This chapter covers the Soviet-German war after the December 1941 Battle of Moscow and the failure of the initial Blitzkrieg; the Red Army takes the initiative after the Battle of Stalingrad and drives the Wehrmacht back to the western borderlands of the USSR by the spring of 1944. The Soviet winter offensive in 1941-2. Stalin’s over-optimism leads to setbacks at Kharkov and in Crimea. Hitler’s spring 1942 ‘second offensive’, Operation BLUE, concentrated in southern Russia. The Battle of Stalingrad; reasons for the success of Russian counter-attack. The responsibility of Hitler and his generals. Improvements in the Red Army are critically important. Spring 1943 and Hitler’s delayed attempt at a limited offensive in Operation CITADEL. The Battle of Kursk is followed by a successful Red Army counter-offensive across Ukraine in 1943-4. Developing diplomatic relations between Russia, Britain, and America. The Communist International disbanded. The first meeting of the ‘Big Three’ leaders at Tehran in late 1943: agreements about Polish borders and the timing of the British and American cross-Channel landing.

The introduction lays out the basic arguments, and also explains the emphasis on grand strategy and operations. The Axis powers declared their aim as a ‘new order of things’, notably in their 1940 Tripartite Pact. This contrasted with the ‘old’ order created by the Allies after World War I, exemplified by the Paris peace treaties of 1919 and Washington Treaty of 1922. These treaties dealt with Europe and Asia respectively, and they demonstrate that the causes and course of the next struggle would be global. World War II began in China in July 1937, rather than in Europe in 1939; the Asia-Pacific war was as important as the war in Europe. The book’s focus on grand strategy and military operation is warranted, partly for reasons of space and partly because this is the history of a war, and the outcome was victory or defeat.

Having a well-functioning financial system in place that directs funds to their most productive uses is a crucial prerequisite for economic development. The financial system consists of the financial infrastructure and all financial intermediaries and financial markets, and their relationships with respect to the flow of funds to and from households, governments, business firms, and foreigners. The main task of the financial system is to channel funds from those with a surplus to sectors that have a shortage of funds. In doing so, the financial sector performs two main functions: (1) reducing information and transaction costs and (2) facilitating the trading, diversification, and management of risk. This chapter discusses both of these functions at length. The importance of financial markets and financial intermediaries differs across Member States of the European Union. An important question is how these differences affect macroeconomic outcomes.

This chapter reviews the reasons for regulating and supervising the financial services industry. Regulation refers to the process of rule making and the legislation underlying the supervisory framework, while supervision involves monitoring the behaviour of individual firms and enforcing legislation. The case for government intervention is based on market failures. The chapter distinguishes between prudential supervision and conduct-of-business supervision. Prudential supervision aims to protect consumers by ensuring the safety and soundness of financial institutions. Conduct-of-business supervision focuses on how financial institutions deal with their customers and how financial institutions behave in markets. Conduct-of-business rules also promote fair and orderly markets. Finally, the chapter discusses financial supervision in the EU, including whether national-based supervision is appropriate in an integrating market.

This chapter covers the background in East Asia, the outbreak of war there in the 1937, and events to 1941. The Japanese annexation of Manchuria in 1931. Pre-war development of the Chinese and Japanese armed forces. The Marco Polo Bridge incident of July 1937 as the actual beginning of World War II; Japan and China will now be at war continuously until August 1945. The extension of war to eastern central China; the Battle of Shanghai and the Nanjing massacre. International reactions and extension of the Sino-Japanese War. Japanese occupation of eastern China, followed by strategic stalemate. China suffers heavy losses, but Japan is unable to bring the war to a conclusion. Relations between Japan and Russia. The Japanese threat as a factor in Russian rearmament. The Lake Khasan and Khalkhin Gol border fighting in 1938 and 1939.

This chapter looks at developments in Japan and the USA before December 1941, and the triumph of Japan’s forces in Southeast Asia and the Pacific in the first four months after they began a war against Britain and the USA. Why Japan attacked: unresolved war in China and developments in Europe. Resource objectives in Southeast Asia. American economic strength, and President Roosevelt’s response to developments in Europe. Growth of the US Navy from the late 1930s. Support by neutral USA for Britain and Russia, including Lend-Lease military aid. American economic pressure on Japan. Failure of American-Japanese negotiations in Washington. Pearl Harbor: the ‘Southern Operation’ versus the ‘Hawaiian Operation’. The German declaration of war on the USA on 10 December 1941. Failure of American forces in the Philippines. British naval disaster off Malaya. Japanese advance into Malaya, Burma, and the Netherlands Indies; the fall of Singapore and its implications for the British Empire.

This chapter describes the monetary policy of the European Central Bank (ECB). Since the start of the monetary union in 1999, the ECB has been responsible for monetary policy making in the euro area. The ECB and the national central banks of eurozone countries make up the Eurosystem. The Maastricht Treaty defines the ECB’s primary objective as achieving ‘price stability’. The ECB specifies this objective as inflation ‘below but close to’ 2 per cent in the euro area in the medium term. The ECB has an array of instruments available to realise this objective. The chapter analyses several non-standard (or unconventional) policy measures in response to the financial crisis, the euro crisis and the low inflation. Policy decisions are the outcome of the monetary policy strategy. The ECB has a ‘two-pillar’ strategy that pairs the discussion of a broad-based analysis of the risks to price stability in the short to medium run (‘economic analysis’) with monetary factors (‘monetary analysis’).

This chapter discusses World War II in Europe, as it changes in 1941 from a primarily military struggle to one with a strong ideological dimensions; this includes the anti-Communist crusade in Russia and the mass murder of European Jews. Problems with the plan for Operation BARBAROSSA. Strengths and weaknesses of the Red Army. Intelligence warnings ignored by Moscow. The first Blitzkrieg campaign in Russia. Negative effect of space and climate on the German offensive. Russian nationalism used to rally the population. Operation TYPHOON and the Battle of Moscow. Accumulation of Red Army reserves. Failure of the initial Blitzkrieg in Russia and its long-term implications. Criminal and counter-productive occupation policy. Nazi racial policy extends to mass murder of the Jews and others in 1941. Relationship between genocide and total war. Mobile killing units in Russia, and deportation of Jews to killing centres in western and central occupied Europe. Effect of the Holocaust on the course of the war.

This chapter assesses the role of maritime power and global logistics in the outcome of the naval war in the Atlantic, the Pacific, and the Indian Ocean. Theories of sea power and land power: Mahan and Mackinder. Blockade in Allied and Axis strategy. The vital importance of the British merchant fleet. New German submarine tactics, and Allied counter-measures. The US Navy in the Atlantic before the formal outbreak of war. Success of the U-boat attacks in early 1942. Allied anti-submarine warfare, including communications intelligence and radar. Large-scale Allied construction of escort ships, and growing role of long-range patrol aircraft and escort carriers. Admiral Dönitz recalls U-boats from the North Atlantic in May 1943. Inability of the German forces, including the U-boats, to oppose amphibious operations. Failure of new U-boat types. Limited success of the Japanese submarine fleet against Allied supply lines. Japanese failure to develop effective escort forces. The American submarine campaign develops after torpedo problems are solved. Global importance of Allied construction of new merchant ships and port facilities; this is crucial for Allied survival and then for successful global counter-attack. Advantages of the oceanic powers over the continental ones.