effect of great depression in europe

8/17/2019 Effect of Great Depression in Europe

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EFFECT OF GREAT

DEPRESSION IN EUROPE

INTRODUCTION

The worldwide economic crisis known as the Great Depression

can be traced back to the economic and political problems which

followed World War I. While the Great Depression tended to affect

most countries in a similar way, the factors which caused theeconomic slump in each country were slightly different. This

chapter discusses the causes and impact that the Great

Depression had on three prominent European countries: ritain,

Germany and !rance.

Post-war Europe

"ome historians and economists belie#e that since the crash ofthe Wall "treet "tock E$change is considered as the officialbeginning of the Great Depression, the crash caused theDepression. %ong before &'(', howe#er, countries in Europewere struggling with their failing economies and highunemployment rates.

)nlike the )nited "tates, which did not enter World War I until oneyear before it ended, the close geographical pro$imity to the war

front pre#ented European countries from being anything otherthan hea#ily in#ol#ed in the war from the beginning. *anyEuropean nations did not escape with the comparati#ely minorcasualties and financial losses of the )nited "tates. TheseEuropean countries poured all of their economic resources intothe war effort. +ations such as ritain and !rance e#en borrowed


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money from the )nited "tates to finance the purchase ofweapons. In the years which followed the end of the war, manyEuropean nations found themsel#es with large war e$pensedebts.

Britain

fter the war ended, ritain found herself in an unfamiliar position- second to the )nited "tates as the most powerful player in theworld economy. The preoccupation of military matters amongEuropean nations enabled the )nited "tates and /apan0 to beginto e$pand their industrial e$ports. It was not long before ritainwas edged from her position at the forefront of the world market.

E#en after the war was o#er, industries including steel andshipbuilding0 which had been the core of ritish e$port tradestruggled to sur#i#e without the military to create a demand forgoods. 1ut-backs in production resulted in mass unemployment.y &'(&, two million workers in ritain2s industrial centers wereunemployed. To protect their own industries ritain, along withother countries, began to raise tariffs on foreign imports. This,howe#er, only decreased international trade and pushed the

country further into the Depression.

In an attempt to restore the economy, &'(3 ritain returned tothe Gold Standardmethod fi$ing the #alue of currency to anamount of gold0 at the pre-war e$change rate. Inflation during thewar, howe#er, resulted in the 4ound "terling becomingovervalued currency currency which is too high in relation tocurrencies of other countries0. This meant that ritish e$portswere more e$pensi#e on world markets, thus discouraging foreign

countries from importing ritain2s goods.

"ome argue that the Gold "tandard contributed to the collapse ofworld trade. They belie#e that once ritain abandoned the Gold"tandard in "eptember &'5& followed by a number of othernations0 ritish e$ports were able to en6oy greater competition on


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world markets. There are others, howe#er, who belie#e there#erse. It has been suggested that without a fi$ed andpredictable method to determine how many )" dollars, fore$ample, were e7ui#alent to ritish pounds, international trade

suffered.

"ince ritain was no longer the world2s banker, ha#ing lost muchof her foreign in#estment, and was unable to rely on her e$ports,restoring the economy was not going to be a simple undertaking.To worsen the situation, ritain and a number of other lliednations were dependent upon reparations compensation for wardamages0 from Germany to co#er their debt repayments to the)nited "tates. Germany, howe#er, could not afford to pay thesereparations, which often resulted in default failure to makepayments0.

E#entually, the grip of the Depression began to loosen on ritain.It was upon the outbreak of World War II in &'5', howe#er, thatritain was able to fully free herself. )nemployment dropped asworkers were organi8ed into preparing the country for war.

GermanyIn accordance with the peace treaties which were secured at the&'&' 4aris 4eace 1onference, Germany and her former allieswere re7uired to pay reparations to the llied nations. side fromha#ing incurred massi#e costs during the war, Germany hadterritory containing natural resources which had pre#iouslyser#ed as a significant source of income0 sei8ed from her underthe same peace treaties. Germany could not afford to pay the

e$pected sum of 9. billion. fter paying her first instalment of 9(billion, Germany defaulted on the second payment the followingyear. In &'(5, refusing to accept that Germany could not meet her financial obligations, the !rench in#aded the ;uhr


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In an attempt to alle#iate the pressure on the German economy,more money was printed. Inflation rising prices0 7uicklyescalated to epic proportions, resulting in people2s moneybecoming worthless. During this time, Germans e#en used paper

money to light the fire in their sto#es. etween &'&= and+o#ember &'(5, a loaf of bread which had pre#iously cost twothirds of a mark German currency0 had risen to cost (>& billionmarks. ;efer to Topic : Germany, 1hapter (: ?yperinflation and"tresemann0.

!or these reasons, in addition to the )nited "tates withdrawingher loans to Germany following the &'(' crash on Wall "treet,Germany was the first country to sink under the weight of theGreat Depression. s factories and businesses closed, by &'5&o#er 3 million Germans were unemployed. Despite being one ofthe countries hardest hit by the Depression, Germany was alsothe first nation to escape the worst of the Depression. It was,howe#er, a by-product. dolf ?itler2s actions were primarilyintended to ser#e a military purpose, rather than an economicone. y &'5 ?itler had almost eliminated unemployment byincreasing go#ernment spending, particularly through the

manufacture of machinery and armaments in preparation for war.This increase in spending was the complete opposite to thepre#ailing strategies of the time.

France

Despite !rance suffering se#ere destruction during World War I,she made considerable attempts to restore her pre-war economy."ince it was not a country as hea#ily dependent on trade, !rance

was not immediately affected by the Depression like many otherEuropean nations.

It was not until around &'5(-&'55 that !rance was crushed by theDepression. The se#erity of the Depression, howe#er, was no lessthan in other countries. !or much of the &'5>s !rance was faced


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with an o#er#alued currency and political unrest, which wasindicated by the !ebruary &'5@ riots in 4aris.

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effect of great depression in europe

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