Can Europe Make It?

Paradigm shifts in the light of the past: the 1929 crash, the great recession of 2008 and the COVID-19 crisis

Lack of attractive ideological and policy alternatives and political personnel does not favour a transformative rupture as in 1929.

Gerassimos Moschonas
28 September 2020
HIndenburg and Hitler in Berlin in 1934.
Wikicommons/ Bundesarchiv. Some righs reserved.

Major economic crises are perceived as cataclysmic events that bring about significant changes. It is not surprising, then, that in the current COVID-19 crisis important scholars, pundits and politicians have expressed the view that the ensuing “aftermath” shall be different from the "past". Everything – or a lot – is going to change.[i]

This prevalent perception of economic crises (the crisis as a trigger of significant change) was spawned from the Great Depression. The Great Crash did, indeed, bring about radical changes: it had a strong impact on the relations between the state, markets and politics, and deeply influenced economic and political ideologies, leading to transformations whose effects can be traced in western societies until at least the 1970s. The transformative character of the post-1929 period made it the archetype of modern economic crises.

However, this was hardly the case in the aftermath of the 2008 crisis (and its extension as a debt crisis in the European Union). Despite great expectations that the rampant capitalism model would be rectified, the economic and political consequences of the crisis were “surprisingly conservative”.[ii] The post-crisis reforms were primarily "sectoral", largely focused on the financial sector and aimed at shaping an improved, safer and less toxic version of the financial architecture of the pre-2007 period. The Great Recession has turned out to be “much more of a status quo event […] than a transformative one”.[iii] The 2008 crisis – the most important since the interwar years and the first major crisis of a new generation of crises – has demonstrated that huge crises might not turn out to be such determining game changers, as was the 1929 crisis.

The Great Recession has turned out to be “much more of a status quo event […] than a transformative one”.

Preserving the status quo

The limited extent of the consequences of the 2008 crisis is quite surprising. The scale of the systemic threat and the reward of moral hazard – the use of public funds in the name of a broader public interest to bail out the private players who caused great harm to the common good – would warrant far more profound changes. What prevented such changes from happening? Why did the 1929 crisis mould a new era worldwide, while the 2008 crisis only precipitated hardly discernible changes?

Our hypothesis is that the depth and length of the recession are the two most important factors determining the extent of changes in the post-crisis period. The severity and length of the Great Depression contributed to subsequent changes in the economic and political paradigm. Conversely, the effective containment of the recession shock after 2008 was instrumental in preserving the status quo, in spite of any resulting minor changes.

In this context, however, the response to the two economic crises by public authorities (central banks and governments) was crucial, inasmuch as not only did it have an impact on the duration and intensity of the recession dynamics but – ultimately – it also expanded (1929) or limited (2008) the space for ideological novelty which could be taken up by opponents of the status quo.

Let us have a look at the facts and their logic.

Our hypothesis is that the depth and length of the recession are the two most important factors determining the extent of changes in the post-crisis period.

Depth/length of recession and paradigm shift

The "good" responses to the 1929 Crash came in rather late. They were not implemented until 1932 (Sweden) and 1933 (in the context of the New Deal) – and then, again, not consistently (new recession in the United States in 1937). There is a consensus among experts that the mistakes and shortfalls in monetary and fiscal policies in the early 1930s aggravated the effects of the depression and fuelled the escalation of the disaster. As Eichengreen and Temin eloquently pointed out, after 1929, "central bankers continued to kick the world economy while it was down until it lost consciousness".[iv]

The huge economic and social cost of the interwar crisis, its great length, the development of a vicious circle of (currency, banking, stock exchange, political) sub-crises within the crisis, the absence of any visible way out of the crisis and the absolute need for "something to happen" all helped alternative ideas and alternative policy proposals emerge, mature and converge.

However, policies require politics.[v] The numerous twists and turns of this long and extraordinary crisis combined to prompt both old and nascent players (leaders, political parties, heterodox economists, trade unions) to either press for big change or become themselves its agents. The depth and duration of the economic contraction bred a favourable setting for the emergence and consolidation of heretical views and unorthodox, old and new, actors. One indirect participant in the renewal wave was “the masses”. Mass discontent played a vital role: “Where the interventionists were willing to rely on mass support, they could find the mass support needed for significant departures from orthodoxy”.[vi] The protraction of the crisis expanded the space for political struggle, ideological novelty and policy change.

The protraction of the crisis expanded the space for political struggle, ideological novelty and policy change.

In stark contrast, in the 2008 crisis, the much greater efficacy of monetary and fiscal interventions, with the exception of the very poor handling of the European debt crisis, dampened the recession shock and facilitated a swifter return to recovery. During the years 2008-2009, for a brief moment, “the whole world became Keynesian again”, as was aptly formulated by Yannis Kitromilides.[vii] Moreover, there were two other factors which helped moderate the economic and social cost of the crisis: the much more systematic – compared to the interwar period – bank bailouts (which protected the huge mass of savers and the modern middle classes, extremely sensitive to any downward mobility) [viii], and the presence of a strong welfare state.

By reducing the severity, length and social cost of the 2008 crisis, these shock absorbers, most likely, moderated or released the pressure for major economic and political change. There was no longer much room for the consolidation of heretical views and unorthodox players. Not surprisingly, there was profuse social and political frustration leading to contentious politics and protest and to the extensive electoral punishment of governments in office.[ix] Social frustration, popular mobilization, alternation in government and reinforcement of "peripheral" political parties, however, did not bring about any significant changes in economic philosophy and politics. There was no paradigm shift.

There was no paradigm shift.

The post-2010 extremely problematic management of the debt crisis by the European Union confirms the hypothesis that the severity of the crisis is an indirect yet significant factor of political renewal. The "austerity mania" of the European institutions was conducive to deepening and lengthening the crisis. Thus, the vigour and length of the crisis in the southern European countries paved the way for the development of alternative ideas and the emergence of anti-austerity coalitions and new political actors (populist and non-populist, systemic and anti-systemic). In Greece (but in Greece only), where the scope of the crisis fully matched the 1929-1933 disaster, the emblematic case of SYRIZA has shown how the protracted plummeting of the economy favours political change.

The response to a crisis is so important that it becomes – technically – an integral part of the dynamics of the crisis and a component of its very nature. In particular, it determines to a large extent the duration and depth of the recession dynamics. As a result, the difference in the length and depth of the two crises in one case expanded (1929) and in the other restricted (2008) the marketplace of ideas and, hence, the space for ideological and policy novelty. Of course, the lived and concrete reality of politics in each country either facilitated or prevented the emergence of alternative policies.[x]

The COVID-19 crisis: 1929 or 2008?

The factors which heavily affected the dynamics of the 2008 crisis were: improved knowhow in addressing the crisis and, therefore, important monetary and stimulus programs, better protection for the huge number of savers and the middle classes, the welfare state acting as a stabilizer. These factors were not the product of the specific conjuncture. They shall be present and active in subsequent crises. Moreover, they render the 2008 crisis distinct from all other major crises of the past, and from a cognitive perspective (i.e., from the perspective of its usefulness in the understanding of the parameters of the crisis that is currently in progress), more important than the 1929 crisis. Thus, the tendency to compare the COVID-19 crisis with the 1929 crisis, rather than the 2008 one, is quite surprising. In fact, it is this new era crisis – much more than the Great Crash ­– that should actually serve as a benchmark.

In fact, it is this new era crisis – much more than the Great Crash ­– that should actually serve as a benchmark.

The management of the economic dimension of the COVID-19 crisis demonstrates the importance of the 2008 crisis as a model. In order to address the economic impact of the pandemic, public authorities are taking extremely bold steps and are adopting the 2008 crisis management model. In fact, their actions are even more daring than those seen in 2008. In particular, the United States, Germany, the United Kingdom, but also the structurally conservative European Union (which has turned low expectations into a cultural and policy mentalité), have adopted aggressive and prompt expansionary fiscal and monetary policies.[xi] In reality, “never before has so much money been made available to so many so quickly”.[xii] If central banks and governments manage to weather the storm with their unprecedented interventions, just as they did in 2008 (with their equally, at the time, "unprecedented interventions"), then they will considerably restrict the potential for the development of alternative economic and political ideologies.

The scope for radical players, new elites, and innovative post-crisis policies will narrow down – even if anger directed towards the governments that have failed to protect their citizens from the coronavirus disease or to moderate the economic consequences of the crisis could enhance the ability of challengers to defeat incumbents.

However, the key to understanding the long-term changes that the COVID-19 crisis will or will not bring about is, as was the case with previous crises, the length and depth of the recession. The uncertainties surrounding health developments render the recession cycle unpredictable. Our hypothesis, however, is that, among the various scenarios formulated by economists, only the worst-case scenario of a long and deep recession could have a substantial impact on the relations between the state and the markets or a significant influence on political ideologies. In that case, the already enhanced désir d'Etat will become stronger and left-wing ideas will probably re-emerge in the long durée. In all other scenarios, although the current global slump looks deeper than anticipated and worse than the 2008-2009 one, there is little likelihood of a real paradigm shift.

The fact that the outbreak of the current crisis was not directly caused by a toxic sector or institution of the economic system (and there are many such sectors), as was the case in 1929 and in 2008, renders any major change even less likely. Moreover, the lack of attractive ideological and policy alternatives (and of an attractive unconventional political personnel) does not favour a transformative rupture analogous to the one of 1929.

Anti-capitalist solutions or the vision of a “post-growth” or “degrowth” capitalism are only entertained by minority trends or actors. A drastic shift in state-market relations and a renewal of economic and political ideologies could only come about if the crisis lasts “too long” (no matter how difficult it is to determine how long is “too long”).

Not everything is equally possible

Εconomic crises are dramatic events which differ – and will always differ – significantly one from another. In the 1930s, new perceptions and policies evolved against the gloomy backdrop of the Great Depression and the rise of fascism and led to the partial refoundation of the European ideological and policy landscape. The new culture was post-liberal. In contrast, the 2007-2009 financial crisis only brought very limited lasting change.

The COVID economic crisis will also bring changes. Two major economic crises over a period of twelve years are too many to leave the functioning of economies and the value systems of societies unaffected. Strengthening public health systems is a sectoral reform that is already taking place to varying degrees in different countries. Also, the conviction that the planet is in danger seems to have gained ground in the popular consciousness. Finally, the state appears today – much more than in 2008, when it mainly saved banks and protected elite privileges – as the “guardian” of societal interests (health, economic, national) that cares not only for the world of capital but also for the petit peuple.

Finally, the state appears today as the “guardian” of societal interests (health, economic, national) that cares not only for the world of capital but also for the petit peuple.

However, “sectoral changes” (such as the strengthening of public health systems) are not sustainable when they are not part of a comprehensive and long-term action agenda. This is exactly what happened with the regulation of the financial sector after 2008 (indeed, another sectoral reform). The real regulation of the financial sector was never fully realized, despite some, not insignificant, improvements (new regulatory and supervisory institutions, higher liquidity requirements, lower leverage, less interdependence between banks) – precisely because the reform was not functionally consistent with the maximize profits-or-perish rationale of the whole system. The gradual, albeit partial, return of opaque and high-risk financial activities, especially in the Anglo-Saxon world, has shown the limits of sectoral reforms when they do not form part of a comprehensive reformist strategy. It also showed how the destabilizing momentum of economic crises can deceive protagonists and observers; it creates the illusion that “big changes”, whether sectoral or systemic, are coming, although these “changes” will probably never materialize.

Chameleon dualism

It is possible, nevertheless, that this chameleon dualism (neoliberal policies in normal times, powerful and massive state intervention in times of crisis) will weaken the already destabilized, but always strong, neo-liberal mindset of economic ideas. Today's large government deficits and money-printing strategies legitimize economic policy tools derived from a matrix of more “statist” economic priorities.

The development of some kind of new balance between social-democratic preferences and neoliberal core values ​​and ideas is possible in the post-COVID-19 period. But even this is not certain to happen – given, on the one hand, the power and the resilience of vested interests, structures, and norms of the globalized economic system (despite the reinforcement of de-globalisation tendencies) and, on the other, the all-pervasive imperative of competitiveness. As it did not happen after 2008. A major ideological and policy restructuring is however much less likely. Unless the crisis turns out to be so severe that the proponents of a form of state-regulated capitalism take the upper hand.

Νeoliberal and Keynesian variants of policies “are not expendable paradigms that can be declared dead when governments tilt to one side or the other under the threat of capital outflows or the pressure of the street”[xiii] or, we should add, under the pressure of extreme economic and social circumstances. At least since 2008, this incoherent, chameleon-like combination has become a constitutive ingredient of the advanced liberal governance and, what’s more, of illiberal governance. The longevity of neoliberalism, just like Keynesianism’s return in times of crisis, shows the pragmatism and flexibility of neo-liberal decision-makers, as well as, more generally, the pragmatism and flexibility of ruling political parties, regardless of their ideological orientation. “Only by understanding this flexibility do the nine lives of neoliberalism become explainable”.[xiv]

Though everything is possible, not everything is equally possible – this is what the preceding analysis argues. Major economic crises, though experienced as turning points, are no longer such big game changers as was the catastrophic crisis of 1929, even if this might still be possible under certain circumstances. In all likelihood, emergency Keynesianism shall once again rescue – as it did in 2008-9 – economic (neo-) liberalism.

Notes and references

[i] This is a revised version of the shorter article "Paradigm shifts: The COVID-19 crisis in the light of the Great Crash and the 2008 financial Crisis", published online at IN DEPTH, vol.17, Issue 4, July 2020, pp.22-26 ( and also at

[ii] Kahler, Miles and Lake, David, 2013, "Introduction: Anatomy of Crisis: The Great Recession and Political Change" in Kahler, Miles and Lake, David (eds), Politics in the New Hard Times, The Great Recession in comparative perspective. Ithaca and London: Cornell University Press, p.23.

[iii] Helleiner, Eric, 2014, The Status Quo Crisis: Global Financial Governance After the 2008 Meltdown. Oxford, NY: Oxford University Press, p. vii.

[iv] Eichengreen, Barry and Temin, Peter, 1997, The Gold Standard and the Great Depression, National Bureau of Economic Research, Working Paper 6060, Cambridge, p.2.

[v] For explaining economic policy choices by linking policy outcomes to politics see the seminal work of Peter Gourevitch,1986, Politics in Hard Times. Comparative Responses to International Economic Crises. Ithaca, NY: Cornell University Press.

[vi] Gourevitch 1986, ibid., p.16.

[vii] Kitromilides, Yiannis, 2012, “The 1929 Crash and the Great Recession of 2008. Why the Policy Response Is Different but Not Different Enough”, Challenge, Vol. 55, No. 1, p.8.

[viii] The "mass financialized wealth", largely linked to the rising wealth of the middle classes, has decisively shaped the trend in favour of extensive bailouts during crises (Chwieroth, Jeffrey and Andrew Walter, "The wealth effect: The middle class and the changing politics of banking crises", 3 June 2019 ( Thus, crisis policy interventions have become more extensive and costly, even if this meant rewarding moral hazard and, subsequently, allowing the economic cost to be borne by taxpayers, including the lower classes.

[ix] Chwieroth, Jeffrey and Walter, Andrew, 2010, "Financial crises and political turnover: a long run panoramic view". Paper presented at the annual meeting of the International Political Economy Society, Harvard University. November 12-13, chart 1, p.3.

[x] For the key policy choices, full of internal tensions, which drove social democratic governments to disasters (Germany, UK) or great successes (mainly Sweden) in the interwar period, see Gerassimos Moschonas, 2018, “European Social Democracy, Communism and the Erfurtian Model.” in Outhwaite, William and Turner, Stephen (eds.), The SAGE Handbook of Political Sociology. London: Sage, pp. 527-531and 542-544.

[xi] The stimulus package adopted by the European Council (21-7-2020) is much less ambitious compared to the proposal of the European Commission (Next Generation EU, 27-5-2020), as it relies less on grants and reinforces the loans-based approach; it is nevertheless an unprecedented, for the low EU standards, investment program, which combines some form of one-off common debt issuance with cross-border transfers.

[xii] Badré Bertrand, Jean,Aurélie, “The Post-Pandemic Recovery’s Missing Link”, 18 September 2020 (

[xiii] Copley, Jack and Moraitis, Alexis, “Neoliberalism’s many deaths and strange non-deaths”, 18 June 2020 (

[xiv] Slobodian, Quinn and Plehwe, Dieter, 2020, “Preface” in Dieter Plehwe, Quinn Slobodian and Philip Mirowsky (eds.), Nine Lives of Neoliberalism. London: Verso, p.6.

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