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The Economy Worsens

The Vietnam War, an example of a proxy war, helped mark the end of stability and prosperity for postwar Europe. A proxy war was one fought not between the major powers but between smaller, satellite states almost on their behalf. Student unrest and the cultural upheaval among the youth of America and Europe also indicated that Europe had entered a period of instability and uncertainty. The economies of European nations and of the United States had blossomed and contributed to a truly global economy. As a result, economic upturns and downturns were felt around the world. By the early 1970s, the economic policies of the United States that helped rebuild a devastated France came back to bite the United States in the wallet. The spiraling economy took a number of turns that affected the consumers badly.

The Fall of the Dollar

Over the 25 years following the Second World War, the United States funneled billions of dollars worth of U.S. aid into Europe. By 1970, though, the U.S. had nearly depleted its supply of gold bullion, the financial backing for U.S. currency. Europe, on the other hand, had managed to stockpile U.S. bullion. The postwar economy of Europe had developed in such a way that the international economy centered on the dollar. With a depleted supply of gold, the U.S. dollar suddenly wasn’t worth what it once was. Investors in foreign markets caught on and dumped the dollar as quickly as they could to avoid taking losses on the currency.

President Richard Nixon (1913-1994) halted the sale of U.S. gold and started a chain reaction of economic events. First, the value of the dollar fell sharply. Since the postwar international economy was based on the dollar, inflation resulted as prices rose. With the plummeting value of the dollar, nations abandoned a fixed rate of exchange so their own currencies wouldn’t suffer the fate of the dollar. Without a fixed rate of exchange, though, European economics became tricky business. Unfortunately for consumers around the world, the fallout from the dollar coincided with an energy crisis.

The OPEC Embargo

Part of the success of postwar Europe was wed to the availability of cheap oil from Arab oil-producing nations. As manufacturing costs rose during the 1960s, oil prices remained relatively constant. The Arab nations, members of OPEC or the Organization of Petroleum Exporting Countries, jacked up the price of oil and stood firm. The United States stood behind Israel in 1973 when Egypt and Syria attacked Israel. In order to get the United States out of the Arab-Israeli War, OPEC placed an embargo on the United States. Economists and governments around the world knew the embargo would have serious repercussions but no one intervened. As a result, the price of oil skyrocketed and energy became scarce. The world, and in particular the United States, had become so dependent on Arab oil that industries slowed to a crawl without it. As industry slowed, unemployment rose. High unemployment and high prices combined led to the worst economic depression around the world since the Great Depression of the 1930s (see Chapter 20).

Trouble hit again when Iran suffered revolution in 1979 and oil prices rose again. Remarkably, the Common Market, as the EC was known, stood firm and weathered the storm. The Common Market helped prevent European nations from engaging in renegade economics motivated by national interests. The energy crisis created in the United States and Europe an era of reevaluation. Governments and individuals took a long, hard look at where money was spent and how. Frugal living and conservative values reigned. In Britain, for example, the voters chose the more conservative Margaret Thatcher (b.1925) as their prime minister in 1979. France was the exception, though. Its president, François Mitterand (1916-1996), engaged in Keynsian spending to stimulate the economy.

Keeping an Eye on the USSR

A generation of Cold War babies grew up in the 1970s and 1980s with a sense of distrust for the Soviet Union. Since World War II, the east versus west mentality prevailed around the world. Therefore, the détente was viewed with much skepticism in the western world. The Soviet Union had demonstrated repeatedly that its word was shaky at best. Though Stalinesque brutality seemingly had disappeared from the Soviet Union, the Soviets still supported dictatorial regimes around the world and still remained belligerent toward the west. The Soviet invasion of Afghanistan didn’t do anything to help its image. A renewed sense of Russian nationalism and hard-line communism led to intellectual repression in the Soviet Union and to the renewed oppression of the Jews.

With the Soviet Union still up to its old tricks, many in the western world felt a duty to keep an eye on the Soviets. President Ronald Reagan led the way against the Soviets as he ratcheted up American spending on defense. Reagan’s conservative values helped earn him allies of Britain, under Thatcher, and West Germany under Helmut Kohl (b. 1930). Thatcher argued in the mid-1970s that the USSR was bent on world domination. Thatcher tackled the economic problems within her country by slowing the economy and raising taxes in the midst of the recession. Initially painful, the measures eventually reduced unemployment and slowed inflation. Kohl, with his conservative Christian Democratic values, aligned his economic, political, and even military policies with Britain and the United States, often against the Soviet Union.

The Least You Need to Know

Even before the end of the war, the western nations and the Soviet Union were at odds over Soviet plans for eastern Europe following the war.

After Germany was divided into zones of occupation, the two factions in Europe divided into two camps: NATO, consisting of the western nations and the United States, and the Warsaw Pact, consisting of the Soviet Union and its satellite states in the Eastern Bloc.

The Cold War featured many showdowns between east and west, including the Berlin Airlift, the U2 incident, tensions resulting from the Brezhnev Doctrine, and the Cuban Missile Crisis.

Decolonization proved relatively easy for the United Kingdom after the war, while France nearly found itself in civil war over the Algiers crisis. De Gaulle, who helped create France’s Fourth Republic, guided France through decolonization and then helped form the Fifth Republic in France in 1958.

An economic crisis set in during the 1970s as a result of the falling dollar and the OPEC oil embargo.

The tough times encouraged conservative values as the United States, Britain, and West Germany aligned themselves. The Common Market helped maintain a sense of European unity during the economic crisis.

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