In the early
1870s, property prices in Vienna, Berlin and Paris soared on the back of
a state-promoted building boom fuelled by easy credit extended against
the collateral of unbuilt or unfinished houses.
The crash that followed
parallels what has happened more recently and may, with other lessons
from U.S. history, provide pointers for the euro zone crisis.
As
the property prices soared, Europe's world was turned upside down.
Thanks to grain elevators, conveyor belts and huge steamships, American
farmers opening up the fertile Midwest were able to export vast
quantities of wheat and then processed food.
Grain producers from Russia and central Europe simply could not compete with what came to be known as the American Commercial Invasion.
The
crash came in central Europe in May 1873 as the low costs of the new
industrial superpower exposed long-held growth assumptions as
unrealistic. Continental banks collapsed, prompting British lenders to
hold back their capital, unsure who was most exposed to souring
mortgages. Interbank rates rocketed. (more)
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