Since the end of the Second World War, there have been major developments in the European countries. Some of the crucial and notable developments are the up come of the Euro. This currency is ever increasing in its rating and has grown to surpass the dollar. Most of the European countries which were seen as battlefields in the war era are now growing in economy at an alarming rate to the United States and also to Russia.
The era that ended in 1973 which was a quarter century after the war has seen the Western European countries grow in the economy at a very high level. There was almost a double increase in the GDP of the two countries. This paper will seek to identify the real causes of the performance in the European economy (Eichengreen, 42-48).
According to some research, the trend was a kind of catching up with the gap that was existent between the United States and Europe. This was mainly due to the trend that existed before the war and the big duration of the depression which lasted for nearly 20 years. Looking at the models of regression which related the “growth rates to per capita GDP”, it can then be explained how the growth rate improved in a certain kind of abnormal acceleration. The rate of growth in the economy was actually over 50% than the normal rate of growth. As a matter of fact the factors that led to the increase in the growth and the closing in on the gap in Europe during this era is a fact that can help more other developing countries to improve in their subsequent economies. The figure below is one example depicting the changes in West Germany.
Apart from the trial of catching up, the countries were involved in high rates of investment. The net rates of the investments were calculated as being approximately double the previous periods during the war era. Countries which invested at different rates would not be compared to the others. There are some reasons though that made the investments by the countries a success (Hall, 123).
Looking at the post war growth plans, there was moderation of the wages and also a growth I exports. Moderation of wages was a factor that led to stimulation in the supply and demand for the investments. In demand, it was in order to make the modes applied in the investment profitable. For supply, there was a need to make the finances for investment available through profits.
The economies of the European markets were open and also the exports had increased in growth in such a way that the investments were directed to the places which would get the greatest profits and contribute most to the economic growth. In such a manner many nations were able to have an advantage comparatively without constraints from the domestic market.
The next issue that made the growth such remarkable was the moderation of wages and the growth of trade. These two issues were achieved during the inter-war period. It is in this period that there was stagnation in exports and also an intensified pressure on wages. In this period, the people that were involved in making of the important decisions in this period of war had subsequently learnt from the disasters that they had gone through. As they learnt from the lessons and got more determined not to repeat the same, there as an intensifying pressure on the need for a better economy as much as it seemed a far fetched idea (Milward, 56).
In this era, the economic growth was boosted by institutions that aimed at reconstructing the economy and an expansion of growth. Due to the commitment of the institutions, there was an aim at solving the coordination problems and commitment difficulties which at certain times could not allow the moderation of wages and expansion of trade at international levels. Domestically, there were some institutions that had to commit themselves towards spreading of information and monitoring which groups complied with the terms in the moderation of wages agreement. Internationally, there were institutions which aimed at creation of programs which would aid in reconstruction and credit the willing governments for the openness principle. Due to the factors mentioned, governments were encouraged to take part in economic reconstruction and exploitation of the comparative benefits in enhancement of profitability and also productivity through increased investment.
Some countries however failed to develop the said institutions. Such countries were like Ireland and the UK. Italy and France were able to develop the institutions though it took them some time. France was so late in involving its domestic capacity with the international sector thus not being able to rightfully exploit the opportunities that came with the sectors. Due to such variations in reactions by various countries, there was a variation in performance between the countries.
At the end of the day, there was a difference in response from the institutions where some were able to show considerable force. The main function of the institutions was to serve as mechanisms which would be used to coordinate the economic growth. The main institutions would act modes of operation between the various groups n a way that would help them to lock them into sustainable operation. The circumstances that ensued in the period after the war and during the period of reconstruction were a way that helped the countries in coordination and subsequent improvement in the economy.
Conforming of the government to the market
For there to be increase in financial stability, it was required that the governments had some free playing ground for the forces in the market. Due to this circumstance, there was a “Marshall plan” from the US that tried to put the countries in the western European countries in constraint. In this plan, the participants were required to sign a “bilateral pact” with the USA. In this pact the countries were obliged to balance their budgets, get back the stability financially and have stable and realistic exchange rates. This gave most of the politicians in the Western Europe a time to decide on how they would maneuver (Maier, 328).
Looking at the conditions that led to the vehement increase in the economy of the Western European countries after the war period, it is clear that the governments had suffered a major setback after the war period. This is clear from the fact that there was a subsequent signing of the “Maastricht Treaty” which led to the inception of the Euro into the European economy justifies the commitment of the countries which eventually led to the turn around immediately after the Second World War.
Eichengreen, Barry ed. (1995), Europe’s Postwar Recovery, Cambridge: Cambridge University Press.
Hall, Peter. ed., (1989), The Political Power of Economic Ideas: Keynesianism Across Nations. Princeton: Princeton University Press.
Maier, Charles S. (1981). “The Two Postwar Eras and the Conditions for Stability in Twentieth-Century Western Europe.” American Historical Review 86, pp. 327-52.
Milward, Alan S. (1984). The Reconstruction of Western Europe 1945-51. London: Methuen.