The Great Depression, while triggered by events in the United States, quickly spread worldwide. This was due to the interconnectedness of global economies. Europe was particularly vulnerable, still suffering the aftereffects of World War I. Germany, especially, had experienced runaway inflation in the 1920s due to excessive money printing, increasing their economic hardship.
When the American stock market crashed, US banks tried to recover their losses by demanding repayment of loans made to European countries. These demands further destabilized European economies. To make matters worse, the US raised taxes on imported goods, prompting other nations to do the same. These increased trade barriers deeply worsened the Depression’s impact across the globe. The result in Europe was particularly devastating, contributing to social unrest, the rise of extremist politics, and ultimately setting the stage for World War II.
Europe After World War I: Setting the Stage
Unlike American history lessons, the Great Depression wasn’t purely caused by the stock market crash. It was a combination of factors. Most people didn’t own much stock, so the crash itself had limited impact on them. However, underlying economic weaknesses turned the crash into a wave of bankruptcies, panic, and a steep decline in production and trade.
Europe was hit harder than the US because World War I had left it economically weakened, especially Germany. Germany lost the war and faced harsh penalties along with internal political chaos. France also struggled with widespread damage from the war. Britain, though victorious, was deeply in debt. The Russian Revolution added to the widespread fear that unrest might spread, further harming European economies that were already on shaky ground.
The Problem of War Debts
During World War I, the US loaned billions of dollars to its allies, mainly Britain and France. After the war, these countries had to repay the US while trying to rebuild their own nations. Germany, crippled by penalties from the Treaty of Versailles, couldn’t repay its debts. All this financial instability was a major factor in Europe’s vulnerability.
Germany found itself trapped in an extreme economic crisis. After the war, the government printed vast amounts of money to pay its debts. This led to hyperinflation – prices spiraling out of control, some doubling within days. People had to spend their money the moment they received it, or its value would quickly vanish. This caused widespread hardship and anger, fueling support for extremist political movements like the Nazi party.
How the US Financial Crisis Spread to Europe
The 1929 US stock market crash happened when Europe’s economy was much stronger than earlier in the decade. However, this recovery relied heavily on loans from American banks. When the crash led to a US recession, these banks demanded immediate repayment of their European loans. This caused a collapse of the German financial system, which had been heavily funded by US loans.
German banks, now in trouble, couldn’t repay their loans to banks in France or Britain. By 1934, Germany, France, and Britain weren’t able to repay their US loans. Germany’s crisis hurt smaller British banks more deeply than larger American banks and essentially stopped lending altogether. Without international cooperation to restore the flow of money, a solution common today, Europe’s financial systems largely came to a halt.
The Smoot-Hawley Tariff Backfires
Europe was also hurt by a US attempt to raise money during the early Depression by increasing taxes on imported goods (tariffs). These taxes began rising in 1928 to help US farmers struggling due to competition from recovering European farms.
In 1930, the Smoot-Hawley Tariff Act significantly raised these taxes. Instead of helping the US, it led to other countries raising their own tariffs in retaliation. Soon, European nations even reduced trade among themselves.
International trade decreased massively between 1929 and 1934 when the US reversed this tariff policy. The Smoot-Hawley tariffs worsened the Great Depression on both sides of the Atlantic by reducing income from trade. Britain focused instead on trade within its colonies, like India.
Ironically, countries like France, Italy, and Spain, devastated by World War I, were less affected by the trade decrease. Their focus on rebuilding after the war meant they were less dependent on imports.
Economic Hardship and the Rise of Fascism
Across Europe, the economic turmoil of the 1920s and 1930s fueled the rise of fascist movements. Leaders like Benito Mussolini in Italy and Francisco Franco in Spain rose to power by promising economic solutions during times of desperation. In Germany, the disastrous impact of the Great Depression made the Nazi Party, led by Adolf Hitler, increasingly popular.
Italy was the first European nation to succumb to fascism, with Mussolini taking power in the 1920s. Spain followed a similar path after economic problems led to political instability and eventually the Spanish Civil War (1936-39). The war’s end saw Spain under the control of the fascist-backed Nationalist forces.
In Germany, the economic fallout from hyperinflation in the 1920s and the crushing weight of the Great Depression made people desperate for change. Under the leadership of Adolf Hitler, the Nazi Party promised radical solutions, gaining widespread support.
Global Effects
Hitler’s growing power worried many, but few nations were willing to challenge his aggressive actions. Britain and France, still struggling with their own economic problems, were hesitant to risk another war. They pursued a policy of appeasement, allowing Hitler to violate the terms of the Treaty of Versailles which had ended World War I.
The Great Depression had a devastating effect across Europe. Unemployment soared, and industrial production plummeted. Worst hit were countries like Germany and Austria. Initially, governments reacted by cutting spending and raising taxes, which only deepened the crisis.
Economist John Maynard Keynes challenged this approach. He argued that governments should actively stimulate their economies during recessions by investing in infrastructure, even if it meant running a deficit. This “Keynesian” idea gained influence, including among leaders like Roosevelt in the US and even Hitler in Germany.
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Foreign Policy Effects of the Depression in Europe
The impact of the Great Depression on European foreign policy was significant. During the 1930s, leaders like Benito Mussolini and Adolf Hitler withdrew their countries from the League of Nations. This move was influenced by the economic challenges faced by European nations at the time, which shifted their focus towards economic interests rather than international relations.
The Depression played a crucial role in undermining the effectiveness of the League of Nations, established after World War I to address geopolitical conflicts. Germany exited the League in October 1933, followed by Italy in December 1937. With limited support from major powers like Britain and France, the League lacked the necessary strength to enforce its charter and prevent aggressive actions by fascist regimes.
The inward-looking approach adopted by many European countries during the 1930s allowed dictators such as Mussolini, Hitler, and Franco to consolidate power without facing significant opposition. By the time Britain and France decided to confront Hitler after his invasion of Poland in September 1939, it was too late to prevent a devastating war. The policies of isolationism and appeasement in the 1930s are now viewed as failures that enabled aggressive regimes to rise unchecked.
Furthermore, the German rearmament program conducted illegally during the 1930s helped stimulate the economy but also laid the groundwork for future conflict. This militarization contributed to the escalation of tensions that eventually led to World War II in Europe.
Great Depression’s Effect on World War II in Europe
The economic turmoil of the Great Depression in Europe provided the Nazis with an advantage in 1939, catching their opponents off guard. Germany’s swift defeat of France in just six weeks, culminating in German soldiers marching through Paris, was a shocking turn of events given France’s historical power.
Fortunately, the United States’ economic recovery enabled it to provide quick military aid to Britain through the Lend-Lease Act. This aid, consisting of thousands of tons of weapons and supplies, bolstered Britain’s defenses before Hitler could seriously consider invading the island.
On the Eastern Front, the Depression may have led Soviet leader Joseph Stalin to underestimate Germany’s strength, possibly influencing his decision to enter into a nonaggression pact with Hitler. However, Germany’s betrayal of this pact in 1941 by invading the Soviet Union with its AxisPower allies changed the course of events.
Now allied with Britain against Germany, the Soviet Union also received Lend-Lease assistance from the US, which played a crucial role in saving Moscow in December 1941. The US officially entered the war shortly after, further solidifying the Allied forces against the Axis powers.
