Early 1990s depression in Delkora

The early 1990s depression in Delkora was an economic depression that took place in 1991–1994. It was Delkora's worst economic crisis since the 1950s depression.

Caused by a banking crisis and the collapse of the "casino economy" that had emerged in the 1980s, the crisis resulted in the gross national income decreasing by 15%, unemployment rising to 18%, and a severe credit crunch. Inaction by the Ulrik Andersen government coupled with exposure of the neoliberal conspiracy also created a political crisis, culminating in Emma Jørgensen's National Labor winning the 1994 federal election and leading a leftist coalition government.

One lasting effect of the depression was devastation of Delkora's private sector, leading to an expansion in collective and communal ownership.

Casino economy

At the start of the 1980s, the Delkoran financial market was tightly regulated, while the national debt had increased as a result of borrowing required to fund the Tænk stort policy. The Central Bank of Delkora in return maintained relatively high interest rates to maintain the veld within the Common Monetary System.

Lars af Vellarand's government, which took office in 1983, launched a program of fiscal conservatism, privatisation, and deregulation. The latter aspect especially impacted the financial market, leading to a massive credit expansion based especially on foreign debt. Stock and real estate prices increased, attracting frantic speculative activity. Within the private sector, a boom in leveraged buyouts and corporate raids took place, and private banks moved into high-risk operations such as company takeovers and foreign investments, for which they had little experience.

These conditions were collectively nicknamed the "casino economy" (Delkoran: casinøkonomi). Although the Vellarand government's centrepiece effort to withdraw from the Common Sphere was defeated in a 1984 referendum, the currency situation represented the main risk to the casino economy. Commercial banks aggressively expanded borrowing in foreign currency, forcing the Central Bank to raise interest rates to prevent economic overheating. The government put pressure on the Central Bank to reduce interest rates, even if this meant destabilising the veld's exchange rate and forcing it out of the CMS.

Crisis

The exposure of the neoliberal conspiracy and razor-thin result of the 1991 federal election caused a political crisis that began to unravel the casino economy. As the far-left insurgency once again hit a peak and Labor Underground actions turned increasingly violent, foreign investors began to withdraw from Delkora. A credit crunch began, with two of the largest private banks collapsing into bankruptcy in late 1991, and a stock market crash occurring.

Ulrik Andersen refused to take action to stabilise the financial sector, causing immense controversy. Andersen's avowed neoliberal beliefs made him resistant to a bailout, and he had seen the controversy caused by the Conservatives' bailout of big business in the wake of the 1953 banking crisis. Instead, many emergency measures to combat the economic crisis were initiated by the opposition, and the government went along with them out of self-preservation.

The Delkoran Federal Parliament voted to set up a bad bank to liquidate bad debts and guarantee bank deposits, but financial stimulus was limited by the precarious minority government and hung parliament. Andersen pushed for austerity policies, which sparked large-scale protests and strikes, and heated up the far-left insurgency to a level not seen since the 1950s depression.

The economy contracted severely in 1991–1994, with gross national income down by 15%, unemployment reaching a peak of 18%, and a spate of bankruptcies creating a liquidity crisis. The private sector, heavily consolidated through the buyout boom of the previous decade, suffered the brunt of the crisis, with many large firms declaring bankruptcy. By contrast, the cooperative sector weathered the depression better, especially since many cooperatives were either absent from the stock market or had withdrawn due to the risk of corporate raids.

Aftermath

The perfect storm of the depression and neoliberal conspiracy turned voters strongly against the right-wing. The Conservatives suffered landslide defeats in the state elections of 1992; their inaction contributed to the Centre Democrats breaking off and siphoning much of the centre-right electorate. This was a prelude to the left's similarly crushing victory in the 1994 federal election.

Emma Jørgensen's National Labor–Liberal coalition used the crisis to implement sweeping reforms aimed at socialising the economy and reversing a decade of right-wing austerity. It began its term with a package of emergency measures that included suspending the veld's convertibility, a complete halt to international transfers, and a ⊻2 trillion economic stimulus program, much of it directed towards public works and environmental sustainability. The veld's convertibility was gradually restored as the economy emerged from depression, and it resumed its place in the CMS after an appropriate revaluation relative to other currencies.

In the long run, the depression greatly aided the passage of Jørgensen's program, especially with regards to socialisation of the economy. The depression had hit the private sector much harder than the cooperative sector, and the government took advantage with policies that increased collective and communal ownership. The right-wing being discredited as a result of the crisis transformed the framework surrounding productivity and inequality, and the government adopted socialist-oriented structural adjustments and active labor market policies in the context of the digital revolution, and largely succeded in transitioning to a post-industrial economy without severe losses to the manufacturing sector or declines in social indicators.