Early 1990s recession

Description of the crisis.  

The early 1990s recession is an eight months period extending from july 1990 to approximately march 1991, caused by several factors. The most important ones are the high and abrupt rise in oil prices 1990 following Iraq’s invasion of Kowait, and the Federal Reserve’s monetary policy seeking to reduce the growth of the money supply^[1].

In the United States, it “endend the second longest period of economic expansion up to that point in the twentieth century after 1945”^[2]. Despite a relatively limited GDP drop (about of 1.3 percent - the second lowest GDP drop among the nine recessions that have occurred in the US between 1945 and the 1990s), the recession had important effects on unemployment (from 5.2% in early 1990 to 7.8% in June 1992) and wages^[3].

Implications for the European economy / European institutions. 

The recession impacted the European economy which underwent general decrease in employment (from 1.6 in 1989 to 0.6% in 1991)^[4] and slow growths (from 3.3% in 1989 to 2.2% in 1991)^[5]. Tightening economic policy and increases in interest rates negatively impacted investment^[6]. Especially, Finland and Sweden experienced an aggravated economic and banking crisis^[7].

The early 1990s recession overlapped with the monetary tensions caused by German reunification. It constitutes one of the factors that lead to the 1990s European currency crisis - culminating with the 1992 British “Black Wednesday” and the 1993 collapse of the EMS.

References.

Hannum, R. (2022). Recession of 1990-1991. EBSCO.

Jonung, L., & Hagberg, T. (2005). How costly was the crisis of the 1990s ? A comparative analysis of the deepest crises in Finland and Sweden over the last 130 years. Economic Papers. European Commission.

Papaioannou, G. (2004). The European Union in the 90’s. Fiscal Conditions and Concerns. European Resarch Studies, VII(3‑4).

[1] Hannum (2022)

[2] Ibid.

[3] Ibid.

[4] Papaioannou (2004)

[5] Ibid., p. 5

[6] Ibid. p. 5

[7] Jonung & Hagberg (2005)