Why Were European Economies Hurting During the Depression?
At the time of the stock market crash of 1929, most European nations that had been involved in World War I still had war debt. Much of this debt was owed to the United States, the world's largest creditor nation at the time. When American banks called in this debt to increase the money supply at home, the Depression spread to Europe.
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Money Supply
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The lack of available capital (one result of each major currency being tied to the gold standard) caused individuals, businesses and banks to hoard what money they had.
Unemployment
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According to economist Milton Friedman, unavailability of new credit lessened the demand for goods, which slowed industry and caused high unemployment.
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Protectionism
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To protect its home industries and encourage buying of U.S. goods, the United States also dramatically raised tariffs on foreign imports. Many nations acted likewise, decimating global trade and further hurting the economies of European nations that depended heavily on export.
Interdependence
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Although the calling in of American loans created a major problem for European nations, none was more dependent on U.S. loans than Germany, a nation loaded down with war debt in the form of reparation payments to France and England, the victors of World War I.
Considerations
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As a result, when America needed its money back, it was Germany that took the hardest hit of all the European economies. This, in turn, gave rise to political extremism in Germany.
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