In the middle of a phone call, however, Göring learned that the Austrian president was refusing to appoint Seyss-Inquart. A furious Göring bellowed into the receiver that German forces in that case would march that night and, “Austria will cease to exist . . . There is no time now for jokes.”
While frantic phone calls between Berlin and Vienna continued, Prince Philip of Hesse at 10:25 P.M. telephoned Hitler from Rome. The prince said he had just left Mussolini’s office in the Palazzo Venezia with the news that the Duce “accepts the whole thing in a very friendly manner” and “sends his best regards.” Hitler was elated and asked the prince to “please let Mussolini know I will never forget him for this. . . . never, never, never, whatever happens.” The Führer also sent Mussolini an effusive cable repeating that message. The Nazis could now move in for the kill without facing military opposition.
Schuschnigg that evening went on Austrian radio and told his countrymen what had transpired, saying in conclusion, “President Miklas has asked me to tell the people of Austria that we have yielded to force since we are not prepared even in this terrible hour to shed blood. We have decided to order the troops to offer no resistance.” It was after midnight, when Seyss-Inquart drove his predecessor home through streets where Austrian Nazis were celebrating their victory.
While all the cabinet shuffling and threats were taking place over the phone, Reichsbank president Hjalmar Schacht was in Berlin participating in pre-invasion planning with the Wehrmacht’s economic staff. He had long been an advocate of a union between the two countries, arguing that Austria was too small to be economically viable, and merging its financial coffers with the Reichsbank would certainly be advantageous. Lt. Colonel Hans Wiedemann from Hitler’s office asked Schacht how currency policy for the united country should be handled. The central banker said the exchange rate should be fixed at one Reichsmark to two Austrian schillings, even though that country’s currency was trading at the time for about one mark to 1.1 schillings. The under-valuation of the Austrian currency made anything the Germans bought in Austria about half price, and that became the Nazi policy in all countries it later invaded. This manipulation of exchange rates became one of the most successful tools the Nazis had to exploit occupied countries throughout World War II. Occupying German soldiers lived like kings and shipped back home huge amounts of local products at bargain prices. That gave Germans both at home and in occupied nations a much higher standard of living, making the Nazi government even more popular.15
At 8:45 that same evening, Hitler signed Directive No. 2 instructing German troops to begin entering Austria at daybreak the next morning. Only three minutes later, Göring dictated a telegram to Keppler that was to be given to Seyss-Inquart. It stated that he should send Hitler a message asking him “in order to prevent bloodshed . . . to send German troops as soon as possible.”16
At daybreak on March 12, German units marched into Austria at six border crossings. They faced no opposition. By then Nazi paramilitary units were already on the streets of the Vienna, and Austrian Nazis were helping execute the country’s quick takeover. Wehrmacht planes flew over the capital dropping leaflets that read: “National Socialist Germany greets its possession National Socialist Austria and its new government in true indivisible union.”
That same day, Reichsbank director Karl Friedrich Wilhelm flew on a government plane to Vienna with instructions to oversee the financial takeover of Austria. He was under strict orders to insist on the Reichsmark-Austrian schilling exchange rate Schacht had set. When Wilhelm got to his hotel in a truck requisitioned from the national post office, he telephoned the Reichsbank in Berlin, and officials again repeated the order that the exchange rate should be one Reichsmark for two Austrian schillings. He was also told to be at the Vienna central bank the following morning at 11:00 to meet with the president and director general.
Shortly after lunch, Hitler crossed the German border by car and made a triumphant return to his native land. Teeming, cheering crowds greeted him as he passed through villages. He laid a wreath at the grave of his parents in the town of Leonding and afterward traveled to Linz, where he had once studied. In a self-congratulatory speech, he said, “If providence once called me forth from this town to be the leader of the Reich, it must in so doing have charged me with a mission, and that mission could only be to restore my dear homeland to the German Reich.”17 He then told an Austrian official to draft the legal document for the Anschluss of Austria into Germany. The document stated simply: “Austria is a province of the German Reich.” When Hitler saw it, tears rolled down his cheeks.
In anticipation of a possible invasion, the Austrians had already packed some of the country’s gold be shipped to Brno, Czechoslovakia. It was anticipated that it would then be sent to the Bank of England for safekeeping. The plans, however, were for naught.
Thanks to his close contacts among European central bankers, Schacht knew that Austria held about $100 million in gold, while Germany in 1938 was down to $28.6 million officially with another $120.5 million in hidden bullion. Hitler and Göring had already met in late February to plan the capture of the bullion. On Saturday morning March 12, Wilhelm Keppler led two Nazi commandoes, who had arrived in Vienna earlier that day, to the Austrian Central Bank and took possession of the country’s gold that had been packed and which was ready to be moved. The Germans also arrested several top Austrian bank officials and told the bank’s president not to return to the building.18
One of the first acts by officials in Berlin was a government order to transfer the assets of the Austrian National Bank to Germany. Hitler, Schacht, Finance Minister Johann Schwerin von Krosigk, and Interior Minister Wilhelm Frick signed it. The four-point statement published in German papers on March 17 was straightforward and clear. The first two decrees:
1. The administration of the Austrian National Bank shall be taken over by the Reichsbank.
2. The Austrian National Bank shall go into liquidation and be liquidated by the Reichsbank for account of the Reich.19
World central bankers were attending the regular monthly meeting of the Bank for International Settlements on Sunday, March 13, just as the Nazi mopping up was taking place in Vienna. Before the gathering started, Schacht told the chairman he did not want the developments in Austria to be discussed. Nonetheless, that was still the main topic of conversation in the corridors. The central bankers were already nervously looking toward Czechoslovakia, fearing that would be Hitler’s next target. The Italian representatives in Basel voiced their unhappiness that Mussolini had not received any advance notice from his Berlin partner. He had been told, but the official was unaware of it. Several central bankers discussed the increasing importance of gold in a world that seemed to be headed for war. The metal’s price soared in London when markets opened the following day. The Bank of England sold $1 million worth in an attempt to keep the price from going even higher.
On March 17, the Nazis put into law the economic measures involved in uniting the two countries. The Reichsmark was made legal tender in the country at a rate of 1:1.5. Austrian protests against Schacht’s 1:2 rate were so strong that the Germans made a strategic retreat, but it was still significantly higher than the pre-invasion value of 1:1.20
The following day, the commercial attaché at the U.S. embassy in Vienna sent Washington a curt cable with the news, “Reichsbank absorbed Austrian National Bank.” He estimated that the Germans had seized $46 million in gold and $34 million in foreign exchange. The actual amount was more than double that. The cryptic end of the message: “Complete absorption Austria proceeding at a rapid rate.”21
Three days later and before 99.73 percent of Austrians voted in a plebiscite to join the Reich, Schacht arrived in Vienna and officially seized the Austrian Central Bank and its property. He also made a speech to the assembled local staff. The central banker was suffering from a bad cold, but that didn’t chill his spirits. He called the event a “celebration” that was part of “one of the greatest moments e
ver recorded in German history.” He added, “I consider it completely impossible that even a single person will find his future with us who is not wholeheartedly for Adolf Hitler.” Schacht also introduced Reichsbank director Karl Blessing to the assembled crowd. He would be taking over daily responsibility for the Vienna bank.22
After more effusive praise for Hitler, Schacht asked the employees to raise their hands and join him in a pledge of allegiance: “I swear that I will be faithful and obedient to the Führer of the German Reich, Adolf Hitler, and will perform my duties conscientiously and selflessly.”
Schacht then chided his audience, “You have taken this pledge. Anyone who breaks it will be a scoundrel.” He ended his presentation by asking the staff to give “a triple Sieg Heil to our Führer.”
Collecting and sending all the Austrian gold to Berlin turned into a complicated task and involved not only the bars and coins in Vienna but also the gold stored in London. Reich officials were also anxious to get the gold owned by Austrian citizens since it was believed that Jews, who lived primarily in Vienna, had large holdings. All of it was placed in the Reichsbank’s Precious Metal Department alongside German gold. The largest part was bullion that had been located in Vienna, but there was also 5.7 tons of gold resting in the London vaults of the Bank of England and 16.6 tons from the Bank for International Settlements. After the war, the Austrian government put in a claim to the Tripartite Commission for the Restitution of Monetary Gold for a whopping 91.3 tons of gold that the Nazis had stolen.23
On March 22, the day after Schacht led the Sieg Heils at the Austrian National Bank in Vienna, Victor Brauneis, the Vienna bank’s general director, sent a cable instructing the BIS to put its gold bars into Germany’s account at the Bank of England and to confirm that his telephone instruction earlier that day to move gold bars between the two accounts had already been made. On April 1, Berlin received a cable confirming that the gold was now in the Reichsbank’s BIS account in London. Between the amount seized in Vienna and what had been transferred in London, the Reichsbank now controlled the entirety of the gold that the Austrian Central Bank held. Robbing a bank had never been easier. Schacht’s intimate knowledge of how the BIS operated and which countries had gold in London made the takeover simple.24
There was, however, still more gold to come. Reichsbank board member Emil Puhl sent Keppler a note predicting that they should be able to collect between three and four billion Reichsmark of gold from Austrian Jews.25 A German law of March 23, 1938, ruled that before April 25 all Austrian citizens had to declare and sell their gold, foreign currency holdings, and foreign stocks to the “National Bank of Austria in liquidation.” The prices offered for jewelry, coins, and bars were low, but people knew that later they would be even worse, and the penalty for withholding their valuables would be worse still. Under that program, Austrian citizens sold 14.3 tons of gold to the Reichsbank. The main victims were Viennese Jews, who kept bullion at home because of their tragic history of having to escape from persecution, and history was repeating itself once again.26
The Austrian gold played a major role in financing the Nazi war machine at a crucial moment in its development. Germany had been rapidly using up its own holdings of gold and foreign currency to pay for its rearmament program. The Berlin gold reserves, both reported and hidden, dropped from 443.8 million Reichsmark in March 1937 to 138.9 million Reichsmark by the end of June, but the Hitler government now suddenly had more than $100 million in gold that could be used for armaments. Germany was like a driver crossing a desert in a car that had been slowly running out of gas, who all at once comes upon an oasis with a gas station where he refills his tank. Thanks to the Austrian gold, Hitler could now continue, and even expand, his aggressive plan for invading his neighbors. The gold and foreign exchange captured at the Austrian Central Bank totaled 345 million Reichsmark.27
On October 3, 1938, Emil Puhl wrote in a secret memo: “The rapid implementation of rearmament was only possible because of the use of available gold, foreign exchange from the former Reich, and the immediate recovery of Austrian gold, foreign exchange, and valuable securities reserves. Without the use of these, it would not have been possible to obtain enough foreign raw materials for ongoing military requirements nor for Field Marshal Göring’s modest program to build up stocks of raw materials for warfare.”
The memo further itemized what the Germans had obtained in Austria. That consisted of 65 million Reichsmark in privately owned gold coins, 299 million from privately-owned foreign bonds and stocks, 150 million by confiscating foreign shares in companies, 345 million in gold and currency from the Austrian National Bank, and 325 million from accelerated payment of export bills and specialty business contracts. The total haul was 1.2 billion Reichsmark or $470 million. That was only the first of the robberies the Nazis would execute in countries they invaded.28
The timing of the Austrian robbery was crucial because the Reich was then running out of money because of its heavy military spending. Economic historian Adam Tooze in The Wages of Destruction wrote, “Thanks to the Austrian booty, Germany in 1938 was able to run a trade deficit of almost 450 million Reichsmark, larger than at any time since 1929. For a brief moment, at least, the Anschluss freed Hitler’s regime from the balance of payments constraint.”29
Eleven days after the scam plebiscite in which Austrians overwhelmingly approved the German takeover of their country, Hitler met with General Wilhelm Keitel to review plans for his next target, codenamed Case Green. The target: Czechoslovakia.
Chapter Eight
AN INSIDE JOB AGAINST CZECHOSLOVAKIA
The victors of World War I forged the country of Czechoslovakia out of the multilingual and multicultural Austro-Hungarian Empire, the major loser in that conflict. The nation was an offspring of Woodrow Wilson’s commitment to the national self-determination of ethnic groups. The tenth of his famous Fourteen Points proclaimed that “the peoples of Austria-Hungary” should have “the freest opportunity to autonomous development.” The Czechs and Slovaks spoke somewhat similar languages, but their sense of national unity was weak. The country was an ethnic ratatouille that also included Germans, Hungarians, Poles, Ruthenians, Romanians, Gypsies, and Croats. More than three million Sudeten Germans lived in the economically developed and prosperous border area near Germany. They made up one-fourth of the country’s total population of nearly 14 million. Hitler, a racial purist, had nothing but contempt for what he considered to be a mongrel country. His goal was to pull German Czechs into the Reich and turn the rest of the nation into his protectorate.
For a young and small nation, Czechoslovakia had surprisingly large gold reserves. Even more astounding was the fact that they came largely from private donations. Dr. Alois Rašín, the country’s first finance minister, in 1919 launched a campaign to establish what he called the “Gold Treasure of the Czechoslovak Republic.” He asked the new country’s citizens to donate their family jewelry and bullion to provide the backing for the new nation’s currency. Czechs enthusiastically responded, and by the end of 1924 the central bank had $27.1 million in gold reserves, more than such countries such as Egypt, Greece, and Iran. In the fall of 1938, when the Nazi dismantling of the country started, Czechoslovakia had ninety-five tons of gold.1
The new Czech government had already in 1921 established a military alliance with France, which was anxious to have an ally on Germany’s southern border. Both countries hoped that accord would keep the German military in check. Czechoslovakia became an industrial power that included the important Škoda industrial complex, one of Europe’s leading arms producers. In 1925, France and Czechoslovakia signed a mutual defense treaty promising that if either country were attacked, the other would provide “immediate aid and assistance.” The Soviet Union had a similar agreement with Czechoslovakia, although that was contingent on France going to war first. The Czechs invested heavily in their own defense from 1936 to 1938, building a fortification along its border with Germany that became known as t
he Czech Maginot Line because it matched the formidable defense wall that France had constructed on its eastern border.
Hitler, though, had his own plans for the new nation. He looked to Czechoslovakia’s German-speaking minority to help him stir up trouble and provide him with an excuse for military intervention. On March 28, 1938, just two weeks after the annexation of Austria, Hitler, Foreign Minister Ribbentrop, and Rudolf Hess, the Führer’s deputy, met with Konrad Heinlein, a schoolteacher and leader of the Sudeten German Party, which Berlin bankrolled. They laid out a strategy for bringing the German-speaking part of Czechoslovakia into the Reich. The basic plan was for Berlin to make ever-greater demands on the Prague government, which it could not fulfill without giving up its own authority over the country. Its supposed non-compliance would then provide the casus belli for military action. Just as with Austria, Hitler thought he could accomplish this without provoking a military reaction from Britain or France.
He was right. Initially, London and Paris blamed the Czechs for the political unrest and leaned on the Prague government to find a peaceful settlement with the Nazis. In May, French and British diplomats pressed the Czechs “to go to the utmost limit” to accommodate German demands.
On May 20, General Keitel sent Hitler the Case Green plan for the military takeover of Czechoslovakia that he had ordered up a month earlier. It presented three options. The first was for an attack without warning that would catch the west by surprise. The second was an invasion after months of diplomatic talks. The third was a “lightning action” following an incident such as an anti-German demonstration in Prague that Berlin would instigate. The Führer favored the third option. Propaganda and economic warfare against the smaller country would also play important roles. At a meeting of his top military and diplomatic leaders Hitler bellowed, “It is my unshakable will that Czechoslovakia shall be wiped off the map.” He ordered his army to be prepared to launch military action against the country no later than October 2. The opening line of the Case Green document that Hitler signed on May 30 read: “It is my unalterable decision to smash Czechoslovakia by military action in the near future.” The new document set the deadline one day earlier, October 1.2
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