Why did problems in USA's economy affect Europe so seriously?

When the depression hit USA, the only major country of that time, where the war hadn't been fought, the effects were felt quickly around the rest of the world.

USA had acted as the bank of the world, giving loans to all the countries in Europe that needed money to build up their industries and economies after the war. If USA didn't lend the countries of Europe the money they needed there would be no one for them to do trade with.

As the depression got worse in USA, the country started recalling their foreign loans and stopped giving out new ones.



This lead to many planes in Europe having to be put on ice, as factory owners and others had reckoned on the economical support of the USA in the finance of their product. As the planes had to be put on ice, there was little new-commings in the industry, and little money was made by trade with other countries. To protect their own economy the countries of western Europe put up high toll barriers to protect themselves. This lead to even less trade and less money made.



When the USA called back their loans, there was little money left in the hands of the countries that had to pay for the WW1, and the damage done then. The repaying of loans lead to money having to be spent on that, instead of invested in factories and trade. There was too little money to be made, so people had to be fired. The mass unemployment lead to even less of a trade, and therefor less money came into the country.



When the stock marked crashed, so did the stock markets in Europe as a result, due to the close relationship between the stock exchanges. People rushed to the banks in Europe as well (even though not in the same extent as in the USA) to get their lifesaving's out in time. As hyper-inflation occurred, many people lost their whole foundation, and got dragged even deeper into the mud.



One can also say that USA's economical problems affected Europe due to the mere influence it had on Europe. All American was good, and even fashion, music and dance came from the USA, thus the leaders in industry did not believe that the financial power-men of America could do mistakes, and followed blindly in their footsteps, even if they saw that the USA was headed for a dive.

They believed that this was only a periodic low-point that would have to come all over the world no matter what, due to the prosperity of the years before.



As a conclusion to this, one can say that European economy was affected by the American economy due to the USA having so large sums of money invested in Europe, that by recalling it, the whole industrial foundation of Europe collapsed, and the effects were multiplied.