What will the next 'Great Depression' look like?

Frankly Speaking

Citizens' Europe

Picture of Giles Merritt
Giles Merritt

Founder and Chairman, Friends of Europe

Giles Merritt warns that the EU and its member governments are responding to the corona crisis as if expecting a recession and not a full-blown depression.


Is Europe facing a recession or a depression? Are we on the threshold of economic hard times or the brink of a political abyss? It is still hard to tell, but it’s certainly time for policymakers to ponder worst-case scenarios.

If the world is to be engulfed by a depression, it probably won’t be like that of the ‘Hungry Thirties’. It may nevertheless be the harbinger of a return to international turmoil and conflict. The Great Depression that culminated in World War 2 saw misery on a scale that 21st-century society can hopefully avoid, but we should remember what it cost humanity when debating how much to invest in avoiding a re-run of the 1930s.

In America, a quarter of the workforce was unemployed and millions of displaced people had to find shelter in shantytown ‘Hoovervilles’ that fringed major cities. In Europe, the massive ‘hunger marches’ of the UK’s National Unemployed Workers’ Movement were comparatively peaceful when set against Spain’s civil war or the triumphs of fascism in Germany and Italy.

Europe’s policymakers now have to think in terms of years

What, then, will the coming depression look like? There probably won’t be the same long queues of shabbily-dressed job seekers collecting the dole or huddling at street corners, but unemployment in the EU is forecast to hit almost 10 per cent by year’s end. All but a privileged few will find themselves markedly poorer, with the OECD warning of sharp falls in real incomes. Long-term losses in output and productivity therefore look inevitable.

The threat of fresh pandemics means that tracing apps of a ‘Big Brother’ character are likely, with widespread teleworking seeing the growth of similarly Orwellian surveillance technologies bundled into high-tech communications. The emptying out of office blocks will, meanwhile, greatly aggravate Europe’s ageing problems because private pension funds are major property investors.

‘Furloughing’ schemes across Europe have so far saved many thousands of companies and millions of jobs from extinction during the Covid-19 lockdowns. But they won’t suffice in a depression, which unlike a recession that’s measured in months is defined as “a sustained long-term downturn.” Europe’s policymakers now have to think in terms of years.

When studying the nature of the looming international crisis, EU leaders should look at recent years before corona struck. The trends have been eerily similar to those of the ‘Roaring Twenties’ a hundred years ago. Then as now, gluts in foodstuffs and commodities led to falling prices and, despite the illusion of greater prosperity, there was a hollowing out of trade and investment. Today, cascading grain prices in America’s mid-West are being described as “devastating’, and the picture is much the same in Europe. In other words, strategic solutions are needed to address this snowballing depression.

The answer may be to take a leaf from a long-forgotten book, that of the Bank of England in the mid-18th century

That hasn’t been the approach of most EU governments. The debt instruments they argue over have, while amounting to trillions of euros, been tactical. Their aim is to finance short-term recovery, not longer-term strategic measures that would cost even more. Yet the lesson of a century ago is that huge public works efforts are required – Roosevelt’s New Deal and Hitler’s very expensive building projects were remarkably similar.

Soaring indebtedness stands between EU governments and badly needed transport, education and healthcare strategies. The answer may be to take a leaf from a long-forgotten book, that of the Bank of England when in the mid-18th century it consolidated several debt instruments into a single ‘perpetual’ bond. An updated ‘consol’ is being championed by the financier George Soros, who explains that the principal sum raised never has to be repaid and only the interest is due.

Soros argues that the cost-benefit ratio is almost ten times greater than that of any of the EU’s proposed long-term corona bonds, so to raise the €1 trillion the European Commission wants would, at 0.5 per cent interest, cost only €5 billion a year. Whatever the fate of his controversial suggestion, there’s no getting away from the underlying dangers it is intended to address. We cannot know the scale and depth of the coming depression, but we Europeans are becoming uneasily aware of how vulnerable we are, both economically and politically.

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