Marshall Plan

Marshall Plan
Marshall Plan
World War II decimated Europe’s infrastructure and economy, leaving bombed and gutted buildings, destroyed factories and businesses, and high unemployment. Hit heaviest were areas of industrial production and transportation. With Europe debt-ridden and financial reserves depleted by the war, the problems could not be easily fixed.

Both U.S. and European officials put forth several plans, all of which were rejected. The one alternative for recovery called for German reparations. However, many officials felt such a plan would be the same mistake that was made after World War I and opted instead for U.S. investment in Europe.

The United States initiated the European Recovery Program (ERP), generally referred to as the Marshall Plan. On June 5, 1947, U.S. Secretary of State George C. Marshall, in addressing the graduating class of Harvard University, outlined the U.S. government’s intentions for aiding European recovery.

Marshall called for Europeans to create a plan that the United States, whose economy had grown rapidly during the war and the one major power whose infrastructure remained intact, would then subsidize. State Department officials would work with the nations of Europe to develop the program, which was named for Marshall.

A month after Marshall’s speech European officials, led by British foreign secretary Ernest Bevin and French foreign minister Georges Bidault, met in Paris to discuss options for the proposal at the Conference of European Economic Cooperation (CEEC). Invited by the Western powers as a sign of good faith, the Soviet Union attended the conference as well.

However, Foreign Minister Vyacheslav M. Molotov walked out, calling for Soviet rejection of the plan. Seeing it as a U.S. scheme to subjugate Europe by promoting free trade and economic unity, Soviet premier Joseph Stalin pressured Czechoslovakia, Poland, and Hungary into rejecting it as well.

In September the CEEC approved the formation of the Organisation for European Economic Cooperation (OEEC) to oversee the European side of the recovery program. Except for Germany and Spain, every nation outside the Soviet sphere joined.

On April 2, 1948, the U.S. Congress formally authorized the ERP through passage of the Economic Cooperation Act, which President Truman signed the next day. Truman appointed Paul G. Hoffman, president of the Studebaker automobile corporation, as head of the Economic Cooperation Administration (ECA), the U.S. agency that operated the ERP.

Marshall Plan Poster
Marshall Plan Poster

W. Averell Harriman, a Lend-Lease representative to Britain and secretary of commerce under Truman, was made special representative to the participating countries to advise them on the program.

Beginning operations in July 1948, the ECA had the objectives of strengthening European currencies, encouraging the development of industrial production, and facilitating international trade within Europe and its partners, especially the United States.

Meanwhile, the OEEC met to determine European needs prior to any distribution of appropriations under the act. The revitalization plan proposed to the United States asked for $22 billion in aid. Congress approved a Truman-backed $17-billion aid package with strong bipartisan support.

The amount of aid received varied by country on a per capita basis. For instance, Great Britain received an approximate total of $3.3 billion while Iceland received only $43 million. Moreover, Allied nations and major industrial powers were given priority aid over those that had sided with the Axis powers or had remained neutral during the war. The same went for countries seen as strategic in the fight against communism, like West Germany.

The basic idea of the plan was simple: The United States gave monetary grants to participating countries, which then utilized that aid to buy the materials needed for recovery—typically from the United States. The ECA and local governments jointly administered and processed the exchange, examining and distributing the aid where needed.

As a result the U.S. economy flourished as the European recovery effort grew. Early on, imports consisted mostly of essential items like food, fuel, and materials for reconstruction; however, as western Europe stabilized and the cold war heated up, aid went more toward rebuilding military capabilities to defend against communist expansion.

On the other hand, eastern Europe’s forced rejection of the Marshall Plan clearly showed the division in Europe leading toward the cold war. Unlike its former allies, the Soviet Union imposed large reparations on former Axis nations in its sphere of influence.

Finland, Hungary, Romania, and East Germany were all forced to pay large stipends to the Soviet Union as well as to provide supplies and raw materials. Consequently the economies of eastern Europe did not recover as quickly, if at all, under Soviet rule.

Over the four years of the Marshall Plan’s existence, participating countries received in total close to $13 billion in economic aid; with the exception of West Germany, the economies of all surpassed prewar levels when the program ended in 1951.

Under the provisions of the plan none of the aid had to be repaid, as it was absorbed and reinvested in the economies of Europe and the United States. The lone exception was West Germany, which had to repay the United States a reduced amount of $1 billion; the final payment came in 1971.

Seen as the first instrument of sustained European economic integration, the European Recovery Program removed tariff barriers, ended protectionism, and established institutions that could control the economy on a continental level—an idea European leaders had sought to institute in the past.