European Periphery in an Age of Imperialism
The Core-Periphery Debate
Economic development is a complex and puzzling phenomenon. There is no telling where, when, and how it will happen – why some countries and regions become rich, while others remain desperately poor. The classical notion that free factor flows would lead to convergence in development has long since been confounded by the glaring disparities in the levels of income that now prevail across the globe.
On a global scale, the most tantalizing issue is why Eastern civilizations, once very advanced, lost out to the West and why in Europe the Iberian and Mediterranean countries gave way to Northern Europe. That Europe, or at least part of it, came to dominate the political, economic, and cultural life of much of the world in its heyday in the nineteenth century is not open to question. When it emerged from the Dark Ages, it steadily extended its control and influence over the vast majority of the Earth’s surface, from 7% in 1500 to 84% by 1914.
Yet for all its supremacy, Europe itself was a continent deeply divided, politically, economically, and socially. The core of modern development lay in the northwest corner, while to the south and east, there was persistent lagging, from the Iberian Peninsula along the Mediterranean, into the Balkans up through European Russia, and back into Poland and the Baltic states. The dividing line was Austria-Hungary, not quite up to western standards, but far better than the periphery here outlined. There were exceptions to this geographical categorization of course. The Scandinavian countries would not fall into this category, nor would Switzerland. More doubtful cases are Italy and Finland.
Such was the lagging in these peripheral countries that some historians have tended to regard Europe’s peripheral states as also-rans in the process of modern development, dependent for much of the time on the core nations of the West. Many scholars likened the laggards to countries of the Third World. Spulber (1966, 7–8), writing in the 1960s, compared the East European countries with the developing nations of Asia and Africa. Even Spain was seen as an economic colony of the advanced nations by the economic nationalists of the 1920s.
The core-periphery debate, with its Marxist overtones, is a complex one which has been applied more generally to the twentieth-century less developed countries. However it is not without its relevance to the nineteenth- and twentieth-century Europe. The main tenets of the thesis are that peripheral countries are poor and less civilized and tend to concentrate on low-technology primary production by virtue of their dependence on richer countries, which in turn exploit the international division of labor for their own benefit, thereby reinforcing the peripheral states’ dependent role in the international economy. There is therefore a certain degree of inevitability in the process. As some countries develop industrially and become wealthy while others lag behind, the latter will tend to take on the characteristics which bracket them as dependent economies.
Poor countries have generally laid the blame for their unfortunate circumstances on the capitalist exploiters of the West for, as Landes (1999, 252) once noted, “It feels better that way.” But the nineteenth century cannot be regarded as one of complete suppression of modern development in peripheral regions by the advanced core. Berend and Ranki (1982, 9) while admitting that the relationship was fundamentally an unequal one which tended to benefit the core while often proving destructive to the periphery, felt that it was also beneficial to the latter by acting as “an inducement to development, serving – under appropriate conditions – to lift the area from its peripheral position.”
The core-periphery analogy is complicated in its application to Europe since it was not simply a question of an East-West, North-South split. It was in fact replicated at a more microlevel in many regional and local guises. For example, the Habsburg dynasty had its own East-West gradient, with the more industrialized western half serving as market for the products of the agrarian-based eastern sector, while the Balkans were in turn dependent on Austria-Hungary’s large domestic market. At more local levels, the developing industrial/commercial centers such as Budapest, Bucharest, Sofia, Istanbul, Athens, Barcelona, Madrid, and Lisbon acted as magnets for the more backward agricultural hinterlands. In some cases there was even a reversal of the stereotyped roles. The nascent industrial sectors in the Baltic states, Poland and Finland, served as suppliers to the more backward imperial regime of Russia.
The core-periphery/dependency theory can also be somewhat misleading if it is put in a politico/economic context since economic subordination was not synonymous with political status. Some peripheral countries had a more independent existence than others. Spain, Portugal, and Greece after 1830 were autonomous countries in their own right, yet they were clearly laggards in development. And while much of the rest of peripheral Europe was in thrall to the crumbling empires of Ottoman Turkey, Russia, and Austro-Hungary, political dependence did not always mean economic subservience. The Baltic states and the western parts of Poland were more advanced than their political masters and became important industrial suppliers to Imperial Russia, whereas the Balkans could never really throw off the Ottoman yolk even when they secured independence.
Another point to bear in mind is that peripheral or marginal areas have changed over time and that some of the later laggards were once at the cutting edge of development. But what is noticeable is that there have always been marginal regions or countries, even though they may have changed over time. As Pollard notes, there has always been a marginal Europe, but the players have changed hands over the centuries. Greece and Rome were the power points of civilization in their heyday. England, Wales, and Scotland, along with the Scandinavian countries and Hungary, were the peripheral locations in the period when the prosperous core was located in Italy, Flanders, the Rhineland, and Southern Germany (Pollard 1997, 10, 267). At what stage the “golden triangle” of North-west Europe emerged as the key center of modern economic development is still open to debate, but there is little doubt that it had been well established by the nineteenth century.
The Backwash of Western Development
Whatever the exact timing of the global divide, there can be no doubt that by the latter half of the nineteenth century, the countries of Southern and Eastern Europe were seriously lagging and could be regarded as marginal players as far as the process of modern economic development is concerned. Not that peripheral Europe remained completely unaffected by developments in the West. As Berend (2003, 137) noted, “The fringe of an unprecedented European prosperity carried the sleepy, stagnant, unindustrialized countries along.” Western influence came through many channels, via trade, imported capital, the influx of foreign workers and entrepreneurs, foreign technology, the construction of railways, and the creation of western style institutions, especially in banking. In the later nineteenth century, the underdeveloped countries of Europe tried to foster industrialization by tariff protection and other forms of state assistance, especially in Hungary, the Balkans, and European Russia.
The process was a slow and erratic one, and it sometimes led to lopsided and inefficient development. When western enterprise and capital were directly involved, it was often concentrated in the exploitation of minerals and raw materials for use in the investing nations’ own markets. This was true, for example, of the pyrites and mining concerns in Spain, which became foreign enclaves of development with most of the cash benefits being drained off by overseas operators, and perhaps even more so in the resource exploitation of the Balkan countries. The development of the Romanian oil industry was dominated by foreign companies, while 40% of western industrial investment in Serbia went into extractive industries (Berend 2003, 157). Railway construction was also heavily dependent on outside capital and enterprise. However, much imported capital was indirect in the form of loans to state governments which was used for military purposes, to cover budgetary deficits and for building up the state apparatus, and only a small proportion found its way into what might be called productive investments. As a result of official profligacy, most of the Balkan countries were insolvent by the end of the nineteenth century, Greece being the classic example.
Given the poverty of these countries, modernization was inevitably very dependent on western assistance in one form or another, but this had the unfortunate effect of leading to unbalanced development either in the form of foreign dominated enclaves, especially in resource extraction, or in the shape of heavy dependence on specific sectors, notably agriculture, in order to serve western markets. Thus Hungary and much of the Balkans and parts of European Russia became the granary of Europe in the latter half of the nineteenth century. Unfortunately cereal monoculture regions or countries heavily dependent on a handful of agricultural products were rendered very vulnerable to market changes. This was especially so in the case of cereals when American producers invaded Western Europe in the later nineteenth century. In this respect the Balkan countries were more vulnerable than either Hungary or Poland since the latter had a more diversified economic structure.
Within marginal Europe there was of course a considerable divergence in economic performance and the extent of industrialization. The degree of political subordination was not necessarily a good indicator of the rate of progress. While Balkan backwardness might reflect relics of Ottoman rule even after independence was secured, the same excuse cannot be used for the Iberian Peninsula, that is Spain and Portugal, which had once waxed high in the European firmament. Pollard (1981, 243) believes that both the Iberian and Balkan Peninsulas did not get beyond the beginnings of the industrialization process except in very limited sectors and regions, and even then it was not internationally competitive. By contrast the Baltic countries did somewhat better industrially than their political master and became important industrial suppliers to the less developed Russian Empire. Poland too, despite its political subordination to three countries, developed a worthwhile industrial base. Hungary, as part of the Dual Monarchy, also boasted a more diversified economic structure, though falling behind its more advanced partner.
In the decades before the First World War, most of the peripheral countries probably kept pace with and in some cases exceeded the economic performance of the richer western nations. It should be stressed however that they all started from a very low base and also estimates for domestic output expansion are not the most robust. Even so, by and large the peripheral countries remained largely agrarian and/or raw material producing entities where islands of capitalism or industry floated in a sea of primitivism.
The low levels of income per capita by the end of the long nineteenth century tell their own story. They were but a fraction of those of the more advanced countries of the West, one half or less, and possibly as low as 20% in the case of Albania and Turkey. For those none too happy with the reliability of national income estimates for this era, there are plenty of other indicators to illustrate the degree of backwardness. Data on levels of industrialization, railway mileage, and agricultural productivity confirm how far these countries lagged behind the West. Per capita levels of industrialization were but a fraction of those in the UK, Belgium, and Germany, and the same is true of the density of railway development. The most telling statistics are the very low level of goods transported and the journeys made per inhabitant compared with those in Western Europe. For example, the number of railway journeys made per inhabitant annually in the Balkan countries and Spain and Portugal was miniscule compared to the number in Britain, Germany, and Belgium. Even more significant was the very low level of human resource development. As well as being predominantly agrarian-based, the population of these countries was very illiterate judged by western standards. Many of the countries had illiteracy levels of 40% or more in the early twentieth century, in Portugal the rate was over 60%, while in the case of Albania and Turkey it was as high as 80–90%. Only Poland, Hungary, and the Baltic states had reasonable literacy levels (Aldcroft 2006, 5).
There is little doubt that all of the peripheral countries, with perhaps the exception of little Albania, showed some signs of development and change through the long nineteenth century. Yet when all is said and done, much of the change was of a marginal type, and by 1914 all of the peripheral countries could be classed as underdeveloped. Agrarian employment was still dominant and structural change had made very little impact on them. Referring to the eastern and southern provinces of the Austro-Hungarian Empire and the Balkans, Berend (2003, 180) writes: “The phase of modern structural changes remained a distant goal in the overwhelmingly agricultural and raw material producing countries. Despite its economic progress and advances, the region humiliatingly failed to modernize.” Lampe (1989, 202) came to a rather similar conclusion with regard to the Balkan regions: “The sweeping structural changes that turn growth into development would not appear in the Balkans until after the Second World War.” As we shall see, before then there were dramatic shifts in the peripheral landscape as a result of the changes wrought by two world wars and a great depression.
The Reconfiguration of Europe After 1918
The Great War marked a significant turning point in the history of Europe. Europe’s power and influence in the global arena waned visibly in the ensuing decades as political and economic forces worked against it. The map of Europe was transformed as a result of the postwar peace settlement. The great empires which had once manipulated the European power system were gone. In their place emerged several weakened national powers and a motley collection of new and reconstituted states, mostly small, backward, and weak, which struggled in a hostile climate and against the political machinations of the larger nations to retain independent identity. These were the countries which constituted peripheral Europe.
In all fairness it was only a matter of time before the old order of prewar Europe was undermined because of national rivalries, nationalism, and ethnic unrest and greater participation in government. Apart from Germany, the older empires were rotten from within and were crumbling visibly before 1914. The Ottoman Empire was at its last gasp in Europe; it had steadily lost territory during the nineteenth century, and, following the destructive Balkan Wars of 1912–1913, when Serbia, Greece, and Romania had made substantial gains at its expense, it was left with only a toehold on the mainland of Europe. The same wars signalled the virtual end of the Austro-Hungarian Monarchy as a great power, which, along with the Ottoman Empire, had long been regarded as decaying dynasties. Despite its creditable economic record, it was surrounded by virulent nationalist forces on all frontiers which it had been powerless to accommodate within its unwieldy imperial structure. Simultaneously revolutionary forces and social ferment in Russia were also having a disintegrating effect on the Romanov Empire. Thus, even without a major war, it seems very likely that much of the formal imperial control of Europe would have crumbled in short order.
The war in effect completed the process of imperial disintegration. As the European empires faded away (Austro-Hungarian, Romanov, Ottoman, and German), many lively and independent states emerged from the ruins. Even before the formal peacemaking exercise got under way, aspiring contenders were laying claims to former imperial territories, and many of these were later confirmed by the peacemakers in the treaties concluded with ex-enemy powers.
The result was the largest redrawing of the map of Europe ever undertaken. Most countries were affected in one way or another except for the neutrals. Apart from Spain and Portugal, all the peripheral countries gained or lost something. The Baltic states secured their release from Russian control, while Albania’s prewar independence was confirmed, but only just. The ex-enemy powers were cut down to size so that both the main parts of the Dual Monarchy – Austria and Hungary – became shadows of their former selves. Turkey managed to retain a toehold in Europe, and Bulgaria’s frontiers of 1914 were more or less confirmed which meant she sacrificed most of the gains made in the First Balkan War. Poland was resurrected as a united and independent national state from the component parts which had been under German, Austrian, and Russian control since the partitions of the later eighteenth century. Serbia, along with Croatia, Slovenia, Bosnia and Herzegovina, Montenegro, and a few other bits and pieces, formed the new Kingdom of the Serbs, Croats, and Slovenes and thankfully shortened to the more manageable title of Yugoslavia in 1929. The most spectacular beneficiary was Romania which was rewarded somewhat lavishly for being an unreliable ally of the western powers, by gaining large tracts of territory at the expense of Russia, Hungary, and Bulgaria. As a result the size of the country more than doubled in terms of both area and population. Greece, who had joined the Allied side late in the conflict, was another significant gainer though falling short of her original expectations.
The peacemaking exercise was scarcely a resounding success, and it probably caused more problems than it solved. It created a multitude of small and weak states and left many national minorities under alien rule. Though the peace settlement reduced minority status compared with before the war, around one third of the inhabitants of East European successor states were left stateless in the sense that they constituted national minorities. In the case of Hungary, nearly one third of its citizens were located outwith its borders. The fact that nations were defined largely in ethnic terms served to heighten national perceptions of ethnic perfection, giving rise to demands for ridding nations of “alien” elements which had once lived and worked fairly peacefully together and fostering claims for the reconciliation of expatriates. Ethnic nationalism was in fact to become a major force in the rise of fascist movements in these countries.
Most of the peripheral states had large minority populations with diverse religious affiliations. In Poland and Romania, the proportion approached one third. The worst case was that of Yugoslavia which had a dozen or more minority groups. Though Slavic interest accounted for the majority of the population, the two main groups the Serbs and the Croats were scarcely the most congenial of partners, nor for that matter were the Slovenes. But apart from the main Serbo-Croat contingent, there were a dozen or so assorted minority interests including Germans, Magyars, Romanians, Albanians, Turks, Poles, Italians, Bulgarians, Czech/Slovaks, Macedonians, and Gypsies, none of whom could assimilate easily with one another. Perhaps no other country in Europe had to use Tiltman’s terminology, such an “ethnological souffle” (Tiltman 1934, 266).
Weak states, ethnic rivalry, limited social cohesion, and right-wing political forces were to become grist to Germany’s ambition to extend its influence in Europe. The political vacuum created in Central/East Europe provided an ideal opportunity for a determined predator since the new and reconstituted states were, in Newman’s words: “extremely weak reeds to place in the path of Germany, and they possessed few features that would lead to any hope of their being anything but satellites … of Germany, Hitler or no Hitler” (Newman 1968, 27, 201). The battle for the control of the region enjoined France and Germany almost from the first moment of peace, with Germany’s claims fortified by what she considered to be her ignominious treatment at the peace table and the significant pockets of Germans living in many other countries.
What Price Peripheral Independence? The Transwar Period
Like the African states which one by one secured independence from colonial rule in the later 1950s onward, the new European states were poor but hopeful for their future once released from western domination. They were free at last and initially they readily embraced parliamentary democracy and all its trappings. Domination by foreign powers may have stunted their development, but they did benefit in some degree from spin-offs of western industrialization. The way forward was therefore to build on these limited foundations and in particular to shed their heavy dependency on the primary sector and raise the educational standard of their workforce. Again, as with the postcolonial African states, they were soon to be disappointed in the hostile conditions of the interwar years.
During the early postwar years, it was a question of battling with the problems of reconstruction in a very turbulent period and no sooner had these difficulties been surmounted than their economies were shattered by the impact of the Great Depression in the early 1930s. In desperation they resorted to autarchic measures, and one by one most of the countries jettisoned parliamentary systems and moved to authoritarian regimes. These soon fell prey to the ambitions of Nazi Germany, and they became increasingly dependent on that country for markets and military hardware. The outbreak of the Second World War completed the circle since most of the peripheral states were once again subject to external domination in one form or another.
For much of the 1920s, most European countries were grappling with the problems of reconstruction and rehabilitation. At the end of the war, much of continental Europe was literally destitute, and most countries were desperately in need of external assistance to prevent starvation and revitalize their economies. The war had affected every conceivable aspect of economic and social life. Apart from the severe setback to economic activity, serious physical destruction was fairly widespread, population losses and movements were severe, former markets had been lost, government finances and currencies were in disarray, and transport systems were in a chaotic state. Added to these problems were the tasks of assimilating the new territorial arrangements, setting up new constitutions and unifying economic, legal, and administrative systems. All this at a time when resources were very short, people were starving, social and revolutionary ferment was widespread, and border disputes over territory and populations were rife.
The peripheral countries, apart from Spain and Portugal, were in a far worse position than the major powers and the neutrals. The Baltic states had lost their main market and were engaged in disputes with Germany and the Soviet Union. Greece was in confrontation with Turkey, while Albania was fearful of losing her newly won independence. Hungary and Austria were trying to get to grips with a much reduced size, while for Romania it was the reverse situation. For Poland and Yugoslavia, the two most severely devastated countries, there was the enormous task of welding together disparate economic and administrative systems. Of the two Yugoslavia had the most formidable problem for, unlike Poland, there was no true sense of national identity but a large conglomeration of assorted ethnic groups and religious affiliations that made it virtually impossible to forge a truly coherent national state. Eastern Europe as a whole was in a very bad way at the close of the war since social and economic systems were very close to the point of collapse.
Unfortunately the relief program that was organized under the auspices of the Supreme Economic Council, the bulk of the assistance coming from the United States, was too short and totally inadequate. Most of the relief consisted of food and a small amount of clothing and 20 European countries were recipients of supplies mostly on a credit basis. The official relief program was terminated abruptly in August 1919, and thereafter relief activities were confined to private and semiofficial charities which dispensed small amounts of food and clothing.
The upshot was that countries were forced to seek their own salvation. In desperation governments were driven to adopt extreme measures to cope with relief and reconstruction and ease the pressure from political and social disorder. Most countries ran large budgetary deficits, allowed their currencies to depreciate and inflation to take its course. Such policies provided temporary relief and gave an artificial boost to economic activity, but in the longer run, they proved disastrous, resulting in currency collapse and violent inflation, with five countries (Hungary, Poland, Austria, Germany, and the Soviet Union) experiencing hyperinflation.
Most of the poor peripheral countries suffered bouts of inflation, and for much of the decade, they were grappling with the task of restoring financial and currency stability. As a consequence full recoveries from the ravages of war were delayed, and in Eastern Europe, economic activity had not been restored to prewar levels even by the middle of the decade.
Conditions were somewhat more propitious for sustained development in the latter half of the 1920s when political and economic conditions were more stable internationally than in the early postwar years. Most countries, apart from Poland, were able to surpass prewar levels of output by the end of the decade. Despite progress the peripheral countries did not experience any significant structural transformation of their economies which remained backward and economically vulnerable. By western standards both agriculture and industry were highly inefficient, and the policies employed to encourage industry tended to foster inefficient and high-cost enterprises. Primary production still tended to predominate, and most of agricultural Europe (The term “agricultural Europe” is largely synonymous with peripheral Europe which is usually taken to include the following countries: Bulgaria, Estonia, Finland, Greece, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Romania, Spain, and Yugoslavia.) remained extremely sensitive to trends in the international economy because of their dependence on the export of primary products at favorable prices. Some countries were also becoming heavily dependent on the influx of foreign capital.
Given the vulnerability of the peripheral countries, the onset of the great depression was little short of catastrophic. Primary product price fell by about 60% between 1929 and 1933, whereas manufacturing prices fell by 41% with the result that the terms of trade for primary producers declined by around one quarter. For farmers and peasants, the price collapse was devastating, and initially producers made the situation worse by increasing output to bolster their gross revenues. Farm incomes collapsed and many farmers were heavily in debt. Throughout Eastern Europe agrarian indebtedness was a pervasive problem. One contemporary observer who made an extensive tour of the region reckoned that 70% of all peasant holdings in Eastern Europe were threatened by debts and that peasants were worse off in terms of real purchasing power than they had been before the war (Tiltman 1934, 118–120, 169, 249).
The final blow came with the financial crisis of 1931 which led to a drying up of foreign capital and credits and a scramble for liquidity which rendered many countries virtually insolvent. In such circumstances it was inevitable that countries resorted to autarchic measures to stave off complete collapse. External accounts were defended by every conceivable form of trade and payment restriction barring blockade which meant that by the mid-1930s, trade volumes had sunk to an historical nadir. Debt burdens were considerably eased by partial or complete suspension of debt servicing in 1931 and 1932 and in some cases by the outright repudiation of external debts. On the surface trade restrictions and exchange control served their immediate purpose. The upshot was a shift in trade patterns within specified blocs, including the sterling area and exchange control countries. The latter involved the negotiation of clearing agreements among exchange control countries which specified the bilateral balancing of claims between countries, thereby minimizing the use of free foreign exchange. The first agreement was concluded between Austria and Yugoslavia in January 1932 to be following by a whole raft of similar agreements among Central and East European countries and to a lesser extent the Baltic states. By the end of the 1930s, much of the trade of Germany, Austria, Italy, Hungary, the Balkans, Greece, Albania, and Turkey was conducted by means of bilateral clearing (Berend 1998, 270).
One of the inevitable consequences of the closer affinity among exchange control countries was the growing economic and political influence of Nazi Germany in many of the peripheral countries. Germany became the major trading partner of the Balkan countries, the Baltic states, Hungary, Albania, and Turkey. This trend was also facilitated by the growing trend of nationalism in the peripheral countries and the steady shift toward authoritarian regimes and autarchic policies which eased the way for German infiltration. Whether these countries gained from increasing domination has been the subject of much but somewhat inconclusive debate. It was difficult to resist Germany’s encroachment since she was one of the few countries prepared to buy agrarian products and other commodities at prices above those ruling on the world market. In the glutted commodity markets of the 1930s, the German outlet was invaluable. On the other hand, it can be argued that Germany exploited the countries for strategic purposes to gain access to food and raw materials. In the process her trading partners piled up large blocked Reichsmark balances which could only be used to purchase German goods the most famous examples of which were aspirins and cuckoo clocks. These were allegedly dumped in large quantities on the erstwhile suppliers, such that Yugoslavia received enough aspirins to last a decade, while Romania, a key target for Germany because of its importance as an oil producer, was even more lavishly supplied with aspirins to relieve 500 years of headaches (Einzig 1938, 26; Jones 1937, 76–77).
In the long run, it all ended in disaster as the wheel turned full circle. Germany’s economic influence was but a prelude to political and military domination. Germany in fact used her trade connections as a smoke-screen in Southeastern Europe in particular to infiltrate Nazi agents who spread the Nazi gospel. Under commercial disguise political agents were widely employed throughout the region, and by the end of the 1930s, Nazi agents were thick on the ground. Contemporary accounts record the case of a German soya bean factory in Romania employing no less than 3000 commercial agents to spread the Nazi creed, while in Bulgaria German military experts dominated the army. By this time it was too late to disengage, and one by one the unfortunate countries were swallowed up the German military machine. The 1930s also saw the beginnings of slave labor camps on Germany territory which were later to become major generators of labor for the German war machine.
The 2 years following the outbreak of the Second World War brought a remarkable transformation in the map of Europe as it was steadily engulfed by the Third Reich. Hitler’s march across Europe, which started in a preliminary way before September 1939 with the annexation of Austria and Czechoslovakia, proceeded virtually unchecked, and by early 1942 the new German Empire was practically synonymous with that of continental Europe. It stretched from the Channel Islands and Brittany in the West to the mountains of the Caucasus in the East and from the Artic tip of Norway to the shores of the Mediterranean. At its peak the new empire embraced about one third of the land area and included half the population of the continent. States and territories disappeared almost overnight under Hitler’s onward drive, and only a few managed to retain their autonomy. The latter comprised the neutral countries of Spain, Portugal, Eire, Switzerland, Sweden, and Turkey, none of which could be said to be wholly unsympathetic to the German regime. The neutrals were fearful of antagonizing Hitler following his spectacular blitzkrieg strategy until it was eventually stalled by the Soviet Union’s failure to “collapse on schedule.” In addition, Romania, Bulgaria, Hungary, and possibly Finland slipped from neutrality to quasi-alliance with Germany by joining the latter as military allies. They retained a semblance of sovereignty though in practice they became very much satellite dependencies of the Reich.
The new Nazi regime consisted of a motley collection of states and territories at different stages of development, embracing a bewildering array of ethnic and religious affiliations. They were acquired in an unsystematic manner and ruled in different ways reflecting in part their diverse historical development. Thus in the case of the dissection of Czechoslovakia southern Slovakia, Western Ruthenia and the sub-Carpathian Ukraine went to Hungary, Bohemia-Moravia became a protectorate of the Reich, while the rest of Slovakia was set up as a nominally independent state. Poland received similar treatments in the autumn of 1939. Western Poland, including the Free City of Danzig, was incorporated into Germany; Central Poland became a protectorate under the General Government of Poland, while the remainder of Poland was absorbed by Russia. Following the invasion of the latter in the summer of 1941, the Russian Polish territories were occupied by Germany. The turn of Yugoslavia came in April 1941. Northern Slovenia and most of the Dalmatian coast went to Italy which also acquired Montenegro as a protectorate. Other parts of Yugoslavia were distributed among Hungary, Bulgaria, and Italian Albania, while Croatia (including Bosnia and Herzegovina) was set up as a semi-independent puppet state under German and Italian military influence. Croatia served as a model for regional domination in the Balkans and was responsible for the mass murder of many Serbs and Jews. Finally, Romania, one of the main gainers of the postwar peace treaty settlements, lost a large proportion of territory to Russia (Bessarabia and northern Bukovina), to Hungary (the northern part of Transylvania), and to Bulgaria (southern Dobruja). These territorial arrangements remained firm until the latter half of the war when Germany’s hegemony was on the wane.
It is difficult to discern any consistent and logical strategy in Hitler’s territorial ambitions. In some respects the changes harked back to the nineteenth century insofar as the territorial incorporations into Germany and Hungary reflected the former German and Magyar spheres of influence in Europe. On the other hand, there is little evidence of a concerted attempt to rectify the imperfections of the fragmented units and population displacements arising from the peace treaty settlements after 1918 since Hitler’s dispensations tended to multiply the number of administrative units, currencies, fiscal systems, and legal frameworks.
According to Mazower (1999, 149), the Third Reich accorded the new Europe with a patchwork of more or less provisional regimes. In practice as each piece of territory was acquired, Hitler assigned to it, in an ad hoc manner, the type of governance that seemed least likely to prove a threat to The Third Reich’s military security. Initially there was also some notion that in the long run, a New Order for Europe would be established which envisaged the formation of a single economic community for the whole continent, working under German domination with the Reich constituting the industrial hub of the system. In fact this concept was soon relegated to the back burner in the face of concentrating on the war effort and exploiting all occupied territories for the benefit of the German war machine.
Indeed, Germany exploited most of the territories over which it had direct control mercilessly to service its military needs. Occupied territories had to yield labor, resources, and industrial products in increasing quantities. “Like a gigantic pump, the German Reich sucked in Europe’s resources and working population” (Kulisher 1948, 27). In fact after 1939 much of the increase in national product available to Germany came from foreign contributions and levies including foreign labor which accounted for around a fifth or more of the civilian labor force at the peak. It is difficult to give an exact figure for the total foreign contribution to Germany’s domestic product for the war period. Occupied Europe probably contributed about one quarter of the economic burden, and this rises to nearly one third if dependent, but non-occupied Europe, is included. But even these figures may underestimate the total contribution (Klemann and Kudryashov 2012, 36, 104–105, 108). The method of extraction and use was not however the most efficient because of the ruthless and harsh fashion in which it was carried out. The sheer waste of resources is evidenced by the loss of labor, some of it highly skilled, through the horrendous extermination program of killing Jews, prisoners of war, and anyone who appeared to pose a threat to the regime. Increasingly the SS driven Holocaust strategy also consumed scarce resources such as labor, fuel, and transport capacity, thereby adding to the problems of the Nazi war effort.
The End of an Era
Europe as a whole was more devastated and prostrate by 1945 than it had been at the conclusion of the Great War. Occupied Europe and the Soviet Union were especially badly affected, whereas the damage and losses in the Western sector were less severe. The extent of the damage and loss of production was more serious than it had been in the First World War. Manufacturing industry was paralyzed, commerce almost at a standstill, agricultural output well down, and communications badly disrupted. Shortages of almost everything prevailed over a wide area of the continent and starvation was prevalent. Financially most countries were in an extremely weak state, with huge budgetary deficits, swollen money supplies, a severe shortage of hard currency, and strong inflationary pressures. Very few countries, part from Sweden and Switzerland, had not suffered severely from several years of hostilities. Europe’s position stood out in sharp contrast to that of the United Sates, and it soon became apparent that the task of rebuilding Europe would depend on the policies adopted by that country since without substantial external assistance, the prospects of an early European revival looked very grim indeed.
Fortunately the postwar settlement proved neater and more effective than that following the First World War. It did not involve an extensive carving up of the continent. In fact the victors did not rush into formal peace treaty negotiations with the losers, but instead they arranged informally among themselves what boundary adjustments should be made. Strong political differences between the Western Allies and the Soviet Union inevitably resulted in the marking out of spheres of influence in Europe leading to the east-west split and the onset of the Cold War. Although territorial changes were less extensive than those after 1918, they were significant in terms of later events, and they did involve considerable movements of population. The major losers were Germany, Poland, Romania, and Hungary, while the Soviet Union was the chief beneficiary, not only in terms of population and territory but also because she was left in a strong position to exercise control over the Baltic states and the East European nations especially with the transition of the latter countries to full-blown socialist regimes in the immediate postwar years.
Two other features were an improvement on the First World War settlement. The long wrangle over war debts and reparations was largely avoided, while more lavish assistance was provided to aid recovery and reconstruction. War debts proved much less of an issue after 1945 thanks to American munificence, while though reparations were exacted from ex-enemy countries by the Soviets, these were less pernicious than those imposed after 1918. Relief assistance was in fact inaugurated long before the end of the war under the auspices of the United Nations Relief and Rehabilitation Administration (UNRRA), set up in November 1943, at the behest of the United States to organize and distribute supplies and aid to newly liberated territories. This was subsequently replaced by the more lavish Marshall Aid program started in April 1948. The shift was prompted partly by the turn of political events, notably the expansionist policy of the Soviet Union including the hardening line over Germany, culminating in the blockade of West Berlin. Fear of political and social disturbances and the threat from emerging communist regimes in the East played no small part in the launching of the new program of assistance. When the offer was first announced in June 1947, it was made clear that it would be confined mainly to countries in Western Europe. It was fortunate that the United States did not, as it had done after 1920, retreat into glorious isolation, but instead became the universal provider of Western Europe which meant that reconstruction and recovery were more rapid and sustained than anything that could possibly have been contemplated in 1945.
With the help of Marshall Aid, recovery in Western Europe was fairly rapid, and by 1950 most countries had well surpassed their prewar levels of output, though income per capita gains were less striking because of an overall lagging in the agrarian sector. In the East recovery was somewhat more protracted because of the upheaval arising from the transition to new political structures and also because of the exactions imposed by the Soviet Union on Hungary, Poland, and East Germany.
After the main recovery and reconstruction phase through to the early 1950s, there followed the golden age of economic growth when output and incomes expanded at a faster rate than ever before, both in Europe and also in the wider world. According to Bairoch’s calculations, European income per capita expanded at around 4.5% per annum in the postwar decades, whereas it had barely reached 1% a year over the long period from 1800 to 1950 (Bairoch 1976, 298–99). In short, in the generation from the late 1940s, income per capita had made greater progress than it had in the century and a half since 1800. Virtually all countries experienced continuous expansion including those along the periphery of Europe. In fact the communist countries appear to have expanded more rapidly than those in the West though there is some doubt as to the reliability of the data sets for the Eastern Bloc countries.
Expansion slowed down with the onset of the financial turbulence and inflationary conditions in the 1970s and 1980s, and serious problems emerged in the Eastern Bloc countries which served eventually to undermine their regimes. Though they had expanded rapidly in the postwar era, consumers did not enjoy the same real income gains and lifestyles of people living in the West, partly because of hefty state exactions to bolster investment in capital intensive sectors including defense procurement. Hence the consumer sector was squeezed severely. Secondly, rigid state direction and detailed systems of control over economic activity tended to lead to high cost and inefficient production and a deterioration in technological competence. The absence of price and profit signals in the command economies resulted in a misallocation of resources, and in time the socialist countries found that they were not at the cutting edge of technical development.
With increasing political and social unrest in Eastern Bloc countries including the Soviet Union, it was only a matter of time before the socialist regimes collapsed. This occurred in spectacular fashion at the end of the 1980s with the disintegration of the Soviet Union’s command economy and its loss of control over her Eastern Bloc neighbors. One by one the Baltic states and the countries of Eastern Europe were released from the grip of the Soviet Union. They were at last free to establish their own brand of political and economic regimes and eventually to make application to join the West as members of the European Union. Sadly, the euphoria that accompanied the revolutionary phase of 1989–1990 soon gave way to grim reality as economic activity fell dramatically and unemployed soared following the collapse of communism. It would take many years before these countries recovered from the shock of regime transformation.
In conclusion, it had taken two centuries before marginal or peripheral Europe was able to free itself from the clutches of the dominant European powers. Whether this will prove to be more than cosmetic is open to debate. The core-periphery dichotomy may in fact be a never-ending continuum since the economic and financial interests of the western powers within the EU will remain the dominant force along the periphery. The subordinate status of the peripheral countries was starkly demonstrated in the fiscal and debt crises of 2012 when Spain, Portugal, Ireland, and several Balkan countries were forced to seek bailouts. The extent to which the eurozone economies had diverged rather than converged was evident in the differentials in bond yields. In May 2012 Germany, regarded as the safe haven for investors, was able to issue 2-year bonds at virtually zero rate of interest, while yields on 10-year bonds were at a record low. By contrast, Greece, the weakest member of the eurozone, was shut out of bond markets, while Portugal, Spain, Ireland, Italy, and Bulgaria struggled to find buyers for their bonds notwithstanding attractive yields of interest, for the simple reason that investors were not convinced that their money would be safe. This was in marked contrast to the optimistic years of the eurozone when any country’s sovereign bonds were regarded as a safe bet, an illusion that helped to create the crisis. It owed much to the cultural differences among member states. The efficient and hardworking Germans were prepared to make the necessary sacrifices to get through a difficult period engendered by absorbing the costs of reunification. Conversely, many of the peripheral countries had attitudes that were the polar opposite of the German. Their governments elected to gamble and invest unwisely, shirking the opportunity to enact structural reforms to modernize their economies to bring them nearer the German level. The absence of financial discipline, low levels of productivity, and lack of competitiveness in many peripheral countries remained ever-present, and rescue packages could serve little more than “sticking plasters” so long as fundamental problems continued to linger.
In short, despite some major transformations in the map of Europe by the new millennium, the peripheral countries were still the poor relations on the European continent, whose real incomes and lifestyles fall far short of those in western countries. So far, under the umbrella of the EU, it has not proved possible to eradicate the disadvantages of the past, and on present trends it seems very likely that the peripheral countries of Europe will remain in a subordinate status for some time to come.
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