Economic history of Europe
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Interaction and renaissance in the Middle Ages
Technology diffusion in conflict
Conflict between regions, in Viking raids and in Crusader invasions of the Middle East incidentally led to the diffusion of and refinement technology instrumental to overseas travel, from the 8th Century to the 12th Century. People made improvements in ships, particularly the longship. The astrolabe, for navigation, greatly aided long-distance travel over the seas. The improvements in travel in turn increased trade and the diffusion of consumer items.
Crafts and urban growth
From the 11th Century to the 13th Century, farmers and small-scale producers of crafts increasingly met in towns to trade their goods. They met in either seasonal trade fairs or they traded in an ongoing basis. Craft associations called guilds fostered the development of skills and the local growth of trade in particular goods. Over the course of the centuries of this period towns grew in size and number, first in a core in England, Flanders, France, Germany and northern Italy.
The economic system of this era was merchant capitalism. The core of this system was in merchant houses, backed by financiers acting as intermediaries between simple commodity producers. This system continued until it was supplanted by industrial capitalism in the 18th Century.
Economic renaissance in late middle ages
Economic activity over a broad geographic range began to intensify in both northern and southern Europe in the 13th Century. In cities linked to the North Sea and the Baltic Sea a trade monopoly developed in the Hanseatic League. This facilitated the growth of trade among cities in close proximity to these two seas.
Trade flourished also in Italy (albeit not united, but rather ruled by different princes in different city-states), particularly by the 13th Century. Leading the trade in Mediterranean Europe were traders from the port cities of Genoa and Venice. The wealth generated in Italy fueled the Italian Renaissance.
The Hanseatic League was an alliance of North German and Baltic cities during the Middle Ages. The Hanseatic League was founded for the purpose of joining forces for promoting mercantile interests, defensive strength and political influence. By the 14th century, the Hanseatic League held a near-monopoly on trade in the Baltic, especially with Novgorod and Scandinavia.
The Industrial Revolution brought factories to Europe, especially England and Scotland, 1750s to 1830s. France and the U.S. experienced its industrial revolution in the early 19th century; Germany in the 19th century; and to Russia in the mid 20th century.
In Britain, the Industrial Revolution was a period of economic transformation from the 1750s to the 1830s, characterized by the growth of a new system comprising factories, railroads, coal mining and business enterprises using new technologies that it sponsored. The new system operated first on textiles, then spread to other sectors and by the mid 19th century totally transformed the British economy and society, setting up sustained growth; it spread to parts of America and Europe and modernized the world economy. Although localized to certain parts of Britain (the London area was not included), its impact was felt worldwide on migration and trade, society and politics, on cities and countryside, and affected the remotest areas. The growth rate in the British GDP was 1.5% per year (1770-1815), doubling to 3.0% (1815-1831).
Success in building larger, more efficient steam engines after 1790 meant that the cost of energy fell steadily. Entrepreneurs found uses for stationary engines in turning the machines in a factory or the pumps at a mine, while mobile engines were put into locomotives and ships (where they turned paddles or, later, propellers). The use of water power was growing too, so that in 1830 steam mills and water mills were about equal (at 165,000 horsepower each); by 1879 Britain obtained 2.1 million horsepower from steam engines, and 230,000 from water.
see History of rail transport The growth of industry soon brought to light the need for a better system of transportation. While canals and roads did improve, they were soon overshadowed by a means of transportation that held great promise: the railroads. The railroads may have been that most important factor of the industrial revolution. Railways had existed as early as 1500, but in 1700s the primitive wooden rails were replaced with wrought iron. These new rails enabled horses to pull even heavier loads with relative ease. But dependence on horsepower did not last for long. In 1804 the first steam-powered locomotive pulled 10 tons of ore and 70 people at 5 miles per hour. This new technology improved dramatically; locomotives soon reached speeds of 50 miles per hour. While the railroads revolutionized transportation, they further contributed to the growth of the industrial revolution by causing a great increase in the demand for iron and coal.
Iron and steel
Throughout the Middle Ages iron was smelted using charcoal, however in the eighteenth century, new methods of iron production were discovered; the resulting iron was of higher quality than ever before. These advances, such as the process developed by Henry Cort in 1780’s, greatly encouraged the use of machinery in other industries.
Iron was so durable that it became the preferred metal for tools and equipment until displaced by steel after 1860. Britain had iron ores but lacked a process to produce iron in quantity until in 1760 John Smeaton invented a blast furnace that could smelt iron both quickly and cheaply. His invention used an air-blast produced by a fan run by a waterwheel. In 1783 Henry Cort introduced the puddling, or reverberatory furnace, in which the final product was a pasty solid instead of a liquid. It was rolled into balls, squeezed and rolled to eliminate the impurities, or slag. The result was malleable iron in large quantities. The greatest of the early ironmasters, John Wilkinson (1728-1808) invented new machinery to process the iron. In 1779 the first cast-iron bridge was constructed across the Severn; in 1790 the first iron ship was launched. By 1830 Britain was producing 700,000 tons of iron a year; the amount quadrupled a quarter-century later, with centers in Scotland, South Wales, and Staffordshire. Railway builders were the chief customer. In 1847-48 they bought 3 million tons for rolling-stock, bridge building, and station building for 2000 new miles, plus the demands of the 3000 previously built miles of railway.
Depression in Germany Post WWI
State of German Economics during the Interwar Period
After World War I, Germany was forced to pay all of the war reparations after the Treaty of Versailles. These reparations along with the economic climate within Germany during this time period led to the fall of the Weimar Republic and the rise of Adolf Hitler and his Nazi Party. The reconstruction period was based on private investment and demand. When the stock market crashed in 1929, the investors who had been financing Germany pulled out, crippling its economy.
During the interwar period, the unemployment rates in Germany were estimated to be 1.7 to 1.8 million people in July 1932. This did not include those who had become discouraged and had withdrawn from the labor force completely. The sectors which were hardest hit by unemployment were those concentrating in industrial work. Nearly 50% of workers in the iron and steel industry were unemployed, the textile industry faced an unemployment rate of 40%. The building industry was one of the hardest hit, at 84%, because there was no growth in the economy, causing a lack of demand for new buildings. These unemployment issues led to a fall of 40% in industrial production from 1929 to 1933.
The Dawes Plan
The Dawes Plan was adopted in August 1924 as a result of Germany's inability to repay its war reparations as the Treaty of Versailles had previously drawn up. Germany was unable to pay reparations due to their unwillingness to raise their taxes while their Reichsmark became inflated to the point that it was almost worthless. The Dawes Plan was created to stabilize Germany's currency while reducing the payments required per period. This allowed American and British bankers to hand out loans to Germany, so its industry would be able to expand to pay off the massive debts. The new payment regulations that were enacted with the Dawes Plan were such that the first year, Germany had to pay one billion marks the first year. After the first year, the amount owed would increase until it reached 2.5 billion marks.
World War II
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Post WWII Economy
European Coal and Steel Community
Six European nations, Belgium, France, Germany, Italy, Luxembourg and the Netherlands took a step toward economic integration with the formation of a common market of coal and steel. They formed the European Coal and Steel Community in 1951. The idea was to stream-line coal and steel production. A side-benefit would be economic interdependence. Thereby, there would be less interest in war between the member nations. In particular, this move was promoted as a means to reduce the likelihood of war between France and Germany, two nations that were at war with each other several times between the 1860s and the 1940s.
The decades from the 1960 saw an economic decline in the output of the more developed nations of Europe, particularly those in France and the UK. These nations' position in output of refined raw materials, e.g. steel, and in finished goods fell in contrast to Asia countries. Several Asian nations made use of comparative advantage and specialized in producing certain goods, utilizing comparably cheaper labor forces. First this occurred in Japan and the four "Asian Tigers" (South Korea, Taiwan, Hong Kong and Singapore); by the latter half 1980s the shift of industrial production began occurring in the newly industrializing countries. First, the shift occurred in cheaper, lower technology products, such as textiles. Then, this shift occurred in higher-technology goods, such "durables" as refrigerators or automobiles. The shift of international industrial production out of Europe is a key outcome of globalization.
Introduction of the Euro
The Euro became the official currency of certain European Union members on January 1, 2001. The currency was signed into effect in 1992 in the Treaty of Maastricht. The initial idea behind the Euro was that it eliminates exchange rates between European nations and makes currency fluctuation risks minimal.
The nations involved in the initial treaty were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. These nations agreed in principle to the European Monetary Union (EMU) in 1999 and installed the Euro as its currency on January 1, 2001. More European countries agreed to join the union in the following years; Slovenia (2007), Cyprus and Malta (2008), and Slovakia (2009). Countries are only allowed to begin utilizing the Euro when they have met certain requirements set about by the EMU. The criteria includes "a low and stable inflation, exchange rate stability and sound public finances." The reason for such criteria is because the best way to achieve a successful economy is by ensuring price stability.
One goal of the euro was to eliminate exchange rates between two European nations. The exchange rate is the current market price that one currency is exchanged for another. Before the Euro, each country had to deal with varying currencies, which all had different exchange rates. The euro unified all Economic and Monetary Union members.
Versus the US Dollar
The current exchange rate as of April 18, 2009 is 1.06% or +0.0137. This means that 1 euro is equal to 1.30 American dollars. The euro was strongest against the US dollar on July 15, 2009. At this time, 1 euro was equal to 1.599 American dollars. On October 26, 2000, the euro was at its weakest point. The euro was only worth 0.8252 American dollars.
Versus Other Currencies
Current exchange rates of the euro to other nations are as follows (as of April 18, 2009):
- American dollar: 1.3058
- Japanese yen: 129.67
- Danish krone: 7.4492
- Pound sterling: 0.8828
- Swiss franc: 1.5218
- Russian rouble: 43.6835
- Indian rupee: 65.1070
- Mexican peso: 17.0616
- Economic history
- Economic history of Africa
- Economic history of Britain
- Economic history of France
- Economic history of Germany
- Economic history of Greece and the Greek world
- Economic history of Portugal
- Economic history of Russia
- Economic history of Spain
- Economic history of the world
- Economy of Europe
- The Servile State (book)
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- Patrick O’Brien, Railways and the Economic Development of Western Europe, 1830-1914 (1983)
- Small amounts of steel were produced before the 1860s, but it was five times stronger than cast iron.
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- Columbia Encyclopedia
- Why the Euro?
- European Commission - Economic and Financial Affairs
- The Euro
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- EHE - An Economic History of Europe, webpage linking to resources for economic historians of Europe. Contains links to major databases, technology descriptions, examples of use of data, a forum for economic historians.