Disregarding a few exceptions, Europe was devastated by the war; the central and eastern regions the worst hit.
In economic terms the damage to Europe surpassed World War One levels, affecting all sectors from manufacturing to agriculture, to commerce and communications. European finances were also weak with many countries experiencing massive budget deficits and balance of payments problems, as the cost of imports increased faster than the income received from their exports.There was a chronic shortage of foreign exchange reserves, as “west European countries found it hard to earn US dollars”1 as their industrial economies were not as sophisticated as the developed American markets, and consequently Europeans could not sell to America.
As anticipated, there was a pent-up demand for goods which led to serious inflationary fears and left many countries in a vulnerable state. The general consensus of European governments was that rebuilding depended not only on the policies they adopted, but the need for rapid, effective external aid; a speedily revival seemed very much out of reach otherwise. The only world power that was strong enough to provide economic aid was America.The American fear was that there would be an American depression in Europe as they would not be able to pay for US exports. After all, “nearly half the world’s manufactured goods were produced in the USA”2. It was consequently believed that this would lead to a “depressing effect on business activity and employment in the USA”3. Germany was seen as the biggest problem, “where production and distribution had been reduced to a fraction of pre-war levels”4. A strong Germany was needed as it was at the very heart of Europe and the opinion was that a German recovery would ignite a recovery to the rest of Western Europe.
They aimed to promote the German economy in order to stimulate productivity, trade, and more importantly allow Germany to export producer goods to revive the rest of Western Europe.The Marshall Plan of 1947 was declared by US foreign secretary George C. Marshall to give economic aid to any country who needed it. In the long-term this was intended to “reduce barriers to the free flow of goods, services, and capital, [and] put intra-European trade and payments on a multilateral basis”5. European governments would buy imported products, which they would later sell to consumers in their own countries. These products were bought with their national currencies, which were also known as “counter part funds”. With the approval of the Marshall Plan Mission, an American agency which was set up in every country which was receiving US aid, these “counter part funds” could be used to help new forms of production in domestic economies, be pumped into projects which improved infrastructure or even to “reduce non-dollar trading deficits”6 or budget deficits. By dictating the conditions of the settlement the Americans could directly control what went on politically in each country it gave aid to.
Being twinned with the Truman doctrine earlier that year, the Marshall Plan had further political implications. Great Britain’s economic situation and the withdrawal from Greece were the first warnings of a need for a more aggressive use of American resources. There was also political turmoil in France and Italy where “worsening economic conditions brought on by the winter crisis were undermining governmental authority and strengthening Communist parties”7. Economic integration in Western Europe “could play an active role in the global containment of Soviet expansion”8. It was thought that economic growth would be the key to social harmony and would preserve political democracy; as Hogan puts it, there was “the conviction that economic growth was the way to ameliorate social divisions”9.
It was no surprise that although desperate for help, the Soviet satellites in the eastern bloc would only decline economic aid from America by Soviet leader Stalin “claiming that the conditions were not appropriate”10.Although many thought that significant funding didn’t come until the 1947 Marshall Plan was implemented, in the two years following the 1945 peace, all European nations had increased their industrial output beyond pre-war levels with the exception of Austria, France, Italy and the Netherlands. This was due, in no small part, to US dollars channelled through a number of different programmes across Europe mainly in an attempt to increase food supply and aid rapid reconstruction.
The Government and Relief in Occupied Areas (GARIOA) programme gave Germany $1.6 billion in the form of food, goods and services up to 1950. It was countries such as Poland, Hungary, Czechoslovakia and Albania who cherished the relief given through the United Nations Relief and Recovery Agency (UNRRA). In fact, this funding made up 11 per cent of Poland’s national income but this funding was short lived as those countries under the influence of the East missed out on Marshall Aid.The early European recovery, funded by US dollars in the projects aforementioned, had created balance of payments problems for many countries due to imports being bought at a far greater rate than exports could compensate for.
The combined trade deficits of the western European nations averaged at around $5 billion per annum over the three years after war11 and already in terms of deficit with America, Britain alone owed ï¿½655million12. The struggle for Europe to capture American markets for their goods led to the US solution of providing Europe with dollars as grants not loans.Between August 1948 and June 1952 a total of $12,817 million was provided by America to the following countries13:Britain$3,176 millionFrance$2,706 millionItaly$1,474 millionWest Germany$1,389 millionNetherlands$1,079 millionGreece$700 millionAustria$700 millionSource: Foreman-Peck, 1983, 273.This type of aid was different to those previous as it was not a Lend-Lease agreement such as during the war but it seemed a multi-clausal agreement had to be entered by those receiving the aid or what Mark Mazower called a “solid economic, political and military commitment”14. It was the political and military dimension that had thrown the issue of Europe’s dependency on US aid into question as the Americans, fearful of a weak Europe being overrun by communism, had a vested interest in aiding Europe whether it was economically necessary or not. The economic results of the Marshall Plan seemed to speak for themselves despite this criticism. Those countries that accepted Marshall aid, on average, saw Gross National Product (GNP) rise by 25 per cent, agricultural output up by 24 per cent, and industrial output up by 64 per cent. This confirmed that the aid was effective and ultimately necessary, emphasising European reliance on American funds.
On a political front, American aid had an immense impact on Western Europe and could unquestionably be seen as a total success. Americans helped change European capitalism “transforming industrial relations, preaching the gospel of scientific management and modernizing working practises and equipment”15, as Mark Mazower puts it. American approaches were adopted to encourage faster capitalist attitudes in the production process, and big campaigns were orchestrated. The conviction of enforcing economic growth meant that living standards also improved and so, therefore, there was no need to succumb to a communist take-over.
It is my opinion that US aid, in the form of the “Truman doctrine” and as we have seen the Marshall Plan, fuelled the beginnings of the cold war, a war which would only be fully over by as late as 1991.Ultimately, a European recovery was inevitable; US aid simply acted as a catalyst to speed up the rate at which the recovery was achieved. The degree to which the European recovery relied on US aid is actually quite exaggerated. The majority of European nations were very successful in generating domestic investment and when compared to their eastern counterparts, growth rates in western Europe were roughly on a par. Marshall Plan funds were used to “ease foreign-exchange bottlenecks, providing scarce dollars, and allowing growth to continue”16 at an accelerated rate.
However, Barry Eichengreen points out that “Marshall-Plan-Financed imports of US goods limited the market power of European producers”17. Another factor that influenced the recovery was the fact that there was tight government control exercised on credit and investment, which conveyed a general willingness for authorities to exert their power. There were two clear motives why America stepped in to aid Europe’s recovery. In economic terms they simply wanted to develop a market place, i.e.
Europe, where they could continue to sell to. Simultaneously there were political significances with this help, as it was America’s foreign policy objective to contain Soviet expansion, and later see the destruction of communism.