The economies of Western Europe faced teething problems which was further aggravated by the price rise in oil in 1973. Europe, which experienced decline in economic growth throughout 1960s, had barely recovered when the oil price started to rise. The steps taken by government proved ineffective in securing the economy. These problems included stagnation output; stagflation, which described the combination of high levels of inflation and unemployment; and balance of payments deficits. Also, there was a radical change in the management of western economies: the Keynesian demand strategy could not survive the magnitude of the oil crisis and was consequently abandoned in favor of Monetarism.
[...] The tense economy snapped and spiraled out of control causing production setbacks and unemployment. This led Europe into a new economic climate that differed from previous decades, and called to light new methods of economic management. Bibliography 1. A. Boltho, ed. The European Economy: Growth and Crisis (Oxford, 1982) 2. P.R. Odell, Oil and World Power (Harmondsworth, 1986) 3. R. Mabro, OPEC and The Price Of Oil (Oxford, 1992) 4. A. Sutcliffe, An Economic and Social History of Western Europe Since 1945 (London, 1996) 5. [...]
[...] The problem became open when further speculative buying occurred after the oil-price rise because oil by 1973 had become a major commodity, and therefore, inflationary expectations increased with the rising price of oil.9 The commodity price rise led Europe into a recession in 1975, which boosted inflation and unemployment. However, the damage had been done by over ambitious expansionary policies before 1973, and the oil crisis acted as a detonator, which forced the economies of Western Europe to become unmanageable. [...]
[...] Urwin does not credit, however, the crisis of stagflation with the oil-price rise because he believes there had been problems including overproduction in declining markets and intense competition from industrialized nations outside Europe, such as Japan and America.7 In essence, the economies of Europe spiraled out of control. This is evident with the use of statistics again. Between countries in the Organisation for Economic Cooperation and Development (OECD), the annual average rise in commodity prices in 1973 was 7.7 per cent, but had dramatically increased to 13 per cent in 1974. [...]
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