Marshall Plan

Marshall Plan

Overview

The Marshall Plan was the large-scale American program to aid Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

 where the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 gave monetary support to help rebuild European economies after the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

 in order to combat the spread of Soviet communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...

. The plan was in operation for four years beginning in April 1948. The goals of the United States were to rebuild a war-devastated region, remove trade barrier
Trade barrier
Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...

s, modernize industry, and make Europe prosperous again.
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The Marshall Plan was the large-scale American program to aid Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

 where the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 gave monetary support to help rebuild European economies after the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

 in order to combat the spread of Soviet communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...

. The plan was in operation for four years beginning in April 1948. The goals of the United States were to rebuild a war-devastated region, remove trade barrier
Trade barrier
Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...

s, modernize industry, and make Europe prosperous again. The initiative was named after Secretary of State
United States Secretary of State
The United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...

 George Marshall
George Marshall
George Catlett Marshall was an American military leader, Chief of Staff of the Army, Secretary of State, and the third Secretary of Defense...

. The plan had bipartisan support in Washington, where the Republicans controlled Congress and the Democrats controlled the White House. The Plan was largely the creation of State Department
United States Department of State
The United States Department of State , is the United States federal executive department responsible for international relations of the United States, equivalent to the foreign ministries of other countries...

 officials, especially William L. Clayton
William L. Clayton
William Lockhart "Will" Clayton was an American business leader and government official.-Early life and career:...

 and George F. Kennan
George F. Kennan
George Frost Kennan was an American adviser, diplomat, political scientist and historian, best known as "the father of containment" and as a key figure in the emergence of the Cold War...

. Marshall spoke of urgent need to help the European recovery in his address at Harvard University in June 1947.

The reconstruction plan, developed at a meeting of the participating European states, was established on June 5, 1947. It offered the same aid to the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

 and its allies
Eastern bloc
The term Eastern Bloc or Communist Bloc refers to the former communist states of Eastern and Central Europe, generally the Soviet Union and the countries of the Warsaw Pact...

, but they did not accept it. During the four years that the plan was operational, US $13 billion in economic and technical assistance was given to help the recovery of the European countries that had joined in the Organization for European Economic Co-operation. This $13 billion was in the context of a U.S. GDP of $258 billion in 1948, and was on top of $12 billion in American aid to Europe between the end of the war and the start of the Plan that is counted separately from the Marshall Plan. The Marshall Plan was replaced by the Mutual Security Plan
Mutual Security Act
The Mutual Security Act of 1951 is a United States federal law, signed on October 10, 1951 by President Harry S. Truman, which authorized nearly $7.5 billion for foreign military, economic, and technical foreign aid to American allies; the aid was aimed primarily at shoring up Western Europe, as...

 at the end of 1951.

The ERP addressed each of the obstacles to postwar recovery. The plan looked to the future, and did not focus on the destruction caused by the war. Much more important were efforts to modernize European industrial and business practices using high-efficiency American models, reduce artificial trade barriers, and instill a sense of hope and self-reliance.

By 1952 as the funding ended, the economy of every participant state had surpassed pre-war levels; for all Marshall Plan recipients, output in 1951 was at least 35% higher than in 1938. Over the next two decades, Western Europe enjoyed unprecedented growth and prosperity, but economists are not sure what proportion was due directly to the ERP, what proportion indirectly, and how much would have happened without it. The Marshall Plan was one of the first elements of European integration
European integration
European integration is the process of industrial, political, legal, economic integration of states wholly or partially in Europe...

, as it erased trade barriers and set up institutions to coordinate the economy on a continental level—that is, it stimulated the total political reconstruction of western Europe.

Belgian economic historian Herman Van der Wee concludes the Marshall Plan was a "great success":
"It gave a new impetus to reconstruction in Western Europe and made a decisive contribution to the renewal of the transport system, the modernization of industrial and agricultural equipment, the resumption of normal production, the raising of productivity, and the facilitating of intra-European trade."


Wartime destruction



By the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...

 much of Europe was devastated. Sustained aerial bombardment had badly damaged most major cities, and industrial facilities were especially hard-hit. The region's trade flows had been thoroughly disrupted; millions were in refugee camps living on aid from United Nations Relief and Rehabilitation Administration
United Nations Relief and Rehabilitation Administration
The United Nations Relief and Rehabilitation Administration was an international relief agency, largely dominated by the United States but representing 44 nations. Founded in 1943, it became part of the United Nations in 1945, was especially active in 1945 and 1946, and largely shut down...

 and other agencies. Food shortages were severe, especially in the harsh winter of 1946–1947.

Especially damaged was transportation infrastructure, as railways, bridges, and docks had been specifically targeted by air strikes, while much merchant shipping had been sunk. Although most small towns and villages in Western Europe had not suffered as much damage, the destruction of transportation left them economically isolated. None of these problems could be easily remedied, as most nations engaged in the war had exhausted their treasuries in its execution.

The only major powers whose infrastructure had not been significantly harmed in World War II were the United States and Canada. They were much more prosperous than before the war but exports were a small factor in the American economy. Much of the Marshall Plan aid would be used by the Europeans to buy manufactured goods and raw materials from the United States and Canada.

Slow recovery



Europe's economies were recovering very slowly, as unemployment and food shortages led to strikes and unrest in several nations. In 1947 the European economies were still well below their pre-war levels and were showing few signs of growth. Agricultural production was 83% of 1938 levels, industrial production was 88%, and exports only 59%. In Britain the situation was not as severe. In Germany in 1945-46 housing and food conditions were bad, as the disruption of transport, markets and finances slowed a return to normal. In the West, bombing had destroyed 5,000,000 houses and apartments, and 12,000,000 refugees from the east had crowded in. Food production was only two-thirds of the prewar level in 1946-48, while normal grain and meat shipments no longer arrived from the East. Furthermore the large shipments of food from occupied nations that had sustained Germany during the war ended. Industrial production fell more than half and reached prewar levels only at the end of 1949

During the first three years of occupation of Germany the UK and US vigorously pursued an industrial disarmament program in Germany
Industrial plans for Germany
The Industrial plans for Germany were designs the Allies considered imposing on Germany in the aftermath of World War II to reduce and manage Germany's industrial capacity.-Background:...

, partly by removal of equipment but mainly through an import embargo on raw materials and deliberate economic neglect. As a consequence of the industrial disarmament of Germany, whose economy by mid-1947 was deteriorating rapidly, the economic stagnation of Europe became inevitable. By shutting down the German industry the Allies disrupted the intra-European trade, a trade that was vital for European recovery, and they thereby delayed the European economic recovery. Nicholas Balabkins concludes that "as long as German industrial capacity was kept idle the economic recovery of Europe was delayed" and that "To nurse Europe back to economic health the Marshall Plan scrapped the early postwar economic chains of Germany." Vladimir Petrov concludes that as a result of the early punitive occupation of Germany the Allies "delayed by several years the economic reconstruction of the wartorn continent".

By July 1947 Washington realized that economic recovery in Europe could not go forward without the reconstruction of the German industrial base, deciding that that an "orderly, prosperous Europe requires the economic contributions of a stable and productive Germany." Unless West Germany became the engine of growth the economic stagnation of Europe became inevitable.

In addition, the power and popularity of indigenous communist parties in several Western European states worried the United States. In both France and Italy, the crisis of the postwar era had provided fuel for their Communist Parties, which had become well organized in the resistance movements of the war. These parties had seen significant electoral success in the postwar elections. Though today many historians feel the possibility of France and Italy falling to the communists was remote, it was regarded as a very real possibility by American policy makers at the time.

The American administration of Harry Truman began to believe this possibility in early March 1946, with the Soviets' violation of the withdrawal deadline in Iran, and Churchill's Iron Curtain speech, given in Truman's presence a few days later. In the administration's view, the United States needed to adopt a definite position on the world scene or fear losing credibility. The emerging doctrine of containment
Containment
Containment was a United States policy using military, economic, and diplomatic strategies to stall the spread of communism, enhance America’s security and influence abroad, and prevent a "domino effect". A component of the Cold War, this policy was a response to a series of moves by the Soviet...

 (as opposed to rollback
Rollback
In political science, rollback is the strategy of forcing change in the major policies of a state, usually by replacing its ruling regime. It contrasts with containment, which means preventing the expansion of that state; and with détente, which means a working relationship with that state...

) argued that the United States needed to substantially aid non-communist countries to stop the spread of Soviet influence. There was also some hope that the Eastern European nations would join the plan, and thus be pulled out of the emerging Soviet bloc, but that was not to happen.

In January 1947, Truman appointed retired General George Marshall
George Marshall
George Catlett Marshall was an American military leader, Chief of Staff of the Army, Secretary of State, and the third Secretary of Defense...

 as Secretary of State, in July 1947 he scrapped JCS 1067 which had decreed "take no steps looking toward the economic rehabilitation of Germany [or] designed to maintain or strengthen the German economy." Thereafter, JCS 1067 was supplanted by JCS 1779, stating that "an orderly and prosperous Europe requires the economic contributions of a stable and productive Germany." The restrictions placed on German heavy industry production were partly ameliorated, permitted steel production levels were raised from 25% of pre-war capacity to a new limit placed at 50% of pre-war capacity.

With a Communist insurgency threatening Greece, and Britain financially unable to continue its aid, the President announced his Truman Doctrine
Truman Doctrine
The Truman Doctrine was a policy set forth by U.S. President Harry S Truman in a speech on March 12, 1947 stating that the U.S. would support Greece and Turkey with economic and military aid to prevent their falling into the Soviet sphere...

 on 12 March 1947, "to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures", with an aid request for consideration and decision, concerning Greece and Turkey. Also in March 1947, former U.S. President Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...

, in one of his reports from Germany
The President's Economic Mission to Germany and Austria
The President's Economic Mission to Germany and Austria was a series of reports commissioned by US President Harry S. Truman and written by former US President Herbert Hoover....

, argued for a change in U.S. occupation policy, amongst other things stating:
There is the illusion that the New Germany left after the annexations can be reduced to a 'pastoral state'. It cannot be done unless we exterminate or move 25,000,000 people out of it.

Hoover further noted that, "The whole economy of Europe is interlinked with German economy through the exchange of raw materials and manufactured goods. The productivity of Europe cannot be restored without the restoration of Germany as a contributor to that productivity." Hoover's report led to a realization in Washington that a new policy was needed; "almost any action would be an improvement" on current policy." In Washington, the Joint Chiefs declared that the "complete revival of Germany industry, particularly coal mining" was now of "primary importance" to American security.

The United States was already spending a great deal to help Europe recover. Over $14 billion was spent or loaned during the postwar period through the end of 1947, and is not counted as part of the Marshall Plan. Much of this aid was designed to restore infrastructure and help refugees. Britain, for example, received an emergency loan of $3.75 billion.

The United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...

 also launched a series of humanitarian and relief efforts almost wholly funded by the United States. These efforts had important effects, but they lacked any central organization and planning, and failed to meet many of Europe's more fundamental needs. Already in 1943, the United Nations Relief and Rehabilitation Administration (UNRRA) was founded to provide relief to areas liberated from Germany. UNRRA provided billions of dollars of rehabilitation aid, and helped about 8 million refugees. It ceased operations in the DP camps
Displaced persons camp
A displaced persons camp or DP camp is a temporary facility for displaced persons coerced into forced migration. The term is mainly used for camps established after World War II in West Germany and in Austria, as well as in the United Kingdom, primarily for refugees from Eastern Europe and for the...

 of Europe in 1947; many of its functions were transferred to several UN agencies.

Soviet negotiations


After Marshall's appointment in January 1947, administration officials met with Soviet Foreign Minister Vyacheslav Molotov
Vyacheslav Molotov
Vyacheslav Mikhailovich Molotov was a Soviet politician and diplomat, an Old Bolshevik and a leading figure in the Soviet government from the 1920s, when he rose to power as a protégé of Joseph Stalin, to 1957, when he was dismissed from the Presidium of the Central Committee by Nikita Khrushchev...

 and others to press for an economically self-sufficient Germany, including a detailed accounting of the industrial plants, goods and infrastructure already removed by the Soviets in their occupied zone. The Soviets took a punitive approach, pressing for a delay rather than an acceleration in economic rehabilitation, demanding unconditional fulfillment of all prior reparation claims, and pressing for progress toward nationwide socioeconomic transformation. After six weeks of negotiations, Molotov rejected all of the American and British proposals. Molotov also rejected the counter-offer to scrap the British-American "Bizonia" and to include the Soviet zone within the newly constructed Germany. Marshall was particularly discouraged after personally meeting with Stalin to explain that the United States could not possibly abandon its position on Germany, while Stalin expressed little interest in a solution to German economic problems.

The speech


After the adjournment of the Moscow conference following six weeks of failed discussions with the Soviets regarding a potential German reconstruction, the United States concluded that a solution could not wait any longer.

To clarify the U.S.'s position, a major address by Secretary of State
United States Secretary of State
The United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...

 George Marshall
George Marshall
George Catlett Marshall was an American military leader, Chief of Staff of the Army, Secretary of State, and the third Secretary of Defense...

 was planned. Marshall gave the address to the graduating class of Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...

 on June 5, 1947. Standing on the steps of Memorial Church
Memorial Church of Harvard University
The Memorial Church of Harvard University, more commonly known as the Harvard Memorial Church is a building on the campus of Harvard University.-Predecessors:...

 in Harvard Yard
Harvard Yard
Harvard Yard is a grassy area of about , adjacent to Harvard Square in Cambridge, Massachusetts, that constitutes the oldest part and the center of the campus of Harvard University...

, he offered American aid to promote European recovery and reconstruction. The speech described the dysfunction of the European economy and presented a rationale for U.S. aid.

The modern system of the division of labor upon which the exchange of products is based is in danger of breaking down. . . . Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace. Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the U.S.A.
Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.

Marshall was convinced that economic stability would provide political stability in Europe. He offered aid, but the European countries had to organize the program themselves.

The speech, written by Charles Bohlen, contained virtually no details and no numbers. More a proposal than a plan, it was presented vaguely and made little impact in America. Eight weeks after the Harvard speech, the State Department wrote in a confidential memorandum that "The Marshall Plan has been compared to a flying saucer — nobody knows what it looks like, how big it is, in what direction it is moving, or whether it really exists." The most important element of the speech was the call for the Europeans to meet and create their own plan for rebuilding Europe, and that the United States would then fund this plan. The administration felt that the plan would likely be unpopular among many Americans, and the speech was mainly directed at a European audience. In an attempt to keep the speech out of American papers journalists were not contacted, and on the same day Truman called a press conference to take away headlines. In contrast, Dean Acheson, an Under Secretary of State, was dispatched to contact the European media, especially the British media, and the speech was read in its entirety on the BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...

.

Rejection by the Soviets


British Foreign Secretary Ernest Bevin
Ernest Bevin
Ernest Bevin was a British trade union leader and Labour politician. He served as general secretary of the powerful Transport and General Workers' Union from 1922 to 1945, as Minister of Labour in the war-time coalition government, and as Foreign Secretary in the post-war Labour Government.-Early...

 heard Marshall's radio broadcast speech and immediately contacted French Foreign Minister Georges Bidault
Georges Bidault
Georges-Augustin Bidault was a French politician. During World War II, he was active in the French Resistance. After the war, he served as foreign minister and prime minister on several occasions before he joined the Organisation armée secrète.-Early life:...

 to begin preparing a quick European response to (and acceptance of) the offer. The two agreed that it would be necessary to invite the Soviets as the other major allied power. Marshall's speech had explicitly included an invitation to the Soviets, feeling that excluding them would have been too clear a sign of distrust. State Department officials, however, knew that Stalin
Joseph Stalin
Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...

 would almost certainly not participate, and that any plan that would send large amounts of aid to the Soviets was unlikely to be approved by Congress.

Initial reactions


While the Soviet ambassador in Washington saw the Marshall Plan as means to create an anti-Soviet bloc, Stalin felt that the Soviets should take the offer. Stalin directed that, in negotiations to be held in Paris regarding the aid, countries in the Eastern Bloc must not agree to accepting economic conditions. Stalin changed his outlook when he learned that credits would be extended only on willingness to accept economic cooperation and that Germany would also be extended aid, which he thought would hamper the Soviets' ability to exercise influence in western Germany.

Initially, Stalin planned to attempt to kill, or at least hamper, the Plan through destructive participation in the Paris talks regarding conditions. However, he quickly realized that this would be impossible when Molotov reported after his July 1947 arrival in Paris that no major modifications were negotiable in accepting the credit. Looming as just as large a concern was the Czechoslovak eagerness to accept the aid, as well as indications of a similar Polish attitude.

Stalin suspected a possibility that these Eastern Bloc countries might defy Soviet directives not to accept the aid, potentially causing a loss of control in the Eastern Bloc. In addition, the most important condition was that every country to join the plan would need to have its economic situation independently assessed, scrutiny to which the Soviets could not agree. Bevin and Bidault also insisted that any aid be accompanied by the creation of a unified European economy, something incompatible with the strict Soviet command economy.

Compulsory Eastern Bloc rejection - Compulsory Western Bloc acceptance


Soviet Foreign Minister Vyacheslav Molotov
Vyacheslav Molotov
Vyacheslav Mikhailovich Molotov was a Soviet politician and diplomat, an Old Bolshevik and a leading figure in the Soviet government from the 1920s, when he rose to power as a protégé of Joseph Stalin, to 1957, when he was dismissed from the Presidium of the Central Committee by Nikita Khrushchev...

 left Paris, rejecting the plan. Thereafter, statements were made suggesting a future confrontation with the West, calling the United States both a "fascizing" power and the "center of worldwide reaction and anti-Soviet activity," with all U.S.-aligned countries branded as enemies. The Soviets also then blamed the United States for communist losses in elections in Belgium, France and Italy months earlier, in the spring of 1947. It claimed that "marshallization" must be resisted and prevented by any means, and that French and Italian communist parties were to take maximum efforts to sabotage the implementation of the Plan. In addition, Western embassies in Moscow were isolated, with their personnel being denied contact with Soviet officials.

On July 12, a larger meeting was convened in Paris. Every country of Europe was invited, with the exceptions of Spain (a World War II neutral that had sympathized with Axis powers) and the small states of Andorra
Andorra
Andorra , officially the Principality of Andorra , also called the Principality of the Valleys of Andorra, , is a small landlocked country in southwestern Europe, located in the eastern Pyrenees mountains and bordered by Spain and France. It is the sixth smallest nation in Europe having an area of...

, San Marino
San Marino
San Marino, officially the Republic of San Marino , is a state situated on the Italian Peninsula on the eastern side of the Apennine Mountains. It is an enclave surrounded by Italy. Its size is just over with an estimated population of over 30,000. Its capital is the City of San Marino...

, Monaco
Monaco
Monaco , officially the Principality of Monaco , is a sovereign city state on the French Riviera. It is bordered on three sides by its neighbour, France, and its centre is about from Italy. Its area is with a population of 35,986 as of 2011 and is the most densely populated country in the...

, and Liechtenstein
Liechtenstein
The Principality of Liechtenstein is a doubly landlocked alpine country in Central Europe, bordered by Switzerland to the west and south and by Austria to the east. Its area is just over , and it has an estimated population of 35,000. Its capital is Vaduz. The biggest town is Schaan...

. The Soviet Union was invited with the understanding that it would likely refuse. The states of the future Eastern Bloc
Eastern bloc
The term Eastern Bloc or Communist Bloc refers to the former communist states of Eastern and Central Europe, generally the Soviet Union and the countries of the Warsaw Pact...

 were also approached, and Czechoslovakia
Czechoslovakia
Czechoslovakia or Czecho-Slovakia was a sovereign state in Central Europe which existed from October 1918, when it declared its independence from the Austro-Hungarian Empire, until 1992...

 and Poland
Poland
Poland , officially the Republic of Poland , is a country in Central Europe bordered by Germany to the west; the Czech Republic and Slovakia to the south; Ukraine, Belarus and Lithuania to the east; and the Baltic Sea and Kaliningrad Oblast, a Russian exclave, to the north...

 agreed to attend. In one of the clearest signs of Soviet control over the region, the Czechoslovakian foreign minister, Jan Masaryk
Jan Masaryk
Jan Garrigue Masaryk was a Czech diplomat and politician and Foreign Minister of Czechoslovakia from 1940 to 1948.- Early life :...

, was summoned to Moscow and berated by Stalin for thinking of joining the Marshall Plan. Polish Prime minister Josef Cyrankiewicz was rewarded by Stalin for the Polish rejection of the Plan. Russia rewarded Poland with a lucrative five-year trade agreement, the equivalent of 450 million 1948 dollars in credit, 200,000 tons of grain, heavy machinery, and factories.

The Marshall Plan participants were not surprised when the Czechoslovakian and Polish delegations were prevented from attending the Paris meeting. The other Eastern European states immediately rejected the offer. Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

 also declined in order to avoid antagonizing the Soviets (see also Finlandization
Finlandization
Finlandization is a term used to describe the influence that one powerful country may have on the policies of a smaller neighboring country.It is generally considered to be pejorative, originating in West German political debate of the late 1960s and 1970s...

). The Soviet Union's "alternative" to the Marshall plan, which was purported to involve Soviet subsidies and trade with western Europe, became known as the Molotov Plan
Molotov Plan
The Molotov Plan was the system created by the Soviet Union in 1947 in order to provide aid to rebuild the countries in Eastern Europe that were politically and economically aligned to the Soviet Union...

, and later, the COMECON
Comecon
The Council for Mutual Economic Assistance , 1949–1991, was an economic organisation under hegemony of Soviet Union comprising the countries of the Eastern Bloc along with a number of communist states elsewhere in the world...

. In a 1947 speech to the United Nations, Soviet deputy foreign minister Andrei Vyshinsky said that the Marshall Plan violated the principles of the United Nations. He accused the United States of attempting to impose its will on other independent states, while at the same time using economic resources distributed as relief to needy nations as an instrument of political pressure.

Stalin immediately sought to take stronger control over the Eastern Bloc countries, abandoning the prior appearance of democratic institutions. When it appeared that, in spite of heavy pressure, non-communist parties might receive in excess of 40 percent of the vote in the August 1947 Hungarian elections, an all-out repression was instituted to suppress independent political forces. In that same month, total annihilation of the opposition in Bulgaria began on the basis of continuing instructions by Soviet cadres.

Szklarska Poręba meeting


In late September, the Soviet Union called a meeting of nine European Communist parties in southwest Poland. A Communist Party of the Soviet Union
Communist Party of the Soviet Union
The Communist Party of the Soviet Union was the only legal, ruling political party in the Soviet Union and one of the largest communist organizations in the world...

 (CPSU) report was read at the outset to set the heavily anti-Western
Anti-Western sentiment
Anti-Western sentiment refers to broad opposition or hostility to the people, policies, or governments in the western world. In many cases the United States, Israël and the United Kingdom are the subject of discussion or hostility...

 tone, stating now that "international politics is dominated by the ruling clique of the American imperialists" which have embarked upon the "enslavement of the weakened capitalist countries of Europe." Parties were to struggle against the U.S. presence in Europe by any means necessary, including sabotage. The report further claimed that "reactionary imperialist elements throughout the world, particularly in the U.S.A., in Britain and France, had put particular hope on Germany and Japan, primarily on Hitlerite Germany — first as a force most capable of striking a blow at the Soviet Union."

Referring to the Eastern Bloc, the report stated that "the Red Army's liberating role was complemented by an upsurge of the freedom-loving peoples' liberation struggle against the fascist predators and their hirelings." It argued that "the bosses of Wall Street" were "tak[ing] the place of Germany, Japan and Italy." The Marshall Plan was described as "the American plan for the enslavement of Europe". It described the world now breaking down "into basically two camps—the imperialist and antidemocratic camp on the one hand, and the antiimperialist and democratic camp on the other".

Although the Eastern Bloc countries except Czechoslovakia had immediately rejected Marshall Plan aid, Eastern Bloc communist parties were blamed for permitting even minor influence by non-communists in their respective countries during the run up to the Marshall Plan. The meeting's chair, Andrei Zhdanov, who was in permanent radio contact with the Kremlin from whom he received instructions, also castigated communist parties in France and Italy for collaboration with those countries' domestic agendas. Zhdanov warned that if they continued to fail to maintain international contact with Moscow to consult on all matters, "extremely harmful consequences for the development of the brother parties' work" would result.

Italian and French communist leaders were prevented by party rules from pointing out that it was actually Stalin who had directed them not to take opposition stances in 1944. The French communist party, as others, was then to redirect its mission to "destroy capitalist economy" and that the Soviet Communist Information Bureau (Cominform
Cominform
Founded in 1947, Cominform is the common name for what was officially referred to as the Information Bureau of the Communist and Workers' Parties...

) would take control of the French Communist Party's activities to oppose the Marshall Plan. When they asked Zhdanov if they should prepare for armed revolt when they returned home, he did not answer. In a follow-up conversation with Stalin, he explained that an armed struggle would be impossible and that the struggle against the Marshall Plan was to be waged under the slogan of national independence.

Negotiations


Turning the plan into reality required negotiations among the participating nations, and to get the plan through the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

. Sixteen nations met in Paris to determine what form the American aid would take, and how it would be divided. The negotiations were long and complex, with each nation having its own interests. France's major concern was that Germany not be rebuilt to its previous threatening power. The Benelux
Benelux
The Benelux is an economic union in Western Europe comprising three neighbouring countries, Belgium, the Netherlands, and Luxembourg. These countries are located in northwestern Europe between France and Germany...

 countries, despite also suffering under the Nazis, had long been closely linked to the German economy and felt their prosperity depended on its revival. The Scandinavian nations, especially Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

, insisted that their long-standing trading relationships with the Eastern bloc
Eastern bloc
The term Eastern Bloc or Communist Bloc refers to the former communist states of Eastern and Central Europe, generally the Soviet Union and the countries of the Warsaw Pact...

 nations not be disrupted and that their neutrality not be infringed. The United Kingdom insisted on special status, concerned that if it were treated equally with the devastated continental powers it would receive virtually no aid. The Americans were pushing the importance of free trade and European unity to form a bulwark against communism. The Truman administration, represented by William L. Clayton
William L. Clayton
William Lockhart "Will" Clayton was an American business leader and government official.-Early life and career:...

, promised the Europeans that they would be free to structure the plan themselves, but the administration also reminded the Europeans that implementation depended on the plan's passage through Congress. A majority of Congress members were committed to free trade and European integration, and were hesitant to spend too much of the money on Germany. However, before the Marshall Plan was in effect, France, Austria, and Italy needed immediate aid. On December 17, 1947, the United States agreed to give $40 million to France, Austria, China, and Italy.

Agreement was eventually reached and the Europeans sent a reconstruction plan to Washington. In the document the Europeans asked for $22 billion in aid. Truman cut this to $17 billion in the bill he put to Congress. The plan encountered sharp opposition in Congress, mostly from the portion of the Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

 led by Robert A. Taft that advocated a more isolationist
Isolationism
Isolationism is the policy or doctrine of isolating one's country from the affairs of other nations by declining to enter into alliances, foreign economic commitments, international agreements, etc., seeking to devote the entire efforts of one's country to its own advancement and remain at peace by...

 policy and was weary of massive government spending. The plan also had opponents on the left, Henry A. Wallace
Henry A. Wallace
Henry Agard Wallace was the 33rd Vice President of the United States , the Secretary of Agriculture , and the Secretary of Commerce . In the 1948 presidential election, Wallace was the nominee of the Progressive Party.-Early life:Henry A...

 notably among them. Wallace saw the plan as a subsidy for American exporters and sure to polarize the world between East and West. Wallace, the former vice president and secretary of agriculture, mockingly called this the "Martial Plan," arguing that it was just another step towards war. However, opposition against the Marshall Plan was greatly reduced by the shock of the overthrow of the democratic government of Czechoslovakia
Czechoslovakia
Czechoslovakia or Czecho-Slovakia was a sovereign state in Central Europe which existed from October 1918, when it declared its independence from the Austro-Hungarian Empire, until 1992...

 in February 1948. Soon after, a bill granting an initial $5 billion passed Congress with strong bipartisan support. The Congress would eventually allocate $12.4 billion in aid over the four years of the plan.

On 17 March 1948, President Harry S. Truman addressed European security and condemned the Soviet Union before a hastily convened Joint Session of Congress. Attempting to contain spreading Soviet influence in Eastern Europe, Truman asked Congress to restore a peacetime military draft and to swiftly pass the Economic Cooperation Act (also known as the Marshall Plan), to provide billions in economic assistance to Western European countries. Truman’s speech also offered strong criticism of the Soviet Union. “The situation in the world today in not primarily the result of the natural difficulties which follow a great war,” Truman declared. “It is chiefly due to the fact that one nation has not only refused to cooperate in the establishment of a just and honorable peace but—even worse—has actively sought to prevent it.” Members of the Republican-dominated 80th Congress
80th United States Congress
The Eightieth United States Congress was a meeting of the legislative branch of the United States federal government, composed of the United States Senate and the United States House of Representatives. It met in Washington, DC from January 3, 1947 to January 3, 1949, during the third and fourth...

 (1947–1949) were skeptical. “In effect, he told the Nation that we have lost the peace, that our whole war effort was in vain,” noted Representative Frederick Smith
Frederick Cleveland Smith
Frederick Cleveland Smith was a Republican member of the U.S. House of Representatives from Ohio.Frederick C. Smith was born in Shanesville, Ohio. He graduated in osteopathic medicine at Kirksville, Missouri, and practiced there for several years. He went abroad and continued his study of...

 of Ohio. Others thought he had not been forceful enough to contain the USSR. “What [Truman] said fell short of being tough,” noted Representative Eugene Cox
Edward E. Cox
Edward Eugene "Eugene" or "Goober" Cox served as a U.S. Representative from Georgia for nearly twenty-eight years. A conservative Democrat who supported segregation and opposed President Franklin Delano Roosevelt's "New Deal," Cox became the most senior Democrat on the House Committee on Rules...

, a Democrat from Georgia. “There is no prospect of ever winning Russian cooperation.” Despite its reservations, the 80th Congress implemented Truman’s requests, further escalating the Cold War with the USSR.

Truman signed the Economic Cooperation Act, the Marshall Plan, into law on April 3, 1948; the Act established the Economic Cooperation Administration
Economic Cooperation Administration
The Economic Cooperation Administration was a United States government agency set up in 1948 to administer the Marshall Plan. It reported to both the State Department and the Department of Commerce. The agency's head was Paul G. Hoffman, a former head of Studebaker. Much of the rest of the...

 (ECA) to administer the program. ECA was headed by economic cooperation administrator Paul G. Hoffman
Paul G. Hoffman
Paul Gray Hoffman was an American automobile company executive, statesman and global development aid administrator.Hoffman was born in Western Springs, Illinois, a suburb of Chicago...

. In the same year, the participating countries (Austria, Belgium
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...

, Denmark, France, West Germany, the United Kingdom, Greece, Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...

, Ireland, Italy, Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...

, the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

, Norway, Sweden, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

, Turkey, and the United States) signed an accord establishing a master financial-aid-coordinating agency, the Organization for European Economic Cooperation (later called the Organization for Economic Cooperation and Development, OECD), which was headed by Frenchman Robert Marjolin
Robert Marjolin
Robert Marjolin was a French economist and politician involved in the formation of the European Economic Community.-Early life and education:...

.

Implementation



The first substantial aid went to Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....

 and Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...

 in January 1947, which were seen as the front line of the battle against communist expansion, and were already receiving aid under the Truman Doctrine
Truman Doctrine
The Truman Doctrine was a policy set forth by U.S. President Harry S Truman in a speech on March 12, 1947 stating that the U.S. would support Greece and Turkey with economic and military aid to prevent their falling into the Soviet sphere...

. Initially Britain had supported the anti-communist factions in those countries, but due to its dire economic condition it decided to pull out and in February 1947 requested the U.S. to continue its efforts. The ECA formally began operation in July 1948.

The ECA's official mission statement
Mission statement
A mission statement is a statement of the purpose of a company or organization. The mission statement should guide the actions of the organization, spell out its overall goal, provide a path, and guide decision-making...

 was to give a boost to the European economy: to promote European production, to bolster European currency, and to facilitate international trade, especially with the United States, whose economic interest required Europe to become wealthy enough to import U.S. goods. Another unofficial goal of ECA (and of the Marshall Plan) was the containment of growing Soviet influence in Europe, evident especially in the growing strength of communist parties
Communist party
A political party described as a Communist party includes those that advocate the application of the social principles of communism through a communist form of government...

 in Czechoslovakia, France, and Italy.

The Marshall Plan money was transferred to the governments of the European nations. The funds were jointly administered by the local governments and the ECA. Each European capital had an ECA envoy, generally a prominent American businessman, who would advise on the process. The cooperative allocation of funds was encouraged, and panels of government, business, and labor leaders were convened to examine the economy and see where aid was needed.

The Marshall Plan aid was mostly used for the purchase of goods from the United States. The European nations had all but exhausted their foreign exchange reserves during the war, and the Marshall Plan aid represented almost their sole means of importing goods from abroad. At the start of the plan these imports were mainly much-needed staples such as food and fuel, but later the purchases turned towards reconstruction needs as was originally intended. In the latter years, under pressure from the United States Congress and with the outbreak of the Korean War
Korean War
The Korean War was a conventional war between South Korea, supported by the United Nations, and North Korea, supported by the People's Republic of China , with military material aid from the Soviet Union...

, an increasing amount of the aid was spent on rebuilding the militaries of Western Europe. Of the some $13 billion allotted by mid-1951, $3.4 billion had been spent on imports of raw materials and semi-manufactured products; $3.2 billion on food, feed, and fertilizer; $1.9 billion on machines, vehicles, and equipment; and $1.6 billion on fuel.

Also established were counterpart fund
Counterpart fund
A counterpart fund is a technique for turning foreign aid into reserves of domestic currency. They were used by the UNRRA, and the Marshall Plan in the rebuilding of Western Europe after the Second World War, and today remain a common technique for delivering developmental assistance.One method of...

s, which used Marshall Plan aid to establish funds in the local currency. According to ECA rules 60% of these funds had to be invested in industry. This was prominent in Germany, where these government-administered funds played a crucial role in lending money to private enterprises which would spend the money rebuilding. These funds played a central role in the reindustrialization of Germany. In 1949–50, for instance, 40% of the investment in the German coal industry was by these funds.

The companies were obligated to repay the loans to the government, and the money would then be lent out to another group of businesses. This process has continued to this day in the guise of the state owned KfW
KFW
KFW may refer to:*Keith Fullerton Whitman , an American musician*KfW or Kreditanstalt für Wiederaufbau, a German public-sector financial institution...

 bank. The Special Fund, then supervised by the Federal Economics Ministry, was worth over DM 10 billion in 1971. In 1997 it was worth DM 23 billion. Through the revolving loan system, the Fund had by the end of 1995 made low-interest loans to German citizens amounting to around DM 140 billion. The other 40% of the counterpart funds were used to pay down the debt, stabilize the currency, or invest in non-industrial projects. France made the most extensive use of counterpart funds, using them to reduce the budget deficit. In France, and most other countries, the counterpart fund money was absorbed into general government revenues, and not recycled as in Germany.

A far less expensive, but also quite effective, ECA initiative was the Technical Assistance Program. This program funded groups of European engineers and industrialists to visit the United States and tour mines, factories, and smelters so that they could then copy the American advances at home. At the same time several hundred American technical advisor
Technical advisor
A technical advisor is an individual who is expert in a particular field of knowledge, hired to provide detailed information and advice to people working in that field...

s were sent to Europe.

German level of industry restrictions


Even while the Marshall Plan was being implemented, the dismantling of German industry continued, and in 1949 Konrad Adenauer
Konrad Adenauer
Konrad Hermann Joseph Adenauer was a German statesman. He was the chancellor of the West Germany from 1949 to 1963. He is widely recognised as a person who led his country from the ruins of World War II to a powerful and prosperous nation that had forged close relations with old enemies France,...

 wrote to the Allies requesting that it end, citing the inherent contradiction between encouraging industrial growth and removing factories and also the unpopularity of the policy. Support for dismantling was by this time coming predominantly from the French, and the Petersberg Agreement
Petersberg agreement
The Petersberg Agreement is an international treaty that extended the rights of the Federal Government of Germany vis-a-vis the occupying forces of Britain, France, and the United States, and is viewed as the first major step of Federal Republic of Germany towards sovereignty...

 of November 1949 reduced the levels vastly, though dismantling of minor factories continued until 1951. The first "level of industry" plan, signed by the Allies on March 29, 1946, had stated that German heavy industry was to be lowered to 50% of its 1938 levels by the destruction of 1,500 listed manufacturing plants.

In January 1946 the Allied Control Council
Allied Control Council
The Allied Control Council or Allied Control Authority, known in the German language as the Alliierter Kontrollrat and also referred to as the Four Powers , was a military occupation governing body of the Allied Occupation Zones in Germany after the end of World War II in Europe...

 set the foundation of the future German economy by putting a cap on German steel production—the maximum allowed was set at about 5,800,000 tons of steel a year, equivalent to 25% of the pre-war production level. The UK, in whose occupation zone most of the steel production was located, had argued for a more limited capacity reduction by placing the production ceiling at 12 million tons of steel per year, but had to submit to the will of the U.S., France and the Soviet Union (which had argued for a 3 million ton limit). Steel plants thus made redundant were to be dismantled. Germany was to be reduced to the standard of life it had known at the height of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 (1932). Consequently, car production was set to 10% of pre-war levels, and the manufacture of other commodities were reduced as well.

The first "German level of industry
Industrial plans for Germany
The Industrial plans for Germany were designs the Allies considered imposing on Germany in the aftermath of World War II to reduce and manage Germany's industrial capacity.-Background:...

" plan was subsequently followed by a number of new ones, the last signed in 1949. By 1950, after the virtual completion of the by then much watered-out "level of industry" plans, equipment had been removed from 706 manufacturing plants in western Germany and steel production capacity had been reduced by 6,700,000 tons. Vladimir Petrov concludes that the Allies "delayed by several years the economic reconstruction of the war-torn continent, a reconstruction which subsequently cost the United States billions of dollars." In 1951 West Germany agreed to join the European Coal and Steel Community
European Coal and Steel Community
The European Coal and Steel Community was a six-nation international organisation serving to unify Western Europe during the Cold War and create the foundation for the modern-day developments of the European Union...

 (ECSC) the following year. This meant that some of the economic restrictions on production capacity and on actual production that were imposed by the International Authority for the Ruhr
International Authority for the Ruhr
The International Authority for the Ruhr was an international body established in 1949 by the Allied powers to control the coal and steel industry of the Ruhr Area in West Germany....

 were lifted, and that its role was taken over by the ECSC.

Expenditures


The Marshall Plan aid was divided amongst the participant states on a roughly per capita basis. A larger amount was given to the major industrial powers, as the prevailing opinion was that their resuscitation was essential for general European revival. Somewhat more aid per capita was also directed towards the Allied nations
Allies of World War II
The Allies of World War II were the countries that opposed the Axis powers during the Second World War . Former Axis states contributing to the Allied victory are not considered Allied states...

, with less for those that had been part of the Axis or remained neutral. The table below shows Marshall Plan aid by country and year (in millions of dollars) from The Marshall Plan Fifty Years Later. There is no clear consensus on exact amounts, as different scholars differ on exactly what elements of American aid during this period were part of the Marshall Plan.
Country1948/49
($ millions)
1949/50
($ millions)
1950/51
($ millions)
Cumulative
($ millions)
232 166 70 468
and 195 222 360 777
103 87 195 385
1085 691 520 2296
 Germany 510 438 500 1448
175 156 45 376
6 22 15 43
88 45 0 133
and  Free Territory of Trieste 594 405 205 1204
471 302 355 1128
82 90 200 372
0 0 70 70
39 48 260 347
0 0 250 250
28 59 50 137
1316 921 1060 3297
Totals 4,924 3,652 4,155 12,731

Loans and Grants


The Marshall plan, just as GARIOA, consisted of aid both in the form of grants and in the form of loans. Out of the total, 1.2 billion USD were loan-aid.

Ireland which received 146.2 million USD though the Marshall plan, received 128.2 million USD as loans, and the remaining 18 million USD as grants. By 1969 the Irish Marshal plan debt, which was still being repaid, amounted to 31 million pounds, out of a total Irish foreign debt of 50 million pounds.

The UK received 385 million USD of its Marshall plan aid in the form of loans. Unconnected to the Marshall plan the UK also received direct loans from the US amounting to 4.6 billion USD. The proportion of Marshall plan loans versus Marshall plan grants was roughly 15% to 85% for both the UK and France.

Germany, which up until the 1953 Debt agreement
Agreement on German External Debts
London Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany on one part and on Belgium, Canada, Ceylon, Denmark, the French Republic, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan,...

 had to work on the assumption that all the Marshall plan aid was to be repaid, spent its funds very carefully. Payment for Marshall plan goods, "counterpart funds", were administered by the Reconstruction Credit Institute
KFW
KFW may refer to:*Keith Fullerton Whitman , an American musician*KfW or Kreditanstalt für Wiederaufbau, a German public-sector financial institution...

, which used the funds for loans inside Germany. In the 1953 Debt agreement the amount of Marshall plan aid that Germany was to repay was reduced to less than 1 billion USD. This made the proportion of loans versus grants to Germany similar to that of France and the UK. The final German loan repayment was made in 1971. Since Germany chose to repay the aid debt out of the German Federal budget, leaving the German ERP fund intact, the fund was able to continue its reconstruction work, by 1996 it had accumulated a value of 23 billion Deutsche Mark.

Effects and legacy



The Marshall Plan was originally scheduled to end in 1953. Any effort to extend it was halted by the growing cost of the Korean War
Korean War
The Korean War was a conventional war between South Korea, supported by the United Nations, and North Korea, supported by the People's Republic of China , with military material aid from the Soviet Union...

 and rearmament. American Republicans hostile to the plan had also gained seats in the 1950 Congressional elections, and conservative opposition to the plan was revived. Thus the plan ended in 1951, though various other forms of American aid to Europe continued afterwards.

The years 1948 to 1952 saw the fastest period of growth in European history. Industrial production increased by 35%. Agricultural production substantially surpassed pre-war levels. The poverty and starvation of the immediate postwar years disappeared, and Western Europe embarked upon an unprecedented two decades of growth that saw standards of living increase dramatically. There is some debate among historians over how much this should be credited to the Marshall Plan. Most reject the idea that it alone miraculously revived Europe, as evidence shows that a general recovery was already underway. Most believe that the Marshall Plan sped this recovery, but did not initiate it. The United States worked to direct the Marshall Plan towards children and an increase of nutritional material for all citizens within western Europe so as to shed a positive light on its goals as it worked to effectively defeat communist threats. One effect of the plan was that it subtly “Americanized” countries, especially Austria, who embraced United States’ assistance, through popular culture, such as Hollywood movies and rock n’ roll (Bischof, Pelinka and Stiefel 174-175).

The political effects of the Marshall Plan may have been just as important as the economic ones. Marshall Plan aid allowed the nations of Western Europe to relax austerity measures and rationing, reducing discontent and bringing political stability. The communist influence on Western Europe was greatly reduced, and throughout the region communist parties faded in popularity in the years after the Marshall Plan. The trade relations fostered by the Marshall Plan helped forge the North Atlantic alliance that would persist throughout the Cold War. At the same time, the nonparticipation of the states of Eastern Europe was one of the first clear signs that the continent was now divided.

The Marshall Plan also played an important role in European integration. Both the Americans and many of the European leaders felt that European integration was necessary to secure the peace and prosperity of Europe, and thus used Marshall Plan guidelines to foster integration. In some ways this effort failed, as the OEEC never grew to be more than an agent of economic cooperation. Rather it was the separate European Coal and Steel Community
European Coal and Steel Community
The European Coal and Steel Community was a six-nation international organisation serving to unify Western Europe during the Cold War and create the foundation for the modern-day developments of the European Union...

, which notably excluded Britain, that would eventually grow into the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

. However, the OEEC served as both a testing and training ground for the structures and bureaucrats that would later be used by the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...

. The Marshall Plan, linked into the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

, also mandated free trade throughout the region.

While some historians today feel some of the praise for the Marshall Plan is exaggerated, it is still viewed favorably and many thus feel that a similar project would help other areas of the world. After the fall of communism several proposed a "Marshall Plan for Eastern Europe" that would help revive that region. Others have proposed a Marshall Plan for Africa to help that continent, and U.S. vice president Al Gore
Al Gore
Albert Arnold "Al" Gore, Jr. served as the 45th Vice President of the United States , under President Bill Clinton. He was the Democratic Party's nominee for President in the 2000 U.S. presidential election....

 suggested a Global Marshall Plan
Global Marshall Plan
The Global Marshall Plan is a plan first devised by former American Vice-President Al Gore in his bestselling book Earth in the Balance, which gives specific ideas on how to save the global environment....

. "Marshall Plan" has become a metaphor for any very large scale government program that is designed to solve a specific social problem. It is usually used when calling for federal spending to correct a perceived failure of the private sector.

Repayment


The Organization for European Economic Cooperation took the leading role in allocating funds, and the ECA arranged for the transfer of the goods. The American supplier was paid in dollars, which were credited against the appropriate European Recovery Program funds. The European recipient, however, was not given the goods as a gift, but had to pay for them (usually on credit) in local currency. These payments were kept by the European government involved in a special counterpart fund. This counterpart money, in turn, could be used by the government for further investment projects. 5% of the counterpart money was paid to the U.S. to cover the administrative costs of the ERAP.

The Marshall Plan money was in the form of grants that did not have to be repaid. In addition to ERP grants, the Export-Import Bank (an agency of the U.S. government) at the same time made long-term loans at low interest rates to finance major purchases in the U.S., all of which were repaid.

In the case of Germany there also were 16 billion marks of debts from the 1920s which had defaulted in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement
Agreement on German External Debts
London Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany on one part and on Belgium, Canada, Ceylon, Denmark, the French Republic, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan,...

 of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.

Areas without the Plan



Large parts of the world devastated by World War II did not benefit from the Marshall Plan. The only major Western European nation excluded was Francisco Franco
Francisco Franco
Francisco Franco y Bahamonde was a Spanish general, dictator and head of state of Spain from October 1936 , and de facto regent of the nominally restored Kingdom of Spain from 1947 until his death in November, 1975...

's Spain
Spanish State
Francoist Spain refers to a period of Spanish history between 1936 and 1975 when Spain was under the authoritarian dictatorship of Francisco Franco....

, which did not overtly participate
Spain in World War II
The Spanish State under General Franco was officially non-belligerent during World War II. This status, although not recognised by international law, was intended to express the regime's sympathy and material support for the Axis Powers, to which Spain offered considerable material, economic, and...

 in World War II. After the war, it pursued a policy of self-sufficiency, currency controls, and quotas, with little success. With the escalation of the Cold War, the United States reconsidered its position, and in 1951 embraced Spain as an ally, encouraged by Franco's aggressive anti-communist
Anti-communism
Anti-communism is opposition to communism. Organized anti-communism developed in reaction to the rise of communism, especially after the 1917 October Revolution in Russia and the beginning of the Cold War in 1947.-Objections to communist theory:...

 policies. Over the next decade, a considerable amount of American aid would go to Spain, but less than its neighbors had received under the Marshall Plan.

While the western portion of the Soviet Union had been as badly affected as any part of the world by the war, the eastern portion of the country was largely untouched and had seen a rapid industrialization during the war. The Soviets also imposed large reparations
War reparations
War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...

 payments on the Axis allies that were in its sphere of influence. Austria
Austria
Austria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...

, Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

, Hungary
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...

, Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...

, and especially East Germany were forced to pay vast sums and ship large amounts of supplies to the USSR. These reparation payments meant the Soviet Union received about the same itself as 16 European countries received in total from Marshall Plan aid.

In accordance with the agreements with the USSR shipment of dismantled German industrial installations from the west began on March 31, 1946. Under the terms of the agreement the Soviet Union would in return ship raw materials such as food and timber to the western zones. In view of the Soviet failure to do so, the U.S. temporarily halted shipments east (although they were never resumed). It was later shown that although used for cold war propaganda reasons, the main reason for halting shipments east was not the behavior of the USSR but rather the recalcitrant behavior of France. Examples of material received by the USSR were
equipment from the Kugel-Fischer ballbearing plant at Schweinfurt
Schweinfurt
Schweinfurt is a city in the Lower Franconia region of Bavaria in Germany on the right bank of the canalized Main, which is here spanned by several bridges, 27 km northeast of Würzburg.- History :...

, the Daimler-Benz
Daimler-Benz
Daimler-Benz AG was a German manufacturer of automobiles, motor vehicles, and internal combustion engines; founded in 1926. An Agreement of Mutual Interest - which was valid until year 2000 - was signed on 1 May 1924 between Karl Benz's Benz & Cie., and Daimler Motoren Gesellschaft, which had...

 underground aircraft-engine plant at Obrigheim
Obrigheim
Obrigheim is a town in the district of Neckar-Odenwald-Kreis, in Baden-Württemberg, Germany....

, the Deschimag shipyards at Bremen-Weser, and the Gendorf powerplant.

Eastern Europe saw no Marshall Plan money, as their Moscow-controlled governments rejected joining the program, and moreover received little help from the Soviets. The Soviets did establish COMECON
Comecon
The Council for Mutual Economic Assistance , 1949–1991, was an economic organisation under hegemony of Soviet Union comprising the countries of the Eastern Bloc along with a number of communist states elsewhere in the world...

 as a riposte to the Marshall Plan. The members of Comecon looked to the Soviet Union for oil; in turn, they provided machinery, equipment, agricultural goods, industrial goods, and consumer goods to the Soviet Union. Economic recovery in the east was much slower than in the west, and the economies never fully recovered in the communist period, resulting in the formation of the shortage economies
Shortage economy
Shortage economy is a term coined by the Hungarian economist, János Kornai. He used this term to criticize the old centrally-planned economies of the communist states of the Eastern Bloc...

 and a gap in wealth between East and West. Finland, which did not join the Marshall Plan and which was required to give large reparations to the USSR, saw its economy recover to pre-war levels in 1947. France, which received billions of dollars through the Marshall Plan, similarly saw its average income per person return to almost pre-war level by 1949. By mid-1948 industrial production in Poland, Hungary, Bulgaria
Bulgaria
Bulgaria , officially the Republic of Bulgaria , is a parliamentary democracy within a unitary constitutional republic in Southeast Europe. The country borders Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, as well as the Black Sea to the east...

, and Czechoslovakia
Czechoslovakia
Czechoslovakia or Czecho-Slovakia was a sovereign state in Central Europe which existed from October 1918, when it declared its independence from the Austro-Hungarian Empire, until 1992...

 had recovered to a level somewhat above pre-war level.

Aid to Asia


From the end of the war to the end of 1953, the U.S. provided grants and credits amounting to $5.9 billion to Asian countries, especially China/Taiwan ($1.051 billion), India ($255 million), Indonesia ($215 million), Japan ($2.44 billion), South Korea ($894 million), Pakistan ($98 million) and the Philippines ($803 million). In addition, another $282 million went to Israel and $196 million to the rest of the Middle East. All this aid was separate from the Marshall Plan.

Canada


Canada, like the United States, was little damaged by the war and in 1945 was one of the world's largest economies. It operated its own aid program. In 1948, the U.S. allowed ERP aid to be used in purchasing goods from Canada. Canada made over a billion dollars in sales in the first two years of operation.

World total


The total of American grants and loans to the world, 1945–53, came to $44.3 billion.

Early criticism


Initial criticism of the Marshall Plan came from a number of economists. Wilhelm Röpke
Wilhelm Röpke
Wilhelm Röpke was Professor of Economics, first in Jena, then in Graz, Marburg, Istanbul and finally in Geneva, and the main spiritual father of the German social market economy, theorising and collaborating to organise the post-World War II economic re-awakening of the then destroyed German...

, who influenced German Minister for Economy Ludwig Erhard
Ludwig Erhard
Ludwig Wilhelm Erhard was a German politician affiliated with the CDU and Chancellor of West Germany from 1963 until 1966. He is notable for his leading role in German postwar economic reform and economic recovery , particularly in his role as Minister of Economics under Chancellor Konrad Adenauer...

 in his economic recovery program
Wirtschaftswunder
The term describes the rapid reconstruction and development of the economies of West Germany and Austria after World War II . The expression was used by The Times in 1950...

, believed recovery would be found in eliminating central planning and restoring a market economy in Europe, especially in those countries which had adopted more fascist
Fascism
Fascism is a radical authoritarian nationalist political ideology. Fascists seek to rejuvenate their nation based on commitment to the national community as an organic entity, in which individuals are bound together in national identity by suprapersonal connections of ancestry, culture, and blood...

 and corporatist
Corporatism
Corporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...

 economic policies. Röpke criticized the Marshall plan for forestalling the transition to the free market by subsidizing the current, failing systems. Erhard put Röpke's theory into practice and would later credit Röpke's influence for West Germany's preeminent success. Henry Hazlitt
Henry Hazlitt
Henry Stuart Hazlitt was an American economist, philosopher, literary critic and journalist for such publications as The Wall Street Journal, The Nation, The American Mercury, Newsweek, and The New York Times...

 criticized the Marshall Plan in his 1947 book Will Dollars Save the World?, arguing that economic recovery comes through savings, capital accumulation and private enterprise, and not through large cash subsidies. Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...

 also criticized the Marshall Plan in 1951, believing that "the American subsidies make it possible for [Europe's] governments to conceal partially the disastrous effects of the various socialist measures they have adopted".
Some critics and Congressmen at the time believed that America was giving too much aid to Europe. America had already given Europe $9 billion in other forms of help in previous years. The Marshall Plan gave another $13 billion which is equivalent to about $100 billion in today’s economy. Critics did not think that it was necessary for Americans to be using so much money to help nations they had already assisted in many ways before.

Modern criticism


Criticism of the Marshall Plan became prominent among historians of the revisionist
Historical revisionism
In historiography, historical revisionism is the reinterpretation of orthodox views on evidence, motivations, and decision-making processes surrounding a historical event...

 school, such as Walter LaFeber
Walter LaFeber
Walter LaFeber was a Marie Underhill Noll Professor of History and a Stephen H. Weiss Presidential Fellow in the Department of History at Cornell University...

, during the 1960s and 1970s. They argued that the plan was American economic imperialism
Imperialism
Imperialism, as defined by Dictionary of Human Geography, is "the creation and/or maintenance of an unequal economic, cultural, and territorial relationships, usually between states and often in the form of an empire, based on domination and subordination." The imperialism of the last 500 years,...

, and that it was an attempt to gain control over Western Europe just as the Soviets controlled Eastern Europe. In a review of West Germany's economy from 1945 to 1951, German analyst Werner Abelshauser
Werner Abelshauser
Werner Abelshauser is a German economic historian.- Life :Abelshauser studied economics at the University of Mannheim and graduated in 1970. He received his PhD at Ruhr University Bochum in 1973 with his dissertation on West German economy 1945-1948. In 1980 he was appointed as Professor for...

 concluded that "foreign aid was not crucial in starting the recovery or in keeping it going". The economic recoveries of France, Italy, and Belgium, Cowen found, also predated the flow of U.S. aid. Belgium, the country that relied earliest and most heavily on free market economic policies after its liberation in 1944, experienced the fastest recovery and avoided the severe housing and food shortages seen in the rest of continental Europe.

Former U.S. Chairman of the Federal Reserve Bank Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

 gives most credit to Ludwig Erhard
Ludwig Erhard
Ludwig Wilhelm Erhard was a German politician affiliated with the CDU and Chancellor of West Germany from 1963 until 1966. He is notable for his leading role in German postwar economic reform and economic recovery , particularly in his role as Minister of Economics under Chancellor Konrad Adenauer...

 for Europe's economic recovery. Greenspan writes in his memoir The Age of Turbulence
The Age of Turbulence
The Age of Turbulence: Adventures in a New World is a 2007 memoir written by former Chairman of the Federal Reserve Alan Greenspan. Published on September 17, 2007, the book debuted at the top of the New York Times Best Seller list for hardcover nonfiction.-Overview:The first half of The Age of...

that Erhard's economic policies were the most important aspect of postwar Western Europe recovery, far outweighing the contributions of the Marshall Plan. He states that it was Erhard's reductions in economic regulations that permitted Germany's miraculous recovery, and that these policies also contributed to the recoveries of many other European countries. Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

's recovery is also used as a counter-example, since it experienced rapid growth without any aid whatsoever. Its recovery is attributed to traditional economic stimuli, such as increases in investment, fueled by a high savings rate and low taxes. Japan saw a large infusion of US investment during the Korean War
Korean War
The Korean War was a conventional war between South Korea, supported by the United Nations, and North Korea, supported by the People's Republic of China , with military material aid from the Soviet Union...

. U.S. President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

 told his Argentine counterpart Néstor Kirchner
Néstor Kirchner
Néstor Carlos Kirchner was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007. Previously, he was Governor of Santa Cruz Province since 10 December 1991. He briefly served as Secretary General of the Union of South American Nations ...

 during a summit in Mexico, upon being told a "Marshall Plan" would be a solution for Latin America problems, that the "Marshall Plan is a crazy idea of the Democrats
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...

."

Criticism of the Marshall Plan also aims at showing that it began a legacy of disastrous foreign aid
Aid
In international relations, aid is a voluntary transfer of resources from one country to another, given at least partly with the objective of benefiting the recipient country....

 programs. Since the 1990s, economic scholarship has been more hostile to the idea of foreign aid. For example, Alberto Alesina
Alberto Alesina
Alberto Francesco Alesina is an Italian political economist. He has published much-cited books and articles in major economics journals.-Background and professional life:...

 and Beatrice Weder, summing up economic literature on foreign aid and corruption, find that aid is primarily used wastefully and self-servingly by government officials, and ends up increasing governmental corruption. This policy of promoting corrupt government is then attributed back to the initial impetus of the Marshall Plan.

Noam Chomsky
Noam Chomsky
Avram Noam Chomsky is an American linguist, philosopher, cognitive scientist, and activist. He is an Institute Professor and Professor in the Department of Linguistics & Philosophy at MIT, where he has worked for over 50 years. Chomsky has been described as the "father of modern linguistics" and...

 wrote that the amount of American dollars given to France and the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

 equaled the funds these countries used to finance their military forces in southeast Asia. The Marshall Plan was said to have "set the stage for large amounts of private U.S. investment in Europe, establishing the basis for modern transnational corporations
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...

". Other criticism of the Marshall Plan stemmed from reports that the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

 used a significant portion of the aid it received to re-conquer Indonesia in the Indonesian National Revolution
Indonesian National Revolution
The Indonesian National Revolution or Indonesian War of Independence was an armed conflict and diplomatic struggle between Indonesia and the Dutch Empire, and an internal social revolution...

 and was forced into joining the Korean War
Korean War
The Korean War was a conventional war between South Korea, supported by the United Nations, and North Korea, supported by the People's Republic of China , with military material aid from the Soviet Union...

 in 1950 after threats the project would end if it did not comply.

In popular culture


Alfred Friendly
Alfred Friendly
Alfred Friendly was an American journalist, editor and writer for the Washington Post. He began his career as a reporter with the Post in 1939 and became Managing Editor in 1955. In 1967 he covered the Mideast War for the Post in a series of articles for which he won the Pulitzer Prize for...

, press aide to the U.S. Secretary of Commerce W. Averell Harriman
W. Averell Harriman
William Averell Harriman was an American Democratic Party politician, businessman, and diplomat. He was the son of railroad baron E. H. Harriman. He served as Secretary of Commerce under President Harry S. Truman and later as the 48th Governor of New York...

, wrote a humorous operetta
Operetta
Operetta is a genre of light opera, light in terms both of music and subject matter. It is also closely related, in English-language works, to forms of musical theatre.-Origins:...

 about the Marshall Plan during its first year; one of the lines in the operetta was: "Wines for Sale; will you swap / A little bit of steel for Chateau Neuf du Pape
Châteauneuf-du-Pape AOC
Châteauneuf-du-Pape is a French wine Appellation d'origine contrôlée located around the village of Châteauneuf-du-Pape in the Rhône wine region in southeastern France. It is the most renowned appellation of the southern part of the Rhône Valley...

?"

Further reading

  • Agnew, John and Entrikin, J. Nicholas eds. The Marshall Plan Today: Model and Metaphor Routledge. (2004) online version
  • Arkes, Hadley. Bureaucracy, the Marshall Plan, and the National Interest (1972).
  • Behrman, Greg, The Most Noble Adventure: The Marshall Plan and the Time When America Helped Save Europe (2007) ISBN 0743282639
  • Bonds, John Bledsoe. Bipartisan Strategy: Selling the Marshall Plan (2002) online version
  • Esposito, Chiarella. America's Feeble Weapon: Funding the Marshall Plan in France and Italy, 1948–1950 (1994) online version
  • Djelic, Marie-Laure A. Exporting the American Model: The Post-War Transformation of European Business (1998) online version
  • Fossedal, Gregory A. Our Finest Hour: Will Clayton, the Marshall Plan, and the Triumph of Democracy. (1993).
  • Gimbel, John, The origins of the Marshall plan (Stanford University Press, 1976). (reviewed here)
  • Kipping, Matthias and Bjarnar, Ove. The Americanisation of European Business: The Marshall Plan and the Transfer of Us Management Models (1998) online version
  • Lewkowicz, Nicolas. The German Question and the International Order, 1943-48 (Palgrave Macmillan: Basingstoke and New York) (2010)
  • Lewkowicz, Nicolas. The German Question and the Origins of the Cold War (IPOC: Milan) (2008)
  • Mee, Charles L. The Marshall Plan: The Launching of the Pax Americana (1984).
  • Milward, Alan S. The Reconstruction of Western Europe, 1945–51. (1984).
  • Röpke, Wilhelm, Humane Economist,
  • Vickers, Rhiannon. Manipulating Hegemony: State Power, Labour and the Marshall Plan in Britain (2000) online edition
  • Wallich, Henry Christopher. Mainsprings of the German Revival (1955)
  • Wasser, Solidelle F. and Dolfman, Michael L., "BLS and the Marshall Plan: The Forgotten Story: The Statistical Technical Assistance of BLS Increased Productive Efficiency and Labor Productivity in Western European Industry after World War II; Technological Literature Surveys and Plan-Organized Plant Visits Supplemented Instruction in Statistical Measurement", Monthly Labor Review, Vol. 128, 2005
  • Wend, Henry Burke. Recovery and Restoration: U.S. Foreign Policy and the Politics of Reconstruction of West Germany's Shipbuilding Industry, 1945–1955 (2001) online version
  • Zmirak, John, Wilhelm Röpke: Swiss Localist, Global Economist (ISI Books, 2001)

External links