Effect of Great Depression in Europe

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 the
economic slump in each country were slightly different. This
chapter discusses the causes and impact that the Great
Depression had on three prominent European countries: Britain,
Germany and France.
Post-war Europe
Some historians and economists believe that since the crash of
the Wall Street Stock Exchange is considered as the official
beginning of the Great Depression, the crash caused the
Depression. Long before 1929, however, countries in Europe
were struggling with their failing economies and high
unemployment rates.
Unlike the United States, which did not enter World War I until one
year before it ended, the close geographical proximity to the war
front prevented European countries from being anything other
than heavily involved in the war from the beginning. Many
European nations did not escape with the comparatively minor
casualties and financial losses of the United States. These
European countries poured all of their economic resources into
the war effort. Nations such as Britain and France even borrowed
money from the United States to finance the purchase of

weapons. In the years which followed the end of the war, many
European nations found themselves with large war expense
debts.
Britain
After the war ended, Britain found herself in an unfamiliar position
- second to the United States as the most powerful player in the
world economy. The preoccupation of military matters among
European nations enabled the United States (and Japan) to begin
to expand their industrial exports. It was not long before Britain
was edged from her position at the forefront of the world market.
Even after the war was over, industries (including steel and
shipbuilding) which had been the core of British export trade
struggled to survive without the military to create a demand for
goods. Cut-backs in production resulted in mass unemployment.
By 1921, two million workers in Britain's industrial centers were
unemployed. To protect their own industries Britain, along with
other countries, began to raise tariffs on foreign imports. This,
however, only decreased international trade and pushed the
country further into the Depression.
In an attempt to restore the economy, 1925 Britain returned to
the Gold Standard(method fixing the value of currency to an
amount of gold) at the pre-war exchange rate. Inflation during the
war, however, resulted in the Pound Sterling becoming
overvalued currency (currency which is too high in relation to
currencies of other countries). This meant that British exports
were more expensive on world markets, thus discouraging foreign
countries from importing Britain's goods.
Some argue that the Gold Standard contributed to the collapse of
world trade. They believe that once Britain abandoned the Gold
Standard in September 1931 (followed by a number of other
nations) British exports were able to enjoy greater competition on
world markets. There are others, however, who believe the

reverse. It has been suggested that without a fixed and
predictable method to determine how many US dollars, for
example, were equivalent to British pounds, international trade
suffered.
Since Britain was no longer the world's banker, having lost much
of her foreign investment, and was unable to rely on her exports,
restoring the economy was not going to be a simple undertaking.
To worsen the situation, Britain and a number of other Allied
nations were dependent upon reparations (compensation for war
damages) from Germany to cover their debt repayments to the
United States. Germany, however, could not afford to pay these
reparations, which often resulted in default (failure to make
payments).
Eventually, the grip of the Depression began to loosen on Britain.
It was upon the outbreak of World War II in 1939, however, that
Britain was able to fully free herself. Unemployment dropped as
workers were organized into preparing the country for war.
Germany
In accordance with the peace treaties which were secured at the
1919 Paris Peace Conference, Germany and her former allies
were required to pay reparations to the Allied nations. Aside from
having incurred massive costs during the war, Germany had
territory (containing natural resources which had previously
served as a significant source of income) seized from her under
the same peace treaties. Germany could not afford to pay the
expected sum of 6.6 billion. After paying her first instalment of 2
billion, Germany defaulted on the second payment the following
year. In 1923, refusing to accept that Germany could not meet her
financial obligations, the French invaded the Ruhr Valley
(Germany's richest industrial area).
In an attempt to alleviate the pressure on the German economy,

more money was printed. Inflation (rising prices) quickly
escalated to epic proportions, resulting in people's money
becoming worthless. During this time, Germans even used paper
money to light the fire in their stoves. Between 1918 and
November 1923, a loaf of bread which had previously cost two
thirds of a mark (German currency) had risen to cost 201 billion
marks. (Refer to Topic 6: Germany, Chapter 2: Hyperinflation and
Stresemann).
For these reasons, in addition to the United States withdrawing
her loans to Germany following the 1929 crash on Wall Street,
Germany was the first country to sink under the weight of the
Great Depression. As factories and businesses closed, by 1931
over 5 million Germans were unemployed. Despite being one of
the countries hardest hit by the Depression, Germany was also
the first nation to escape the worst of the Depression. It was,
however, a by-product. Adolf Hitler's actions were primarily
intended to serve a military purpose, rather than an economic
one. By 1936 Hitler had almost eliminated unemployment by
increasing government spending, particularly through the
manufacture of machinery and armaments in preparation for war.
This increase in spending was the complete opposite to the
prevailing strategies of the time.
France
Despite France suffering severe destruction during World War I,
she made considerable attempts to restore her pre-war economy.
Since it was not a country as heavily dependent on trade, France
was not immediately affected by the Depression like many other
European nations.
It was not until around 1932-1933 that France was crushed by the
Depression. The severity of the Depression, however, was no less
than in other countries. For much of the 1930s France was faced
with an overvalued currency and political unrest, which was

indicated by the 6 February 1934 riots in Paris.

Effect of Great Depression in Europe

Uploaded by

Copyright:

Available Formats

Effect of Great Depression in Europe

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Effect of Great Depression in Europe

Uploaded by

Copyright:

Available Formats

EFFECT OF GREAT

money from the United States to finance the purchase of

world markets. There are others, however, who believe the

In an attempt to alleviate the pressure on the German economy,

with an overvalued currency and political unrest, which was

You might also like