to madness by sneers at Serbian orientalism and by tactless references to their own higher western civilisation. This talk of western civilisation has been greatly overdone. The fact that the Croats belong to the Western Church and the Serbs to the Eastern is a serious bar to consolidation, but the gulf between Serbian civilisation and Croat civilisation is far smaller than the Croats maintain or most foreigners believe. The Croats too should not forget that, while they themselves have had no experience of political administration, the Serbians have been running their own country for more than half a century. Of Belgrade, however, no criticism can be too strong. With a blind eye to all the past lessons of history, the authorities in Belgrade have mishandled the Croats in the most senseless manner, and many foreigners will see in the present impasse a fresh illustration of the ineptitude of the Slavs for self-government.

Nevertheless, although the situation is serious, it is far from hopeless. Many of the mistakes which have been made are the result of inexperience and, with a riper understanding of political compromise, there is no reason why a satisfactory solution to the Serbo-Croat problem should not be found. Apart from the racial tie, which, in spite of the existing differences, is a very real one, Croatia and Slovenia are bound to Serbia by a community of economic interests which are as strong as the economic ties between Scotland and England. There is no other country to which they could attach themselves if they so wished and they are certainly not strong enough to stand alone. In the face of any possible encroachment from outside, the existing union is of supreme importance. There is not a Croat nor a Slovene who would not give his life to defend the Yugoslav State against foreign aggression. Indeed, of all the new States in Central Europe, Yugoslavia is the most natural creation, and Yugoslav unity should therefore be merely a question of time. In many respects the problem presents fewer difficulties than the achievement of German or Italian unity during the last century, and it is infinitely less complicated than the minority problem in either Czechoslovakia or Rumania.

Of the two Succession States which have had to bear the penalty of defeat in the war the plight of Austria is far the more serious. The problem of Austria is to a large degree the problem of Vienna. Not since the destruction of Carthage has there been

so tragic an event in history as the fate of this great city: yesterday the brilliant capital of an empire whose proud motto was "Austriae est imperare orbi universo "; to-day the unwieldy centre of a small republic with a population of less than seven million souls and an area of 87,000 square kilometres, as compared with the fifty million inhabitants and 600,000 square kilometres of the former Habsburg dominions. Stripped by the peace treaty of its richest agricultural provinces, and deprived by an insane system of trade barriers of an outlet for its large industry, Austria in the years immediately following the war suffered an economic collapse which has no parallel in modern history. Complete disaster was avoided by the action of the League of Nations which, in October, 1922, was successful in raising an international loan for the reconstruction of the sorely-stricken Republic.

Since that date Austria has made a remarkable recovery. Not only have the State finances improved, until to-day they can be described as eminently satisfactory, but recently private enterprise has also shown welcome signs of recovery from the depression of the last four years. During 1927 production both in agriculture and in industry showed a substantial increase, while there was also a rise in the export of manufactured articles. The increased prosperity of the country is also reflected in the constant accumulation of savings, and in the steady appreciation of Austrian securities. The bank rate has been steadily reduced, and recently the great Viennese banks have been able to extend their activities to the neighbouring States in a manner which proves that, whatever the political fate of the Austrian capital may be, Vienna will continue to play an all-important part in Central European life as a centre for banking and for the exchange of goods, and as a bridge between east and west.

These favourable portents have induced several French and Czech economists, fearful of the consequences of the Anschluss, i.e. union with Germany, and of the possible realisation of a PanGerman Mittel-Europa, to declare that Austria, even in its present form, is quite capable of supporting an independent economic existence. This belief in the Lebensfaehigkeit of Austria is sustained in a more guarded form by Messrs. Layton and Rist, the distinguished economists who made a study of this problem on behalf of the League of Nations. It is a belief, however, which

is not shared by the vast majority of the Austrian people, who point with some justice to the constant unemployment and to the fact that the modest boom which Austria enjoyed in 1927 was largely due to the influx of American capital into Germany and to the temporarily increased purchasing power of the German public. There is also a vast psychological difference between what outside experts may consider a possible economic existence and what the Austrians themselves may regard as a desirable economic existence. Austria is no longer in the deplorable situation in which she was placed in 1919, nor indeed in any danger of a sudden economic break-down, but the fact remains that to-day the vast majority of her population is in favour of union with Germany.

The situation in Austria is further complicated by the acute political conflict which exists between town and country. The administration of Vienna, which contains nearly one-third of the total population of Austria, is entirely in the hands of the SocialDemocrats. In contrast, the peasants, who compose the vast majority of the population of the provinces, are conservative and almost Fascist in their political views. Both peasants and proletariat have their own secret military organisations, the strength of which is an unknown quantity but which is almost certainly greater than that of the tiny official army which Austria is allowed to maintain for police purposes. The Austrian temperament is far from warlike, but any serious aggravation of the present economic situation might easily provoke a serious clash between these two conflicting forces.

If Austria is the economic sore on the body of the new Central Europe, Hungary, the hammer of the Slavs, is its political cancer. Indeed, so far as co-operation of the Succession States is concerned, Hungary is the square peg in the round hole. Austria, Czechoslovakia, Yugoslavia, and even Rumania are democracies, imperfect in many respects, but still democracies in the sense that the peasant and the workman have full suffrage rights, including the secret ballot, and effectually control the political destiny of their own country. In these States the big land-owner has been dispossessed and his land divided up among the peasants; except Austria, none of these States has an aristocracy of its own nationality. Hungary, on the other hand, is still governed-and in many respects admirably governed-by an extremely conservative aristocracy with feudal traditions. A partial measure

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of land reform has been carried out since the war, but approximately fifty per cent. of the rich agricultural plains of Hungary is still in the hands of the big land-owner and the squirearchy. The Hungarians are a proud, virile, martial race, very hospitable and warm-hearted, quick to anger, but generously responsive to any sentimental appeal. Democracy has never been allowed to take root in their soil and, although their aristocracy has developed a high standard of culture and has long been under the influence of western civilisation, the traces of oriental origin have never been entirely obliterated. As a race the Hungarians are imbued with a deep hatred and contempt for the Slavs and, more than any other factor, Hungarian intransigence on the Slav question has been responsible for the destruction of the Austro-Hungarian monarchy.

To-day, this hate has been gravely augmented by a peace treaty which, by a strange irony of fate, has forced Hungary, formerly the most relentless oppressor of minorities, to appeal to the world on behalf of her own Hungarian minorities in Czechoslovakia, Rumania and Yugoslavia. The Treaty of Trianon deprived the Magyar kingdom of 70 per cent. of its former territories and 64 per cent. of its former inhabitants. Pre-war Hungary had twenty million inhabitants, of whom twelve and a-half millions were subject races. These have now been liberated, but in the process three and a-half million Hungarians have been incorporated in the neighbouring States. This injustice has given Hungary a prima facie case for revision of the Treaty of Trianon, but it may be doubted whether the vast wave of irredentism which has swept the whole country aims so much at the establishment of strictly ethnographical frontiers as at the restoration of the pre-war Hungary. The Hungarians have learnt very little from the war, and the principle of "aut Cæsar aut nihil " is widely held amongst the upper classes. By their thinlydisguised contempt for their neighbours the Hungarians have naturally created an atmosphere of mistrust amongst the Czechs, the Rumanians, and the Yugoslavs, which in turn has led to the creation of the Little Entente, an alliance aimed principally against Hungary. It is this atmosphere which to-day is the chief hindrance to a peaceful settlement of the Central European problem and which militates so strongly against the all-important work of economic reconstruction. Although Hungary and

Czechoslovakia are the natural economic complements of each other, Hungary being an agricultural, and Czechoslovakia primarily an industrial country, hate and suspicion have raised prohibitive barriers between the two States, so that at the present moment Central Europe presents the picture of an agricultural country like Hungary building up a heavily-protected textile industry and forcing the Czechs to set up new spindles and new factories in Hungary, while the Czechs in retaliation have set up a large milling industry by imposing heavy duties on Hungarian flour. By a process of reductio ad absurdum it is easy to see to what ruin this state of affairs must lead if it be allowed to continue.

Apart from the extremely serious question of her relations with her neighbours, Hungary has made a truly remarkable effort since the war to reconstruct her internal life. After a period of acute economic distress, accompanied by a currency inflation similar to that which took place in Austria, Hungary was forced to seek the aid of the League of Nations in order to save herself from bankruptcy and economic chaos. The League of Nations' reconstruction plan was inaugurated in June, 1924, and since that date Hungary has never looked back. Not only have the State finances been established on a thoroughly satisfactory basis, but the reconstruction of private enterprise has also made great strides. The budget of 1927 closed with a surplus of over 100,000,000 pengoes, and the government was able to make reductions in taxation. The increased prosperity of the country is further revealed by the very substantial increase in deposits in the leading banks and by the large reduction in the number of bankruptcies; the soundness of Hungarian credit is reflected in the influx of more than 40,000,000 dollars of foreign capital, and in the high standing of Hungarian government loans in London and New York.

When one bears in mind the tremendous disruption to which the economic life of Hungary was subjected by the peace treaty, this recovery is one of the most remarkable efforts in the history of post-war Europe and affords a striking proof of the energy and virility of the Hungarian people. Under the wise guidance of Count Bethlen the country has enjoyed not only a beneficial continuity of government, but also complete political tranquillity. With the improvement in the economic situation has not unnaturally come a recrudescence of political ambitions, and to-day