisation in 1924 also performed under the control of the League of Nations. The second part of the study presents the conditions of the loan extended by the League of Nations, analyses the elements of the stabilisation both in the budgetary and monetary sectors, as well as the features of the currency system established with English mediation. Because of length constraints, the paper will not give an insight into the domestic politics of East Central Europe during the interwar period, rather it strives to represent the results of financial reconstruction in the region from macroeconomic perspective