Upon the kingdom's establishment soon after World War I, the country suffered from economic decline, budget deficits, and high inflation as a result of the loss of economically important territories under the Treaty of Trianon, including Czechoslovakia, Romania, and Yugoslavia. The land losses of the Treaty of Trianon in 1920 caused Hungary to lose agricultural and industrial areas, making it dependent on exporting products from what agricultural land it had left to maintain its economy. Prime Minister István Bethlen's government dealt with the economic crisis by seeking large foreign loans, which allowed the country achieve monetary stabilization in the early 1920s. He introduced a new currency in 1927, the pengő. Industrial and farm production rose rapidly, and the country benefited from flourishing foreign trade during most of the 1920s. Following the start of the Great Depression in 1929, the prosperity rapidly collapsed in the country, especially in part due to the economic effects of the failure of the Österreichische Creditanstalt bank in Vienna, Austria. From the mid-1930s to the 1940s, after relations improved with Germany, Hungary's economy benefited from trade. The Hungarian economy became dependent on that of Germany.

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