negotiating better terms with United States regarding the large war loans which Britain was obliged to repay. Britain supported the American solution to German reparations through the Dawes Plan and the Young Plan. Thereby, Germany paid its annual reparations using money borrowed from New York banks, and Britain used the money received to pay Washington. The Great Depression starting in 1929 put enormous pressure on the British economy. Britain revived Imperial Preference, which meant low tariffs within the British Empire and higher barriers to trade with outside countries. The flow of money from New York dried up, and the system of reparations and payment of debt died in 1931. In domestic British politics, the emerging Labour Party had a distinctive and suspicious foreign policy based on pacifism. Its leaders believed that peace was impossible because of capitalism, secret diplomacy, and the trade in armaments. Labour stressed material factors that ignored the psychological memories of the Great War and the highly emotional tensions regarding nationalism and the boundaries of countries. Nevertheless, party leader Ramsay MacDonald devoted much of his attention to European policies. 1930s Vivid memories of the horrors and deaths of the First World War inclined many Britons—and their leaders in all parties—to pacifism in the interwar era. This led directly to the appeasement of dictators (notably of Mussolini and of Hitler) in order to avoid their threats of war. The challenge came from those dictators, first from Benito Mussolini, Duce of Italy, then from Adolf Hitler, Führer of a much more powerful Nazi Germany. The League of Nations proved disappointing to its supporters; it failed to resolve any of the threats posed by the dictators. British policy involved "appeasing" them in the hopes they would be satiated. By 1938 it was clear that war was looming, and that Germany had the world's most powerful military. The final act of appeasement came when Britain and France sacrificed Czechoslovakia to Hitler's demands at the Munich Agreement of September 1938. Instead of satiation, Hitler menaced Poland, and at last Prime Minister Neville Chamberlain dropped appeasement and stood firm in promising to defend Poland (31 March 1939). Hitler however cut a deal with Joseph Stalin to divide Eastern Europe (23 August 1939); when Germany did invade Poland in September 1939, Britain and France declared war, and the British Commonwealth followed London's lead. Second World War Having signed the Anglo-Polish military alliance in August