Introduction

An important part of western Europe's post-Second World War success story was its rapid integration into the world economy as well as its rapid integration with itself. The Great Depression, protectionism, and the war had reduced foreign trade to the levels recorded just before the First World War. In 1947–8, for instance, the volume of western European exports was barely above what it had been in 1913 (Svennilson 1954). As for capital movements, they had virtually come to a standstill, in a world riddled with inconvertible currencies and rigid controls on foreign exchange flows. Sixty years later, the volume of exports had been multiplied by fifty, free trade prevailed in both western and eastern Europe, and the degree of openness had reached unprecedented levels, as had the extent of intra-European trade, while capital movements were almost completely free. Indeed, a significant number of countries had gone as far as doing away with their domestic monies in favor of a new common currency – the euro.

The rising importance of foreign trade over the period is documented in Figure 11.1, which shows the share of exports in GDP for western Europe in constant prices. The series, after dipping in the interwar years, rises very sharply after 1950 to levels that by 1973 had already overtaken those achieved during the last phase of globalization at the beginning of the twentieth century. The rise in the trade share is even more spectacular in the last few decades.