War and Economic Impact
When war breaks out, much of the economic activity in a country or even a region is suddenly shut down. The energy that was formerly used to create wealth and prosperity is now changed to destruction and conflict. This tragedy has been exemplified throughout Europe throughout the centuries. War has played a major role in shaping the economy of Europe, both in the way of immediate destruction and with long-term effects that are still felt in present times. Let’s take a look into Europe’s economic past and explore what war has done to the continent’s economy.
World War I and II Changed Europe’s Economy
The most significant impacts of war on Europe’s economy were seen during the two World Wars in the early part of the twentieth century. World War I, in particular, had far-reaching consequences. As the conflict raged, its effects rippled through the continent. It changed the dynamics of international trade, destroyed factories, disrupted shipping routes and crippled economies. As a result, many of the East European countries that were party to the Austro-Hungarian empire found themselves suddenly broken apart. This resulted in a massive financial burden, as well as a full-scale population displacement.
World War II created a similar degree of economic disruption, but due to its sheer scale and global scope, the effects were even more catastrophic. European countries found themselves on opposing sides of the war, and the financial costs of waging war was high. As a result, many of these countries were left with crippling debt, a rapid inflation of prices, and a severe lack of resources. Even the countries which emerged victorious, such as the United Kingdom and France, were bogged down with debt and struggling with their own economic recovery.
The Destructive Impact of War on a National Scale
On top of the financial cost of waging war, the physical destruction of both war and bombing campaigns left economies in tatters. Homes were destroyed, records were lost, and financial markets were disrupted. This, combined with an almost complete shutdown of trade with other countries, meant that much of the economic activity in the region was severely curtailed. This was especially true in countries such as Germany, which had been on the losing side of the war and experienced some of the most extreme levels of physical and economic destruction.
Furthermore, the displacement of civilian populations caused by war had a severe effect on regional economies. Those who were forced to flee regions due to political or social unrest not only created a burden for economies in accepting countries, but also left entire areas of towns, cities and countryside deserted. This had long-term effects on local industry and trade, as businesses found it difficult to recover from such devastation.
Short and Long-Term Impacts on Business and Industry
The effects of war on businesses and industries have been both immediate and long-term. During the war, production lines were shut down as factories were destroyed, disrupted or converted to produce arms or munitions. Exports, both domestically and internationally, fell drastically due to disrupted trade routes, while prices rose as resources became scarcer. Furthermore, the introduction of rationing and the bureaucratic nature of war-time industries only further stunted economic activity.
The effects of this disruption were felt long after the war ended. Many businesses, particularly in Germany and other parts of Eastern Europe, had to rebuild completely due to the destruction wrought by the war. This often entailed lengthy and expensive reconstruction projects, as well as the adoption of new technical and economic techniques to recuperate from the losses of the previous decades.
Widespread Destruction of Trade Routes
Trade routes, both domestic and international, were seen to have taken huge blows during the wars. Shipping routes connecting East and West Europe were seen to have lost tremendous amounts of trade and commerce due to naval battles, hostile actions and general disruption of sea trade. The direct financial cost of this disruption was monumental, with entire fleets of merchant vessels sunk and long shipping delays causing severe disruption to trade.
Furthermore, the introduction of blockades and tariffs further inhibited trade between countries. This meant that goods and services could no longer be imported, leading to higher prices and shortages in many nations. This also had a huge impact on local industry, as businesses were unable to receive the necessary resources and machinery they needed to survive.
High Levels of Unemployment and Poverty
Not only did war cause prices to rise and resources to become scarce, but it also increased unemployment across the continent. The destruction of industry, disruption of trade and low wages all contributed to an increase in joblessness, especially in the countries that had been on the losing side of the conflict. This unfortunately resulted in the creation of large-scale poverty, as unemployed workers were unable to afford basic goods and services that are essential to a prosperous life.
On top of this, the physical destruction caused by the war meant that many homes and entire cities had to be rebuilt. This process required labour, which naturally created jobs. However, these jobs were often significantly lower paying than before the war, meaning that poverty levels remained high. This situation was further compounded by the lack of resources in the region, leading to a further strain on local businesses and a general lack of investment.
Debt-Fueled Economic Growth
Due to the tremendous levels of destruction caused by the war, European governments found themselves heavily indebted to foreign powers. This was especially true in the case of Germany, which was forced to pay huge reparation costs following the armistice. To counteract these crushing debts, many European countries implemented a wide variety of economic policies.
One of these was the imposition of high tariffs on imports. While this was meant to encourage local industry, it had the effect of deterring foreign investors from investing in the region, which limited economic growth. Furthermore, governments began to borrow heavily from foreign countries in order to pay off their debts, which created a cycle of debt-fueled growth.
The Postwar Surge of Economic Development
The destruction caused by war, though severe, also presented European economies with an opportunity to rebuild and modernize. This included rebuilding the physical infrastructure of the continent, such as roads, railways and bridges. Furthermore, governments began to focus on the development of new technologies to revive manufacturing, create new industries and explore opportunities in trade.
This process was enhanced by the influx of foreign investment that was generated by the destruction of the war. Crucially, this included investments in new forms of industry, such as automobile manufacturing and the chemical industry. This allowed Europe to remain competitive in the global economy, while also giving rise to what we now call the ‘knowledge economy’.
Changes to Governments and Agriculture
The destruction caused by the war had a profound effect on the governments of Europe. In the immediate aftermath, many countries underwent significant political and social reforms. Examples of this included the formation of parliamentary systems in France, the United Kingdom and the Netherlands. Furthermore, in the case of the states that rose from the collapse of the Austro-Hungarian empire, such as Czechoslovakia and Yugoslavia, entirely new governments were formed as part of the process of rebuilding and modernizing.
Agriculture, too, underwent significant changes as a result of the war. This was especially true in Eastern Europe, where the devastation caused by the conflict was the most extreme. In response to the destruction of crops and land, the Soviet governments of the region implemented the ‘collectivization’ of agriculture, which saw vast tracts of farmland owned by collective rather than individual owners. This resulted in increased output, but also with a huge loss of local ownership.
Legacies of War-Torn Economies
The effects of war on Europe’s economy are not limited to the immediate destruction of life and property, but also with long-lasting legacies that still remain today. These legacies include the burden of debt borne by many countries and the slow recovery from physical destruction and interrupted trade routes. Furthermore, the disruption of the regional and global economy, as well as the increasing poverty and unemployment, has created an environment for social and political strife that still remain today.
Clearly, war has had a huge impact on the economy of Europe throughout its history. On one level, it has caused the destruction of real estate and industry, and created a heavy burden of debt which is still seen today. On another level, it has presented an opportunity for economies to rebuild, reform and modernize, as well as the potential to expand globally and become competitive in the international market. No matter what way we look at it, war has had a tremendous effect on Europe’s economy and this will likely remain to be the case for decades to come.
