The operation of the “first bailout” the social and Economic impact of the League of Nations’ programme for Austrian reconstruction, 1922–26

This essay explores the significance of the reconstruction programme for Austria launched by the League of Nations’ embryonic Economic and Financial Organization in 1922. This scheme, which emerged out of the post-First World War peace settlements and multi-faceted crisis that Austria faced at this time, was the first ever stabilization programme organized under the auspices of an international organization, and, as such, it was an innovation in international affairs; an innovation that could be regarded as an early reflection of the dawn of the idea of neoliberalism. As Keynes had argued, the economic and financial stability of Europe had been overlooked in the peace negotiations, and the League’s programme for Austria was an attempt to address this lacuna, and an effort to enhance the prospects for the durability of the new Austrian Republic and thus support the maintenance of the post-First World War borders agreed as part of the peace settlements. This essay argues that, partly as a result of the neglect of consideration of the impact that some of the economic and social features of the programme would be likely to have, in some respects the League of Nations’ programme was detrimental to state and nation-building and thus the longer-term independent survival of First Republic Austria. The scheme, which prioritized balanced budgets and a currency tied to gold as the most important features of government financial and economic policy, has often been regarded as “successful”, and it certainly achieved many of its aims, but an examination of some of its wider depressive effects on the Austrian economy and on aspects of service provision reveal impacts that in many ways worked to undermine the stability of the new state.