The Great Depression in Europe

The Great Depression in Europe was caused by the collapse of the U.S. stock market in 1929. It showed just how depended European nations where on the United States for aid.

After WWI Europe was in bad shape, The Great War had lead to major disasters throughout Europe and left the major countries with the task of rebuilding themselves. But rebuilding wasn’t the only item nations needed to concern themselves with.

Due to increase in technological advancements an American worker in 1918 could produce twice as much as a European worker, thus giving the U.S. the ability to sell their manufactured goods for less. European leaders had to not only rebuild their nations to their former glory but had to become competitive with the rest of the western world.

Germany was hit especially hard; this was a country that in addition to rebuilding their own economy was forced to pay the French government 132 Billion Marks ($31.4 billion) for damages it caused on French soil during the First World War. A little eccentric considering this debt would have taken until 1988 to fully repay.

As a result the German economy tanked shortly after the ending of WWI. Hyperinflation also spread across the country. In 1921 64 marks was roughly equal to 1 U.S. dollar. Just two years later in 1923 it took 4.2 trillion marks to equal 1 U.S. dollar.

Dawes Plan

The U.S. on the contrary was booming, industries where growing and new technologies were being created all the time. To help out the European governments the U.S. created the Dawes Plan in 1924 allowing U.S. investors to lend money to foreign countries.

Over the next 5 years U.S. investors lent $7.8 billion dollars to European countries ($4 billion going to Germany) to help their economies grow and successfully postponing the Great Depression in Europe for another decade.

European nations got used to borrowing money from the U.S. to stabilize their own economies. As they did the major European nations slowly started to repair themselves.

Gold Standard

During the recovery 40 nations joined the Gold Standard, some of the major ones including England, France, Italy, and the U.S. It was a system that seemed to make sense, the money was backed by something solid (gold) and it could be easily exchangeable with foreign currencies since they were all backed by the same Commodity.

The gold standard had several drawbacks though, which would make the Great Depression in Europe a much bigger event then it needed to be. In a Fiat System money is not backed by anything other than supply and demand. More money can then theoretically be printed in an emergency without causing inflation.

With the Gold Standard the money is backed by Gold and so therefore the more you print the less it is worth. In other words the only way a government can make money is from their own income sources, taxes, exports, etc.

This works fine in a booming economy, but falls apart when the government is facing an economic danger such as the Great Depression in Europe.

Wall Street 1929

With Black Thursday the U.S. stock market started to collapse. Convinced that the disaster was made worse by the easy access to credit that investors used to buy stocks on margin, the government decided to set a higher interest rate on borrowed money.

As a result, the European economies, which where dependent on U.S. lenders suddenly found themselves out of money. Lenders in European nations thus raised their own interest rates and made it increasingly more difficult for small business owners and farmers to take out a loan.

This was the beginning of the Great Depression in Europe. As Economies fell every major country in Europe issued Tariffs and Quotas on Exported goods. France for instance issued a Quota for 3,000 different foreign products in order to lessen the competition for local companies.

The tariffs had a major affect on countries such as Australia which relied heavily on exports and brought about the Australian Great Depression. By 1933 European trade was only a third of what it was in 1929; the world became a much more divided place.

Individual Countries

The Great Depression in Europe did not affect every country the same way. While every country was affected by the economic disaster, they were all affected to a different degree.

The Great Depression on Britain

Following WWI Britain had become much more dependent on exports, when the global economy collapsed it was one of the first countries to feel the sting. After being the first country to leave the Gold Standard its currency dropped in value causing its exports to be much cheaper overseas and giving them a competitive advantage.

This helped them become one of the first countries to come out of the Depression.

France and the Great Depression

France was probably the least affected by the Great Depression in Europe for two reasons. The first reason was their independent economy. France was less prone to being knocked down by a worldwide disaster because their economy was not tied into the world economic system to an extent that other major countries were at the time.

The second reason was the payments they received from Germany for its “Debt” of $31.4 billion kept the French economy afloat and able to whether out the storm. For the first few years it was considered to be a safe haven from the economic disasters happening everywhere else on the planet.

But in 1931 the French government did feel the disaster and they slipped into their own depression which lasted up until WWII.

The Great Depression in Germany

Germany became the hardest hit, unemployment rose to over 30%. As the country struggled to pay for its debts and to bring itself out of the depression the “Weimar Republic” collapsed and brought rise to the Nazi raceme.

In 1937, Hitler promised to take care of unemployment, lucky for him when he gained power the country was already well on its way to recovery. Still Nazi’s did help produce more jobs and by WWII only 1 million people were unemployed in Germany compared to 6 million in 1937.

End of the Great Depression in Europe

Europe during the great depression was a disaster, but as more and more countries left the Gold Standard and as jobs started to appear the growth became slow and steady. The first country to make a full recovery would be Sweden in 1934.

Britain would also recover early due to it being the first country to leave the Gold Standard. As WWII broke out the war effort brought about new jobs and stimulated economies around the world. The Great Depression in Europe was over, only to give rise to an even greater challenge, WWII.

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