The European Economy since 1945: Coordinated Capitalism and Beyond

In 1945, many Europeans still heated with coal, cooled their food with ice, and lacked indoor plumbing. Today, things could hardly be more different. Over the second half of the twentieth century, the average European's buying power tripled, while working hours fell by a third. The European Economy since 1945 is a broad, accessible, forthright account of the extraordinary development of Europe's economy since the end of World War II. Barry Eichengreen argues that the continent's history has been critical to its economic performance, and that it will continue to be so going forward. Challenging standard views that basic economic forces were behind postwar Europe's success, Eichengreen shows how Western Europe in particular inherited a set of institutions singularly well suited to the economic circumstances that reigned for almost three decades. Economic growth was facilitated by solidarity-centered trade unions, cohesive employers' associations, and growth-minded governments—all legacies of Europe's earlier history. For example, these institutions worked together to mobilize savings, finance investment, and stabilize wages. However, this inheritance of economic and social institutions that was the solution until around 1973—when Europe had to switch from growth based on brute-force investment and the acquisition of known technologies to growth based on increased efficiency and innovation—then became the problem. Thus, the key questions for the future are whether Europe and its constituent nations can now adapt their institutions to the needs of a globalized knowledge economy, and whether in doing so, the continent's distinctive history will be an obstacle or an asset.

List of Figures ix List of Tables xi Preface xv List of Abbreviations xix Introduction 1 Mainsprings of Growth 15 Probing Deeper 20 Institutional Foundations of the Golden Age 31 Institutions and History 40 The End of the Golden Age 47 The Postwar Situation 52 Reconstruction 54 The Transition to Sustained Growth 59 Normalization and the Political Economy of the Marshall Plan 64 German Economic and Monetary Reform 70 Obstacles to Integration 73 The 1949 Devaluations 77 The European Payments Union 79 Dawn of the Golden Age 86 Understanding Growth in the 1950s 89 Germany as Pacesetter 93 Next in Line 97 The Laggards 118 Toward the Golden Age 129 Eastern Europe and the Planned Economy 131 The Strategy of Central Planning 133 Problems of Central Planning 142 Partial Reforms 146 Planning Innovation 154 Regional Integration 155 The End of Reform 160 The Integration of Western Europe 163 Initial Steps 167 EFTA and the British Dilemma 176 Economic Effects 178 The Common Agricultural Policy 182 The Luxembourg Compromise 185 Inklings of Monetary Integration 187 The Common Market as an Established Fact 195 The Apex of the Golden Age 198 The Heyday of Extensive Growth 199 The Incorporation of the European Periphery 204 Wage Explosion and Labor Conflict 216 The End of the Golden Age 223 Mounting Payments Problems 225 Italy's Crisis 226 Britain's Problems 229 The French Crisis and the German Response 238 The Collapse of Bretton Woods 242 The European Response 246 Declining Growth, Rising Rigidities 252 The Productivity Slowdown 253 Innovation 257 Unemployment 263 Stabilization in Britain 277 The EMS Initiative 282 The EMS in Operation 286 The Legacy 290 The Collapse of Central Planning 294 The Survival of Central Planning 296 The Collapse of Communism 301 Recession and Adjustment 303 Dilemmas of Transition 308 Economic Response 310 German Reunification 318 Normalization and Integration 328 Integration and Adjustment 335 The Single Market 336 Integration in Practice 341 From the Delors Report to the Maastricht Treaty 346 The EMS Crisis 357 The Transition to Monetary Union 366 EMU and Its Implications 370 Adjustment and Growth 377 Europe at the Turn of the Twenty-first Century 379 Employment and Growth 381 Reducing Unemployment 388 Implications for European Unemployment 393 Productivity Growth 398 Eastern European Prospects and Western European Implications 406 Economic Prospects 412 The Future of the European Model 414 Battle of the Systems 419 The Shadow of History 423 Sources of Growth 427 References 433 Index 461