Intro:

1. Interdependency.
2. Loan Repayments.
3. Loss of consumer confidence.
4. Trade links.
5. Smoot-Hawley Tariff.

Body:

REASON 1 – INTERDEPENDENCY

Ø      Before 1914, Britain was the world financial centre, followed by France. Foreign money was put into domestic banks. During the war countries had to increase their output. Therefore they borrowed money and used gold reserves as collateral.

Ø      The war enabled financial and industrial hegemony from other countries and the USA.

Ø      More a country was dependent on America, the harder it was hit when the American economy went into recession.

REASON 2 - LOAN PAYMENTS

Ø      Germany needed to reconstruct its economy in order to pay its war reparations to the Allies. Therefore if USA lent more money to fix the German economy they would receive more money back.

Ø      The Allies needed to pay America back for the loans they had also borrowed, and so German reparations paid to the Allies by Americans were often used by the Allies to pay America back.

Ø      With the Crash of 1929, America had to stop payment of loans to foreign countries and call back repayment of loans for those it had paid out so that it could try and stop its own economy from falling into recession. This meant Germany was no longer getting loan payments and so its economy began to suffer. Production in America fell by 33%, and so did Germanys.

Ø      With production falling so were profits. This meant that industries had to make job cuts to try and sustain what little capital was already diminishing. By 1932, German unemployment had reached 30%.

Ø      The cycle of international debt that Europe could not afford to pay back to America meant that once American payments stopped meant that each economy suffered, and one of the quickest ways to ease profits from falling so abruptly was to make large job cuts in an attempt to recover some capital.

REASON 3 – LOSS IN CONSUMER CONFIDENCE

Ø      With the depression sweeping across Europe, and unemployment on the rise, consumers everywhere lost their spending confidence. Consumer spending therefore declined, as demand for products decreased.

Ø      This meant profits fell for industries and suddenly there was surplus of products with no demand. In order to try and regain some capital, companies were forced to make job cuts, as they no longer could afford to keep on employees when demand for products was so low.

Ø      This meant that unemployment continued to rise.

REASON 4 – TRADE LINKS

Ø      With American economy unwinding, demand for British products collapsed. Exports were too expensive and America could no longer afford to lose money internationally.

Ø      Britain had a strong trade link with America and so this shortage had a devastating effect on Britain’s economy.

Ø      By the end of 1930 unemployment had more than doubled from 1 million to 2.5 million (20% of insured workforce).

Ø      Exports had fallen in value by 50%.

REASON 5 – SMOOT-HAWLEY TARIFF

Ø      As a result of decrease in consumer spending, President Hoover signs the Smoot-Hawley tariff into law on June 17^th 1930. This law was used to raise tariffs on imports into America. The idea was to protect American farmers from competition from abroad.

Ø      However, other countries followed suite, and increased tariff barriers. This meant that world trade fell by one quarter of its volume. Cutting down trade meant cutting down the international flow of borrowed money.

Ø      This meant that exporters everywhere now couldn’t find customers for their produce, putting them out of work. This added to the rising levels of unemployment.

Conclusion:

American Crash of 1929 caused unemployment in Europe due to a number of factors. The most important being that of interdependency between other countries and the USA. The fact they are linked in a variety of ways, from loans through to trade, means that problems in the American economy will also cause problems in European economies, resulting in rising unemployment.