With high inflation, rising energy prices and slowing economic growth, many economists have drawn comparisons between today’s European economy and that of the oil crisis of the 1970s.
But while concerns about 1970s-style stagflation are important, another key decade in the continent’s history can help explain current economic and political trends: the 1930s.
The decade leading up to World War II was marked by a general climate of fear and anxiety in the West. Economic crises and mass poverty widened the appeal of right-wing populist parties, and the lingering trauma of World War I, combined with the Great Depression, fueled isolationism and nationalist foreign policies.
Today, after the pandemic and the war in Ukraine disrupted global supply chains, countries are turning away from globalization and looking inward again. And European populism is having a moment in the sun as citizens take their resentment of the rising cost of living and bleak economic outlook to the polls.
“This is something that is a bit worrying and echoes the 1930s. That is, this widespread disenchantment with what liberal democracies can do,” said Cristina Florea, a historian of Central and Eastern Europe at the University of Cornell. the fortune.
Europe’s biggest democratic institutions have managed to hold their own, but tougher challenges lie ahead as a growing energy crisis on the continent has sent prices soaring, and discontent has already begun to spill into the streets and sow divisions between European nations.
“Things could get worse this winter because of what’s going on in Europe with prices going through the roof and fuel shortages. It’s really going to test the Europeans,” Florea said. “What comes in the coming months will tell us how far we are willing to go to support this vision of democracy.”
Times of deglobalization
According to experts, the biggest similarity between today’s economy and the European economy of the 1930s is the transition from a highly globalized world to one that is rapidly becoming more regionalist.
“The biggest similarity is that these are times, to some extent, of deglobalization,” said Mark Harrison, emeritus professor of economics and economic historian at the University of Warwick in the United Kingdom. the fortune.
In the 1930s, the aftermath of the Great Depression created an era of protectionism: a worldwide retreat from international trade, with countries in Europe, Asia and the Americas creating their own small trading circles.
“The depression just sent one state after another into an economic abyss,” Florea said. “The lesson that the different states took from this was that it is necessary to turn towards economic nationalism. That the solution is autarky and just break ties. A turn against globalization or global connections”.
One of the most famous examples was Britain’s policy reversal in 1931 to discriminate against trade from outside the British Empire. The new policy imposed tariffs of up to 100% on goods manufactured outside the empire, and many items were immediately taxed at a rate of 50%. By comparison, the current average import tariff rate for products arriving in the US is 2%, even though half of all manufactured goods are imported duty-free.
In the 1930s, emerging and established powers such as Germany, Japan, and the United Kingdom created their own self-sufficient trading blocs by imposing heavy tariffs on imports from outside their circle, according to Harrison, producing intense regionalization of trade and deglobalization of the world economy.
Globalization resumed after World War II, led by the United States with the creation of international monetary organizations and global trade rules at the Bretton Woods Conference in 1944. But in recent decades, the volume of global trade has has been decreasing, and with the economic evolution. The disruptions caused by the pandemic and the war in Ukraine, the world could be rearranging itself again into a new, more isolationist era.
Populist governments have championed protectionist economic policies in the US and Europe, and US tariffs on China that have been in place since the Trump administration. Putin’s invasion of Ukraine only accelerated the shift to a smaller world, with European dependence on Russian energy becoming a major liability. Countries that sanction Russia have seen exports to the country drop by 60%.
Shifts toward more regionalized economic activity have also been spurred by the COVID-19 pandemic and the disrupted global supply chains it has created.
There are now plans in the US and Europe to bolster domestic supplies of critical commodities that were mostly imported before the pandemic, including semiconductor chips. And ongoing lockdown policies in manufacturing hubs like China have popularized so-called “nearshoring,” with many U.S. and European companies bringing production back home to protect against future supply chain disruptions.
A right turn
In the 1920s, European nations had just emerged bruised and battered from World War I, the costliest war in history at the time.
Some countries, such as France, had a Roaring Twenties experience similar to that of the US, but many others faced poverty and economic decline. In Italy, an industrial and banking collapse led to a prolonged economic crisis, while Germany, saddled with overwhelming debt after the victorious nations of World War I demanded reparations, experienced one of the worst cases of hyperinflation in history .
Many European countries remained deeply distrustful of their neighbors during the interwar years, which hampered early attempts to create robust international law and order systems and democratic institutions such as early plans for pan-European political unity and failed League of Nations, considered a predecessor of the UN
“Bilateral treaty efforts in the interwar years collapsed because the various states emerging from World War I were really unable to overcome their suspicion,” Florea said.
Far-right and authoritarian regimes were able to seize upon these divisions, and the disruptions caused by World War I and the Great Depression, to appease voters dissatisfied with the current order and eager for change, according to Florea.
Today, after years of the pandemic and a worsening energy crisis and economic outlook in Europe, experts say a similar turn could yet happen.
“What we don’t want to happen again is people equating economic powerlessness with democracy, which is like running into these right-wing movements,” Florea said.
Hungary and Poland have been led by right-wing populist parties for years, but other countries now appear to be following suit. In France, centrist Emmanuel Macron won a second term as president earlier this year against far-right rival Marine Le Pen. And just last weekend a far-right coalition was elected in Italy, led by the country’s future first lady, Giorgia Meloni.
Meloni made rising energy prices a central part of his campaign, saying families and businesses have been “brought to their knees” by rising costs, and criticized the EU for its energy policies. Viktor Orban, Hungary’s right-wing prime minister, has blamed the EU for the continent’s high natural gas prices, and recently called for European sanctions on Russia to be lifted.
But apart from the individual policies of its leaders, populism poses a greater threat to European unity as the continent prepares to deal with an economic recession, a refugee crisis and ongoing pressure from Russia.
“People who are experiencing deep social disruptions are looking for security and are likely to turn to parties that say we will maintain an order that favors ‘ordinary people,'” Harrison said, adding that it is in times of crisis that populist movements tend to be the most vocal.
“There is always room for mistrust peddlers to tell stories about the enemy at home that has led us to these disaster situations.”
A cold winter
Although the current spread of populism during Europe’s time of economic crisis bears some similarities to that of the 1930s, it is not yet an existential threat to the continent’s democratic institutions.
“Transnational institutions were much more superficial than they are now,” Harrison said. European democracy in general is much stronger and more resilient now than it was in the 1930s, and so far, the EU has been able to hold the nations together against threats like Putin and Russia’s invasion of Ukraine.
“Putin has done an extraordinary job of selling the benefits of Western cooperation, NATO security and economic cooperation. He has reminded us that values matter,” Harrison said.
But democratic Europe should still be wary that things could get much worse. With electricity prices already high, a cold winter could push them to the limit, and several banks have already predicted a major recession in Europe. It could be Putin’s best hope to erode support in Ukraine, and the accompanying economic crisis would be a welcome opportunity for incumbents and hopeful populist leaders alike to make a splash among voters.
European households could see their utility bills rise by up to €2 trillion next year due to the energy crisis, and fuel shortages and rationing measures could lead to a slowdown in industrial capacity or even close completely in certain sectors. That could trigger a wave of economic slowdown and unemployment, said Mauro Chavez, director of European gas research at energy consultancy Wood Mackenzie. the fortune last week.
Some European nations such as Norway have already angered their neighbors by cutting energy exports, a problem that could become all too common if a cold winter increases energy demand.
Much will depend on how quickly non-Russian natural gas suppliers can increase shipments to Europe, but with protests against the high costs of living already erupting across the continent, it is highly likely that the European nations must learn to adapt to a new reality. soon, according to Harrison.
“People are generally more adaptable than anticipated and more adaptable than they themselves expect,” he said. “Europeans are not going to freeze this winter in a literal sense. And people are going to get by, often doing things they didn’t expect to see themselves doing.”
“At the same time [the energy crisis] it gives a lot of scope to create trouble and for far-right politicians to play a blame game,” Harrison added.
