World War One put an end to the prosperity. The ethnic problems of the Habsburg monarchy became an ace in the hands of its rivals, the Entente powers, which gave shelter to the emigrant national councils of the minorities and recognized them as their allies. In the autumn of 1918, with the military collapse of the German-Austrian-Hungarian military alliance this elicited a threat to the territorial integrity of historic Hungary: Transylvania was demanded by Romania, the Southern counties by the then forming Yugoslav state, and Upper Hungary by the Czechoslovak state.
At this critical juncture a revolution broke out in Budapest in October 1918. A republic was proclaimed, headed by Count Mihály Károlyi. The trauma caused by the defeat, the disruption of the economy, and the attack by the small Entente countries, however, could not be offset by the then started democratic social reform. The discontent of the masses was fomented further by Bolshevik agitators freshly trained and just back from Russian prison camps. Mihály Károlyi found himself in an impossible situation, and finally handed over power in March 1919 to the Communist Hungarian Republic of Councils headed by the Bolshevik Béla Kun. During its short-lived three month rule the Republic of Councils aimed to implement its social programs through nationalization and revolutionary terror, while continuing its struggle for the territorial integrity of the country. Its collapse was elicited by Czech and Romanian intervention rather than the counterrevolution organized under Miklós Horthy.
With the short Romanian occupation, and the white terror that replaced the red terror over, a national assembly was convened as a result of elections, which formally restored the kingdom and elected Miklós Horthy as regent. In June 1920 the new regime signed the terms dictated by the victorious great powers in the Trianon (Versailles) Peace Treaty, a move which represented the de facto acknowledgment of the dissolution of historical Hungary.
The Hungary of the Austro-Hungarian Monarchy, with its nationality problems and political conservatism, were things of the past, but the new order sanctioned by the Versailles peace system did nothing to resolve the ethnic tensions in the region, while dissolving a well operating economic and cultural unit which had played a major role in the European balance of power.
The equitable principle of national self-determination as specified in the Trianon Peace Treaty was unilaterally applied to the detriment of
Hungary. Hungary lost two-thirds of its original territory, and more than half of its population. As opposed to its new neighbors, Hungary became a virtually homogenous nation state, while one-third of the Hungarian population, in total more than three million Hungarians, became an ethnic minority in several neighboring successor states. This not only determined the prospects for an already disrupted national economy, but also the political future: no political factor aspiring for domestic success could renounce revisionist claims in the era between the two world wars.
Reforms introduced by the deeply conservative Horthy regime - which retained essential parliamentary elements - did little to modernize the backward social structure. Some particularly outstanding politicians - Pál Teleki, István Bethlen - thanks to their personal proficiency managed to achieve domestic consolidation, slight economic growth, a breakthrough in foreign policy isolation, and the faint hope of a partial peaceful revision by the late 1920s. On the threshold of the 1930s, however, the world economic depression restricted Hungary's opportunities. The recession concluded the process started by the Versailles peace process, with the break-up of the economic, social and cultural unity of the Danube states: by encouraging national seclusion it aided political extremists, and in the resulting power vacuum it facilitated the penetration of those major powers interested in the region. As for Hungary which blamed Trianon for its difficulties and yearned for a revision of the Treaty, this meant closer ties with Germany and Italy.
Hungary's reward for joining the Axis powers was to have the Hungarian-inhabited areas in Czechoslovakia and Romania re-annexed after the start of Nazi aggression /1938-1940/. Those favors, however, prevented it from staying out of World War II, and from rejecting in 1941 its involvement in the invasion of Yugoslavia. The Hungarian government showed more readiness in the war against the Soviet Union while, particularly after suffering massive defeats on the eastern front, the traditional elite which had harbored mixed feelings about the Nazi movement, sought an agreement with the Western powers. On learning about the true feelings of this "involuntary satellite" German troops occupied the country on March 19, 1944. After manipulating a puppet government to carry out the mass deportation of the overwhelming majority of the Hungarian Jewry it foiled Horthy's attempt to quit the war, and unleashed a rule of terror by the Hungarian Nazis, the Arrow Cross. Meantime the Red Army was surging ahead and the entire country was transformed into a military theater by the spring of 1945, as a result of total defeat, the old system and state sovereignty itself collapsed: a million-strong army was stationed in the shattered country. Its leaders made promises to guarantee self-rule - although as became known later on the 1945 Yalta conference grouping the great powers had already decided among themselves that Hungary, together with its neighbors, would belong to the Soviet sphere of influence...
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