With high inflation, soaring 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 of 1970s-style stagflation loom large, another pivotal decade in the continent’s history can help explain today’s economic and political trends: the 1930s.
The decade before World War II was marked by a general climate of fear and anxiety in the West. Economic crises and mass poverty broadened the appeal of right-wing populist parties, and the lasting 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 enjoying a moment in the sun, as citizens voice their resentment over the rising cost of living and bleak economic outlook at the ballot box.
“It’s something that is a bit disturbing and echoes the 1930s. Namely, this widespread disenchantment with what liberal democracies can do,” said Cristina Florea, a historian of Central Europe and Oriental at Cornell University. Fortune.
Europe’s greatest democratic institutions have been able to hold their own, but tougher challenges lie ahead as a growing energy crisis on the continent has driven prices up, and discontent has already begun to spill into the streets and sow divisions between European nations.
“Things could be exacerbated this winter by what is happening in Europe with skyrocketing prices and fuel shortages. It will really test the Europeans,” said Florea. “What lies ahead in the coming months will tell us how far we are prepared to go to support this vision of democracy.”
The strongest resemblance between today and the European economy of the 1930s, according to experts, is the transition from a highly globalized world to one that is rapidly becoming more regionalist.
“The most important similarity is that these are times of de-globalization, to some degree,” said Mark Harrison, emeritus professor of economics and economic historian at the University of Warwick in the UK. Fortune.
In the 1930s, the fallout from the Great Depression created an era of protectionism: a worldwide withdrawal 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 different states have learned is that they need to turn to economic nationalism. That the solution is self-sufficiency and simply breaking ties. A turn against globalization or global connections.
One of the most famous examples was the reversal of British policy in 1931 to discriminate against trade outside the British Empire. The new policy imposed tariffs of up to 100% on goods produced outside the empire, and many items were immediately taxed at a rate of 50%. By comparison, the current average rate of import duties for products entering the United States is 2%, although half of industrial goods are imported duty free.
In the 1930s, rising and established powers including Germany, Japan and the United Kingdom created their self-sufficient trading blocs by imposing strict tariffs on imports from outside their circle, according to Harrison, producing an intense regionalization of trade and a de-globalization of the world economy.
Globalization finally resumed after World War II, led by the United States with the creation of international monetary organizations and global trading standards at the Bretton Woods conference in 1944. But in recent decades the volume of world trade has shrunk and, disrupted by the pandemic and the war in Ukraine, the world could rearrange itself again into a new, more isolationist era.
Populist governments have argued for protectionist economic policies in the US and Europe, and US tariffs on China that have remained in place since the Trump administration. Putin’s invasion of Ukraine only accelerated the shift to a smaller world, with Europe’s dependence on Russian energy becoming a major handicap. Countries sanctioning Russia have seen their exports to the country fall by 60%.
The transition to more regionalized economic activity has also been spurred by the COVID-19 pandemic and the disrupted global supply chains it has created.
Plans are now in place in the United States and Europe to bolster domestic supplies of essential goods that were mainly imported before the pandemic, including semiconductor chips. And ongoing lockdown policies in manufacturing hubs like China have popularized what is known as “nearshoring”, with many US and European companies bringing production home to guard against future supply chain disruptions. ‘supply.
A right turn
In the 1920s, European nations had just emerged bruised and battered from the First World War, the most expensive war in history at the time.
Some countries, like France, had a Roaring Twenties experience similar to the United States, but many others faced poverty and economic decline. In Italy, an industrial and banking collapse led to a protracted economic crisis, while Germany – saddled with crippling debt after victorious nations in World War I demanded reparations – suffered one of the worst cases of hyperinflation in recorded history.
Many European countries remained deeply suspicious of their neighbors in the interwar period, hampering early attempts to create systems of law and order and strong democratic institutions, such as the first unity plans pan-European policy and the failure of the League of Nations, considered a predecessor of the UN
“Efforts for bilateral treaties in the interwar period collapsed because the various states emerging from World War I were truly unable to overcome their distrust of each other,” Florea said.
Far-right and authoritarian regimes have taken advantage of these divisions and the disruption caused by World War I and the Great Depression to flatter voters dissatisfied with the current order and eager for change, according to Florea.
Now, after years of the pandemic and a worsening energy crisis and economic outlook in Europe, experts say a similar turning point could yet occur.
“What we don’t want to see happen again are people who equate economic powerlessness with democracy, which is tantamount to throwing themselves into the arms of these right-wing movements,” Florea said.
Hungary and Poland were ruled by right-wing populist parties for years, but now other countries seem to be following suit. In France, centrist Emmanuel Macron narrowly won a second term as president earlier this year against far-right challenger Marine Le Pen. And last weekend, a far-right coalition was elected in Italy, led by the country’s future first female prime minister, Giorgia Meloni.
Meloni has made rising energy prices a central part of his campaign, saying families and businesses have been ‘brought to their knees’ by rising costs, and criticizing the EU for its energy policies . Viktor Orban, the right-wing Hungarian prime minister, has blamed the EU for high natural gas prices on the continent, recently demanding the lifting of EU sanctions against Russia.
But beyond the individual policies of its leaders, populism poses a greater threat to European unity as the continent prepares to weather an economic downturn, a refugee crisis and continued pressure from Russia.
“People experiencing deep social disruption are seeking safety and are likely to turn to parties that say we’re going to maintain an order that favors ‘ordinary people,'” Harrison said, adding that it’s in times of crisis that populist movements tend to be the most virulent.
“Merchants of distrust always have the opportunity to tell stories about the enemy at home who got us into these dire situations.”
A cold winter
While the current spread of populism during the time of economic crisis in Europe bears some similarities to the 1930s, it is not yet an existential threat to the continent’s democratic institutions.
“Transnational institutions were much shallower 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 keep the nations united against threats like Putin and the Russian invasion of Ukraine.
“Putin has done a wonderful job selling the benefits of Western cooperation, NATO security and economic cooperation. It reminded us that values matter,” Harrison said.
But democratic Europe must still be wary of the fact that things could get worse. With electricity prices already high, a cold winter could tip them over, and several banks have already predicted a major recession in Europe. This could be Putin’s best hope of eroding support for Ukraine, and the accompanying economic crisis would be a welcome opportunity for hopeful outgoing populist leaders to cause a stir among voters.
European households could see their utility bills rise by up to 2 trillion euros next year due to the energy crisis, and fuel shortages and rationing measures could lead to a slowdown or even a complete shutdown industrial capacity in certain sectors. That could lead to a wave of economic slowdown and unemployment, said Mauro Chavez, director of European gas research at energy consultancy Wood Mackenzie. Fortune Last week.
Some European countries like Norway have already angered their neighbors by cutting energy exports, a problem that could become all too common if a cold winter drives up energy demand.
Much will depend on how quickly non-Russian natural gas suppliers can ramp up shipments to Europe, but with protests over the high cost of living already erupting across the continent, it is highly likely that European nations will have to learn to adapt to a new reality. soon, according to Harrison.
“People are generally more adaptable than expected and more adaptable than they themselves realize,” he said. “Europeans are not going to literally freeze this winter. And people will get away with it, often doing things they never expected to do.
“At a time [the energy crisis] offers a huge opportunity for unrest and for far-right politicians to play a blame game,” Harrison added.