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 ixLIST OF TABLES xi
PREFACE xv
LIST OF ABBREVIATIONS xix


CHAPTER ONE: Introduction 1


CHAPTER TWO: 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


CHAPTER THREE: 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


CHAPTER FOUR: 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


CHAPTER FIVE: 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


CHAPTER SIX: 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


CHAPTER SEVEN: 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


CHAPTER EIGHT: 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


CHAPTER NINE: 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


CHAPTER TEN: 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


CHAPTER ELEVEN: 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


CHAPTER TWELVE: 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


CHAPTER THIRTEEN: The Future of the European Model 414
Battle of the Systems 419
The Shadow of History 423


APPENDIX: Sources of Growth 427


REFERENCES 433
INDEX 461