Europe: Economic Review

Economy

Europe was the first of the major world regions to develop a modern economy based on commercial agriculture, industrial development, and the provision of specialized services. Its successful modernization can be traced to the continent’s rich endowment of economic resources, its history of innovations, the evolution of a skilled and educated labour force, and the interconnectedness of all its parts—both naturally existing and man-made—which facilitated the easy movement of massive quantities of raw materials and finished goods and the communication of ideas.

Europe’s economic modernization began with a marked improvement in agricultural output in the 17th century, particularly in England. The traditional method of cultivation involved periodically allowing land to remain fallow; this gave way to continuous cropping on more efficiently plowed fields that were fertilized with manure from animals raised as food for rapidly expanding urban markets. Greater wealth was accumulated by landowners at the same time that fewer farmhands were needed to work the land. The accumulated capital and abundant cheap labour created by this revolution in agriculture fueled the development of the Industrial Revolution in the 18th century.

Trade

With it’s ever more sophisticated industry producing outstanding exports and its large importation of petroleum products, metals, and other raw materials, and foodstuffs, Europe accounts for a large percentage of world commerce. Internal and external trade, both by land and by sea, always has been a vigorous part of Europe’s economy, no less so in the late 20th and early 21st centuries, when Europe faced such strong competitors as the United States, Japan, and China. Trade is made necessary by the regional specialization of production, largely initiated by capitalist enterprise in the past and now guided by national and, with the advent of the EEC and later the EU, supranational policy decisions. Trade is further aided by Europe’s central position in the densely populated Northern Hemisphere, well served by oceanic and air transport systems.

Within the continent, there was a distinction for much of the 20th century between the general trade policy of Western Europe and that of the now-disbanded Soviet bloc. Prior to the late 1960s the Soviet Union and the eastern European countries adhered to the doctrine of economic self-sufficiency with more interregional than international trade. In the late 1960s and the ’70s these trading patterns began to change. Improved relations between the east and the west enabled the communist countries to meet an increased amount of their technological and agricultural needs with imports from western countries. As the countries of Eastern Europe abandoned communism—and especially since Germany was reunited and the Soviet Union was dissolved into its constituent republics—interest in external trade has grown dramatically in those countries.

The nations of Western Europe, on the other hand, have always relied heavily on international trade. For long periods of time, most of the western European countries held political dependencies overseas where they created captive markets, and several EU countries continue to conduct an important amount of trade with their former colonial territories. Similarly, the Commonwealth nations engage in much trade, now strictly competitive, with the United Kingdom.

Trade within Europe

Within each European country a wide variety of goods is moved continually from ports and production centres to urban markets. In addition, a major part of the trade of Europe takes place between the various countries, since—with regional specialization, dense populations, and relatively high standards of living—they provide strong markets. Germany supplies coking coal and chemicals to France, for example, which in turn provides Belgium with iron ore from Lorraine. Dutch natural gas is piped to such countries as France, Belgium, and Germany. Specialty foodstuffs—wines, cheeses, spring vegetables, and fruit—find an enlarged market far beyond their production centres, as do such manufactured items as fashion goods, automobiles, and major household appliances.

Active trading within groups of countries that have associated primarily for that purpose and to rationalize and so increase the profitability of their national economies advanced markedly in the 20th century. The policies of the EEC and, later, the EU have been directed toward economic specialization in increasingly interdependent member countries. The European Free Trade Association (EFTA) also has encouraged trade between its members—western European countries that did not join the EEC or the EU. In 1977 a free-trade agreement went into effect between the EEC and the EFTA. The agreement eliminated tariffs on most industrial goods originating in the member countries, thereby increasing trade between the countries in the two blocs. In 1994 a free-trade zone between the EFTA and the EU came into effect.

Much trade in Eastern Europe and the republics of the former Soviet Union has remained intraregional, but trade between western and Eastern Europe did increase markedly during the late 20th century. Russian natural gas was sold to such countries as Austria, Italy, France, and Germany, and western markets were also used for the sale of gold and diamonds in exchange for ships, machinery, and chemicals. Eastern European countries, known for supplying such goods as canned salmon and caviar, vodka, Polish bacon, Czech glass, and Hungarian and Balkan wines, increasingly exported a greater variety of high-value products. East-west exchanges continued to develop in the 21st century, particularly with the integration of several eastern European countries into the EU.

External trade

European trade extends to all other parts of the world. The extra-continental exports of Europe include machine tools, automobiles, aircraft, chemicals (including pharmaceutical drugs), and such consumer items as clothing, textiles, books, specialty food products, expert services, and works of art. Western Europe depends heavily on imported petroleum from the Middle East, Algeria, and Libya and on many imported raw materials and metals. Europe imports much natural rubber, tea, coffee, cacao, cane sugar, oilseeds, tobacco, and fruit—fresh, canned, and dried—although it has attempted to lessen its dependence on imported agricultural products with greater domestic production and the manufacture of synthetic substitutes for natural fibres.