the Social Welfare Ministries in the Reich Ministry of Labour. State Governments and Parliaments would disappear. When South Germany continued to oppose this attractive scheme, the suggestion was made to form North Germany into a unified State, leaving the three South German States, Bavaria, Würtemberg, and Baden, as independent administrative units in their present form. By the end of the year these proposals and others of the same nature had not yet emerged from the stage of theoretical discussion. Some highly significant figures have, however, been brought to light. Thus, in 1927, there was an increase in the number of civil servants and State employees in Prussia of 2,899 as compared with 1926, and of 71,766 as compared with 1913. These figures illustrate in a striking manner the expansion of the civil service.

That serious attempts were indeed made to improve the financial situation and to reform the administration was apparent from the report of the Agent for Reparations for the third annuity year, issued in the middle of December. In this document Mr. Gilbert admitted that in the interval since the publication of his Memorandum, the Reich Government had taken a number of steps in the direction indicated by him. He emphasised the fact that the Dawes plan and the delivery of reparations were being carried out loyally and punctually. He stated the transfer sums for the third reparations year as being 1.38 milliards of Reichsmarks, as against 1.17 milliards in the second year. He again called for a strict control of expenditure, but at the same time admitted that the Budgets, both of the Reich and of the States and Municipalities, were now better balanced than they had been. Mr. Gilbert further gave it as his opinion that the total amount of the German debt should be definitely fixed, and concluded his exhaustive report with the assertion that it was time that Germany should be left to act on her own responsibility, that is to say, without foreign supervision and without transfer control.

Arising out of the fundamental problems mentioned above, a heated controversy broke out towards the end of the year between the President of the Reichsbank, Dr. Schacht, on the one hand, and the municipal authorities on the other. The chief cause of dispute was the growth of the foreign loans, which were resorted to in ever-increasing measure, especially by the cities. Both States and Municipalities declared repeatedly in the course of the year that the sums accruing to them in virtue of the financial arrangement with the Reich did not suffice by far to meet their requirements. This, too, in spite of the fact that, at the extension in April of the financial arrangement (the former State Tax Law, which regulated the portion of taxes and levies accruing to the Reich, the States, and the towns), the Reich had declared its readiness to increase the guarantees for States and Municipalities.

Various authorities considered that this would cause considerable complications in the Reich Budget, and the Agent for Reparations had already called attention to these dangers. Apart from this, the financial arrangement accentuated the important and longstanding differences between the Reich and Prussia, which protested energetically against the preference shown to the South German States in the matter of the beer tax. A number of other complaints of Prussia against the Reich were brought together by the Prussian Prime Minister, Herr Braun, in a Memorandum ; they related principally to Prussia's inadequate representation in the Reichsrat, its claim to a seat on the board of management of the German Railway, and a number of financial claims on the Reich arising for the most part out of the Peace Treaty and the transference of the Prussian State Railway to the Reich. In the way in which these claims were put forward, Prussia's support of a unified Germany came clearly into view.

About the same time that Mr. Parker Gilbert issued his Memorandum and Dr. Schacht his warnings, the economic situation of Germany, which hitherto had appeared to be not unfavourable, began gradually to change for the worse. The slump in trade was accentuated by the regular seasonal decline which took place at the end of the year. It was obvious that the task of balancing the 1928 Budget would be a very difficult one. The normal reparation payments commence in 1928, and to these will be added the extra burdens entailed by the new Salaries Law. The increase in the Estimates over those of 1927 was 367.5 million Reichsmarks, the total expenditure being 9.5 milliards of Reichsmarks. Of the excess over last year's figure, 325 million Reichsmarks represented the quotas of the States in virtue of the financial arrangement mentioned above. The requirements of the provision for unemployed were not estimated at too high a figure, as the number of those receiving support sank from about two million at the beginning of the year to about half a million at the end. For a time the number of unemployed was lower still. Nevertheless, the state of the national finances would seem to place out of question any continuation of the policy of reduction of taxation which was begun by Herr Reinhold, and which is energetically demanded by the business world.

In contrast to the unsatisfactory condition of the national finances during 1927, there was a considerable expansion in German trade and industry, which carried certain branches of production far beyond the level of the pre-war period. The output of goods in 1927 can be reckoned at 30 to 40 per cent. higher than in the last years before the war. The boom was brought to a standstill through a scarcity of capital, which was only temporarily overcome. Although there was a not inconsiderable formation of capital in Germany during the year, yet the great demand for capital made it necessary continually to supplement

L

the home supply from abroad. In view of this fact, it was doubtful whether the policy of the Reichsbank mentioned above, of choking off foreign loans in consonance, apparently, with the Memorandum of the Agent for Reparations, was altogether beneficial in its effects. Long-term loans being unprocurable, short-term credits increased very largely, and private persons in search of capital, owing to absence of public foreign loans, had to borrow all the more abroad. The question of the best way of utilising capital came up repeatedly, and this gave rise to differences of opinion, especially on the question whether outlay on the erection of dwellings and on providing accommodation for unemployed was productive expenditure or not.

The adverse trade balance in 1927 amounted to 3.3 milliards of Reichsmarks, as against a favourable balance of nearly a milliard in 1926. Seeing, however, that actual exports increased as compared with preceding years, the adverse balance need not in itself be regarded as an unhealthy symptom. A number of important commercial agreements were concluded in the course of the year, the negotiations being helped not a little by the tariff resolutions of the Geneva World Economic Conference. The way was prepared for a renewal of the customs arrangement with Poland, and, more important still, after three years of hard bargaining, a trade agreement was at last concluded with France.

Public opinion in Germany was greatly disturbed by the speech delivered by M. Poincaré at Lunéville on June 20, which seemed to be intended to create ill-feeling in France against Germany. Dr. Stresemann dealt with the speech in giving his report of the League of Nations Council meeting on June 23. He showed that M. Poincaré's allegations of bad faith against Germany were groundless, and he asked point-blank what was the official policy of France: that of the Ruhr or that of Locarno. The slow progress of the "policy of understanding," of which the trade agreement was so far the sole fruit, was a great disappointment to German public opinion, which had expected tangible results much earlier from Locarno and Thoiry. Nevertheless, German foreign policy in 1927 scored one material gain. In pursuance of an agreement made at Geneva in December, 1926, the activities of the Inter-Allied Military Control Commission came to an end at the close of January, 1927. At the same time the Ambassadors' Conference declared that Germany had completely fulfilled all her disarmament obligations. The dismantling of certain fortifications which still remained in East Germany was carried out in the course of the year. In the occupied zone there were further partial evacuations and reductions of the foreign troops on German soil. At the September session of the Council of the League of Nations, the German Government signed the clause regarding the obligatory arbitration of the Permanent International Court at The Hague, and at the same time Germany

received a seat on the Mandates Commission of the League of Nations, which was filled by Herr Geheimrat Kastl, of the Federation of German Industries.

In contrast to the years immediately succeeding the war, home affairs during 1927 engaged the attention and interest of the German public in continually increasing measure. Regarding the main lines of foreign policy there are no longer any fundamental differences of opinion; especially are all parties agreed on the policy of European reconciliation. Internal politics, however, are still confused, and are likely to remain so till the elections of 1928.

AUSTRIA.

The year 1927 was for Austria one of steady, if not very remarkable improvement from all aspects except that of internal political consolidation.

In accordance with Austrian Parliamentary custom, a working programme of debates and legislation was fixed between the Cabinet of Dr. Seipel (which had been formed in October, 1926) and the Social-Democratic Opposition. Part of the agreement was that the Parliamentary Committee for Social Welfare should draft a law providing for old age pensions in Austria (which are not yet in existence), and that if it proved impossible to arrive at an agreement by March 15, 1927, Parliament, the legal life of which extended until November, 1927, should be at once dissolved.

Considerable difficulties arose over the question of old age pensions, as had been anticipated. The Social-Democrats insisted on some measure of old age provision for the indigent coming into force immediately, whereas the Government maintained that it was impossible to call upon employers to bear the burden of their contribution until the index of trade prosperity rose to a given figure. This principle was embodied in a Government Old Age Pensions Act, which was passed on April 1, despite the opposition of the Social-Democrats; it remains for the present inoperative.

The National Assembly, however, decided on March 4 to dissolve itself, in accordance with the agreement mentioned above, and General Elections were held on April 24. Simultaneously the elections to the Diets of Vienna, Lower Austria, Styria, Carinthia, Burgenland, and the Municipal Elections in a number of larger towns took place. The Christian Socialists and the PanGermans, the Government Coalition Parties, stood for election in a united list, dividing the seats secured according to a previous agreement. The result of the General Election was a gain of three seats for the Socialists, the actual figures being Christian Socialists, 73 (formerly 82); Pan-Germans, 12 (formerly 10); Landbund, 9 (formerly 5); Social-Democrats, 71 (formerly 68). The Chancellor succeeded in bringing the Landbund into the

Coalition, and on May 19 a new Cabinet was elected, with Dr. Seipel as Federal Chancellor for the fifth time. The only difference between it and its predecessor was that the Vice-Chancellor, Dr. Franz Dinghofer, became in the new Cabinet Minister without Portfolio, to make room for Herr Karl Hartleb (Landbund), who became Vice-Chancellor and Minister of Justice. Dr. Seipel's statement on foreign policy expressed Austria's determination to maintain existing good relations with all countries, to improve the position of industry and agriculture, and to revise the Rent Restriction Act. The Social-Democrats declared angrily that his only definite proposal-the last-named-ran counter to the verdict of the electorate. The bitterness between Government and Opposition continued to increase.

It was not this bitterness which caused the terrible riots of July 15, however, though it undoubtedly prepared the ground for them. On January 30 there had been a serious collision in Burgenland between the "Frontkämpfer" (Front-Line Fighters) -an irregular Fascist force-and the "Republikanische Schutzbund" (Republican Defence League)—the irregular body maintained by the Social-Democrats. Although the provocation came originally from the Socialists, the quarrel was at an end, when three Frontkämpfer fired a number of shots into a detachment of the Republikanische Schutzbund from the window of an inn at Schattendorf as the Socialists were marching off towards the station. The shots killed a boy of eight and a disabled ex-soldier. This increased the bitterness of the Socialists; their Press campaign and public speeches on the subject were directed rather towards increasing than allaying the sullen anger of the workers. On the night of July 14 a jury acquitted the three Frontkämpfer although the evidence showed that they were in no immediate peril when they fired. A demonstration by the workers was expected that night, and both police and the members of the Republikanische Schutzbund stood by to prevent trouble, but when nothing occurred during the night, it was thought that the danger was over and the police were dismissed to their homes.

On the morning of July 15, however, a spontaneous outburst occurred which no one had foreseen. The majority of the workers first learnt the news of the acquittal on their way to the factories, and, without the authority of the trades union leaders, decided to strike for one hour and to march to the Inner City to demonstrate outside Parliament. Such demonstrations were nothing new to Vienna, and thanks to the co-operation of the Schutzbund and the police, had always passed off without any serious incident. On this occasion, however, the Socialist leaders had not authorised any such demonstration, the Schutzbund was not in readiness, and the usual police reserves were not on duty. The leader of the Schutzbund promptly telephoned a warning to the police, who began to collect their men, but the spread of the strike to