The correct answer is C. Many European nations were devastated because they had raised taxes and borrowed money to wage war.
One of the most notable long-term effects of this war was the great expansion of governmental powers and responsibilities in France, the United States and the United Kingdom, in order to harness the full potential of the nation, with the creation of new institutions and ministries. New taxes were created and new laws were enacted, all designed to reinforce the war effort, some of which have lasted to this day. In the same way, the war put to the test the state machinery of old administrations very sized and bureaucratic, as was the case of Germany and Austro-Hungary. During the war, the gross domestic product (GDP) increased in three allied countries: the United Kingdom, Italy and the United States, but decreased in France, Russia, the Netherlands (a neutral country) and in the three main central powers. The contraction of GDP in Germany, Russia, France and the Ottoman Empire ranged from a dramatic 30 to 40%.
Beginning in 1919, the United States demanded that the United Kingdom repay the loans, which came in part from the German war reparations, which in turn could pay for US loans to Germany. This circular system collapsed in 1931 and the pending payments stopped being reimbursed; by then, in 1934, the United Kingdom still owed to EE. UU 4400 million dollars, money that never paid.
Areas such as Belgium, Serbia and northern France (in the so-called red zone) were especially damaged and largely destroyed. The cost of reconstruction was estimated at more than 100 billion francs. The hope of the victors over the ability to refinance the costs of the war through the reparations provided by the vanquished proved to be an unrealizable illusion. The United Kingdom went from being the largest creditor in the world to becoming one of the most indebted nations, while the war meant a gigantic inflation for Germany. Europe had lost its global hegemony and had given way to nations like the United States, the new creditor of European countries.
The economic pact of 1916 and the Peace Conference of 1919, held in Paris, imposed the economic blockade on Germany and the subsequent reparations of war. The total direct expenses of the same amounted to 956 billion gold marks, 208 billion attributed to the British Empire, 194 billion to Germany, 134 billion to France, 129 billion to the United States, 106 billion to Russia, 99 000 million to Austria-Hungary and 63 000 million to Italy Most of these expenses were covered by war bonds and the printing of paper money, with the exception of the United Kingdom. In Germany alone, the daily military expenditure amounted to between 60 and 70 million marks in 1916, an expenditure that increased significantly, mainly as a result of the Hindenburg Program. Only a small proportion of these expenditures were financed with tax revenues, and approximately 87% of expenditures were covered by bonds, debt and emissions, which spiked the national debt to DM 145 billion. Economic historian Rondo Cameron estimated the direct costs of the war at between 180,000 and 230,000 million dollars (PPP 1914) and indirect costs, resulting from damage to property, of at least 150,000 million dollars.
