Global Economic Crisis: From the 1920s to the Great Depression

The 1920s: International Economic Policy

The early postwar years were marked by a lack of international cooperation and the rise of protectionist policies. To address this, the Dawes Plan was adopted to improve the European economy with the following objectives:

• Normalization of the German economy.
• Stabilization of the German currency.
• Regulation of war reparations.
• Provision of American loans for German recovery.

Consequently, Germany introduced a new currency. Meanwhile, the U.S. experienced economic growth through increased production, lower prices, and the development of new industrial sectors. The situation in Europe varied:

• France: Industrial growth.
• United Kingdom: Economic stagnation.
• Germany: Severe crisis followed by recovery until 1925.

The Crisis of 1929

The crisis was driven by an industrial and construction slump, coupled with excessive stock speculation. The stock market rise failed to reflect the real economic situation.

The Stock Market Crash

On "Black Thursday," 13 million shares were offered for sale with no buyers. The following day, millions more shares were put on sale, again with no buyers. Stock market shares lost all their value.

Consequences

In the U.S., the crash led to the destruction of savings, decreased consumption and investment, a collapse of the financial system, and massive industrial bankruptcies resulting in rising unemployment. The crisis spread worldwide as the U.S. repatriated investments, sinking European economies. Furthermore, countries implemented protectionist barriers to international trade.

The Great Depression of the 1930s

• Failure of deflationary policies.
• Increased protectionism and the inability of nations to reach a common agreement to address the crisis.

The Crisis of Democracies

This period saw growing political radicalization and increasing extremism from both the right and the left. Political discontent in Italy and Germany stemmed from the peace agreements of World War I, the economic crisis, and the inability of parliamentary governments to take effective action.

Division of the European Political System

• Western and Northern Europe: Nations with long democratic traditions managed to maintain their institutions.
• Central, Eastern, and Mediterranean Europe: Right-wing dictatorships were imposed.