Central Europe has been the heart of the European economic engine since the guns of WWII were silenced and cold war started to form. The beginnings of this was the reconstruction effort helped by a massive American aid package (Marshall Plan). Post war most things needed to rebuilt, goods needed to be replaced and people, factories started the economic revival that characterized Central Europe and Germany in the 50's and 60's.
The manufacturing capabilities in Germany, Sweden, Switzerland started to feed the growing markets in US and UK. They also started plowing back their export earnings to fund directly or indirectly consumer finance in importing countries and keep the dollar from weakening. The simultaneous emergence of Japan and then other Asian exporters all fed into this central dynamic that made the American Consumer the most important cog in the world economy and the US dollar the means of trade. The Thatcher and Reagan eras created a consumer revolution that fed these factories. The British consumer became very important to all European manufacturers as well.
The emergence of Euro enhanced trade for a while, because it simplified global trade and settlements. However, as the Euro started to strengthen both because of dollar weakness and other countries diversifying their reserve holdings, this affected the export competitiveness of European manufacturers in Non-Euro countries. European development had also targeted lesser developed areas like Spain, Portugal.
When Sub-Prime started to unfold the Europe had 5 internal engines and 2 external ones.
- UK consumer, using the lavish consumer credit to extend far beyond their current or future incomes
- German, Swiss, Swedish, Italian manufacturers with world class products that were in high demand in other countries and compensated for low German consumption and high savings
- French Government & private spending that created a slowly growing economy that resulted in high unemployment but also did not cut back as drastically in the face of a financial tsunami as private companies everywhere did
- EU and Private money flooded lesser developed countries like Spain, Portugal, Ireland and created a property bubble that burst along with the US and left a mess in some banks
- Eastern Europe developed as a source for manufacturing outsourcing and also for Western banks to funnel savings to faster growing economies for higher returns.
- US consumer starting in the 80's and continuing went on a spending binge and stimulated economies all round the world. The world is trying to adjust as this giant shrinks and no one seems able to fill the gap.
- China increased bilateral trade with Europe and unlike the US imported European goods