Marshall Plan Commemorative Section: The European Response: Primacy of Politics

David Reynolds

From Foreign Affairs, May/ June 1997

Summary:  A look back at perhaps the most important foreign policy success of the postwar period. Edited by Peter Grose, with contributions by historians Diane B. Kunz and David Reynolds, a memoir by Charles P. Kindleberger, a profile of Marshall and Acheson by James Chace and one of Will Clayton by Gregory Fossedal and Bill Mikhail. And reflections from Roy Jenkins, Walt Rostow, and Helmut Schmidt.

David Reynolds is a Fellow of Christ's College at Cambridge University and author of two prize-winning books on World War II: The Creation of the Anglo-American Alliance, 1937-1941, and Rich Relations: The American Occupation of Britain, 1942-1945.

In April 1948 a permanent Organization for European Economic Cooperation was formed. With support from some of the smaller states, particularly the Benelux countries, Washington wanted the OEEC to be the instrument of European economic integration as well as the organizer of Marshall aid. But its structure differed little from the earlier CEEC. The venue was Paris, the chairman was British, and Anglo-French control was perpetuated through an executive committee (though its membership had been enlarged to seven). In August 1948 and again a year later, unseemly rows broke out over the allocation of aid. The "shopping list" approach was as evident as in 1947, and in September 1949 ECA Administrator Paul Hoffman decided that henceforth his office, not the national governments, would determine the allotment of assistance.

Britain and France both feared a powerful OEEC, and they cooperated to weaken its potential impact. The British still felt that their commercial and military interests demanded a global role -- Britain "was not a part of Europe; she was not simply a Luxembourg," as Bevin put it later and the French were equally opposed to a strong OEEC as a potential agent of American control. They blocked the appointment of Paul-Henri Spaak, the Belgian foreign minister and ardent integrationist who was the American choice and would have served as an energetic leader, as the agency's director-general, eventually compromising on Dirk Stikker, the Dutch foreign minister, who would play an anodyne role as a political conciliator. The Paris-London axis also resisted American pressure for the OEEC to sponsor a free-trade customs union. While both the Benelux and Scandinavian groups, which derived around one-fifth of their national income from Western European trade, were interested, Britain and France participated in more global commerce, and both countries envisaged recovery through protectionist regional groupings such as Britain's sterling area or France's "Little Europe."

The ECA Administrator Hoffman's campaign for a multilateral payments system, which would break Western Europe's postwar bilateral trade structure, met with even more widespread resistance. Britain, anxious to safeguard sterling's position as an international currency, naturally opposed the proposal, but Belgium, a creditor nation, also voiced strong doubts. What secured agreement on a European Payments Union in September 1950 was Hoffman's tactic of earmarking $600 million of the year's Marshall aid to back the scheme -- some 15 percent of the total funds committed that year. The payments union lasted eight years, until full currency convertibility was achieved, and it was one of the most significant institutional legacies of the Marshall Plan.

Nevertheless, by 1950 the ERP and the OEEC had been pushed to the margins of transatlantic diplomacy. American attention was now focused on military rather than economic aid: the Mutual Defense Assistance Act of 1949 approved $1.3 billion in weapons and equipment for friendly countries, mostly in the North Atlantic Treaty Organization. After the Korean War began in June 1950, Marshall aid -- and U.S. aid in general -- increasingly meant military hardware. Meanwhile, in September 1949, Britain had devalued the pound by 30 percent, prompting similar action by most other European currencies. Together with the boom in world raw-materials prices after the outbreak of the Korean War, the devaluation helped Britain narrow the dollar gap, seeming to vindicate its doubts about America's remedy for Europe's problems. But the lack of consultation over devaluation upset the continent, encouraging French Foreign Minister Robert Schuman and the new West German Chancellor Konrad Adenauer to move toward a Franco-German entente -- a pact of coal and steel to end the wars of blood and iron.

By autumn 1949 Schuman knew senior policymakers in Washington looked to France, not Britain, to facilitate the Franco-German rapprochement on which the future of Western Europe was seen to depend. The Schuman Plan for a European Coal and Steel Community was announced in May 1950, and henceforth these talks between France, West Germany, Italy, and the Benelux states became the focus for European integration.

ASSESSING THE IMPACT

Western Europe's economic and security situation changed dramatically between 1948 and 1951 -- partly, but not only, as a result of the Marshall Plan. Early histories lauded the plan's economic effect in extravagant terms; it was Europe's "great leap forward" that had saved the continent "from imminent economic ruin" and had laid "the real foundations of later prosperity." Of late, a more nuanced tone has been adopted, particularly by European economic historians but even by some American participants. As these more balanced histories recognize, ERP aid did not begin to flow until well into 1948, by which time European recovery was under way, not least in Germany. In Charles Maier's felicitous metaphor, American aid served like "the lubricant in an engine -- not the fuel -- allowing a machine to run that would otherwise buckle and bind."

Roughly two-thirds of Marshall aid went to four countries: nearly one-quarter to Britain, one-fifth to France, and roughly one-tenth each to Italy and West Germany. Yet in per capita terms, Norway and Austria were the greatest beneficiaries, with Marshall aid worth over $130 per head, compared with $19 for West Germans. The content of the assistance varied greatly. Forty percent of ERP imports into Britain was food, fuel, and fertilizer. Food also constituted a high proportion of Marshall aid to Germany, Austria, and Ireland, but, across much of continental Europe, over 20 percent of the assistance took the form of vehicles, machinery, iron, and steel. In general, food became less important after 1949. Countries also varied in the way they used counterpart funds, the receipts of national governments from the sale of ERP goods, which Washington wanted earmarked for specific purposes. Britain and Norway applied them almost entirely to debt retirement, but they were used largely for capital investment in Italy, West Germany, and above all France, where the Marshall Plan may be said to have saved the Monnet Plan.

Apart from recovery, the other great aim of the Marshall Plan was European integration. Here too its impact is neither simple nor clear. In 1947 it brought to a head the deepening crisis between the two superpowers and solidified the division of the continent. The successful inclusion of Austria within the ERP was of decisive importance in keeping that country, under four-power occupation, out of Stalin's control. While Prague (farther west than Vienna, as Austrians liked to observe, and traditionally linked to southern Germany) was pulled into the Soviet economic orbit, three-quarters of Austria's trade was brought within the OEEC. Within Western Europe, American aid was never used successfully as a lever of integration: the sums involved were too small and European diversity too great. On the other hand, the European Payments Union was a pioneering innovation. And the indirect effect of American pressure was considerable. It forced Western Europeans to think cooperatively, even if along different lines than the United States -- as indicated by Bevin's Western European Union and even the original CEEC. Above all, Marshall aid helped to buy French support for German recovery and to push Paris into a Franco-German solution to Europe's economic and security problems. For Bonn, this was handsome compensation for the fact that, in both absolute and relative per capita terms, West Germany did not do particularly well from the Marshall Plan.

The primary impact of Marshall aid was not economic or institutional but political. Europe's economies would have recovered from the war regardless. But to cover the dollar gap, imports would have been reduced and deflationary pressures imposed. The Marshall Plan was, therefore, vital politically because it promoted growth without depressing wages. All such reasoning is necessarily counterfactual, but it is reasonable to posit that continued austerity and dislocation would have increased alienation and the appeal of extremism. In the early 1930s the right had benefited from Europe's economic troubles; in 1947 it would be the communist left, particularly in the key countries of France and Italy. From this standpoint, the Marshall Plan was more important than Marshall aid, 1947 more decisive than the years that followed. The promise of American aid helped persuade the center-left in both of these countries to break with the communists and, in France's case, with Soviet foreign policy. Given America's isolationist record before 1939, a dramatic offer was necessary before the cautious and skeptical Europeans would embark on a gamble that went against their postwar swing to the left.