IMF chief warns of ‘1930s’ threat as growth slashed

The World Economic Forum begins in Switzerland today. Leaders face newly shrunken growth forecasts and the threat of a ‘1930s moment’, which could tear global politics apart.

As head of the International Monetary Fund, Christine Lagarde chooses her words carefully.

So, the economists, tycoons and politicians gathered in Davos, Switzerland today – for the opening of the World Economic Forum – will be taking seriously her latest chilling warning.

Europe, said Lagarde in a recent speech, could be about to ‘slide into a 1930’s moment... A moment where trust and cooperation break down and countries turn inward.’ Such a moment, she warned, might lead to ‘a downward spiral that could engulf the entire world.’

Yesterday, fears grew as international growth forecasts were slashed. Many countries now face the likelihood of full on recession.

The memory of the thirties is a shadow that haunts Europe and much of the world. The ‘Great Depression’ following a stock market crash in 1929 caused rampant inflation and unemployment; strengthened far-right factions in Italy, Greece, Japan and Spain; allowed the rise of Adolf Hitler in Germany, and led, in the end, to the terrible horrors of the Second World War.

Lagarde, along with other commentators, sees frightening parallels between the 1930s and today. The economic picture is similar, as countries all over the world struggle to recover from what economists are calling the ‘Great Recession’.

Even more worrying is the political picture. Just like in the 1930s, economic hardship is encouraging nationalist and extremist politics. Far-right parties are flourishing in Eastern Europe. Hungary, an EU member, is moving towards dictatorship. Anti-immigrant feeling is fuelling racist rhetoric not only in the struggling South but also in rich Northern countries like Germany, Holland, Finland and Sweden.

In France, traditionally one of the twin pillars of European unity and integration, extremism is now a major political force. Marine Le Pen, of the anti-immigrant National Front (FN) party, has launched a serious campaign for the presidency – just like another extremist politician did in Germany, exactly 80 years before.

A history of violence

So is history about to repeat itself? Not likely, say many analysts. Marine Le Pen may be extreme, but she is no Adolf Hitler. The economic situation is bad, but not so bad as it was in in the 1930s, when output fell by 40% compared to just 13% now. Most importantly, in a world of global alliances and international trade, no nation would think seriously of starting another World War.

Other observers are less optimistic. The lesson of 2011, they say, was that when times get tough, international bonds of friendship dissolve with worrying speed. Without those bonds, economic cooperation is impossible – which makes everyone poorer. The increase in poverty then further strengthens the extremists. If that vicious circle takes hold, we should prepare for the worst.

You Decide

  1. How useful are lessons from history in planning for the future?
  2. Do you think there could ever be another major war between developed nations?

Activities

  1. Do some further research into the state of the world in 1932. How does it compare to the situation in 2012? Create a chart or graphic showing the similarities and the differences.
  2. Write a short article arguing either for or against the idea that ‘history always repeats itself.’

Some People Say...

“World leaders will find a way out of this crisis.”

What do you think?

Q & A

What’s this? Am I going to end up fighting in World War III?
Only a very few people really think so. Times have changed since the 1930s, and most commentators can’t imagine any serious conflict breaking out between developed nations.
That’s a relief!
Of course, people probably would have said that in the 1930s too.
What?
Even as late as 1938, just months before the outbreak of war, British prime minister Neville Chamberlaine was talking about ‘peace in our time’ and persuading voters that he had come to a lasting agreement with Hitler.

Word Watch

Davos
The World Economic Forum, held each year at the Swiss resort of Davos, is a gathering of politicians, economists, journalists and business leaders who meet to discuss the most important issues of the moment.
Stock market crash
In 1928, share prices on the New York Stock Exchange had been climbing steadily for years. Investors thought that buying shares was a no-lose gamble, and as they kept buying – prices kept rising. Finally, in 1929, the bubble burst. Prices collapsed and millions of investors lost all their savings in the space of a single day. The global economy did not fully recover until after the Second World War.
Vicious circle
A vicious circle is a situation where the worse things are, the worse they get.

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