Marshall Plan (1948): American Aid That Rebuilt Western Europe

The Marshall Plan, officially the European Recovery Program (ERP), was a United States aid programme that channelled around 13 billion US dollars into Western Europe between April 1948 and the end of 1951, with some deliveries continuing into 1952. Proposed by Secretary of State George C. Marshall in June 1947, it helped revive war-damaged economies, encouraged European cooperation and became one of the defining acts of the early Cold War.

Europe in crisis, 1945–1947

The Second World War left much of Europe in ruins. Cities such as Rotterdam, Warsaw and Cologne had been heavily bombed, railways and bridges were destroyed, and millions of people were displaced. Industrial output in 1946 remained far below pre-war levels in many countries, especially in occupied Germany.

The problems deepened in 1947. The winter of 1946–47 was one of the harshest of the century, freezing canals, halting coal deliveries and shutting factories across Britain and the Continent. A drought followed in summer, damaging harvests. Above all, Europe lacked dollars: it needed American food, fuel and machinery but had little to export in return, a problem economists called the “dollar gap”.

Politics added urgency. Communist parties were strong in France and Italy, and in early 1947 Britain told Washington it could no longer support Greece and Turkey. President Harry S. Truman responded in March 1947 with the Truman Doctrine, pledging support to countries resisting communist pressure. US officials increasingly believed that economic despair would play into Soviet hands.

Marshall’s Harvard speech

On 5 June 1947, George C. Marshall spoke at the Harvard University commencement ceremony. In a short address he described Europe’s economic breakdown and argued that the United States should help to restore “normal economic health in the world”. Crucially, he said the initiative should come from Europe itself: the Europeans should agree on a joint programme, and the United States would support it.

Marshall also stated that the policy was directed “not against any country or doctrine but against hunger, poverty, desperation and chaos”. The speech was drafted with input from State Department officials including Will Clayton, who had toured Europe and reported on its desperate condition, and George Kennan’s Policy Planning Staff.

British foreign secretary Ernest Bevin and French foreign minister Georges Bidault moved quickly to take up the offer. They invited the Soviet Union to talks in Paris in late June 1947.

The Soviet rejection and the Paris conference

Soviet foreign minister Vyacheslav Molotov attended the first Paris meeting but left on 2 July 1947, objecting to the joint planning and the disclosure of economic information the scheme required. Stalin’s government regarded the plan as a tool of American influence. Poland and Czechoslovakia had shown interest, but Moscow pressed both to withdraw; the Czechoslovak government reversed its acceptance after its leaders were summoned to Moscow.

Sixteen Western European countries then formed the Committee of European Economic Cooperation, which in September 1947 presented a four-year recovery estimate to Washington. The Soviet bloc answered with its own arrangements, often called the Molotov Plan, and in January 1949 founded the Council for Mutual Economic Assistance (Comecon).

Passing the law

The programme required approval from a Republican-controlled Congress wary of spending. Republican senator Arthur Vandenberg, chairman of the Senate Foreign Relations Committee, became its key advocate and helped win bipartisan support. Interim aid was voted in late 1947 to keep France, Italy and Austria afloat through the winter.

The Communist takeover in Czechoslovakia in February 1948 removed much remaining opposition. Truman signed the Economic Cooperation Act on 3 April 1948. It created the Economic Cooperation Administration (ECA), led by businessman Paul G. Hoffman, with W. Averell Harriman as special representative in Europe based in Paris. On 16 April 1948 the participating countries founded the Organisation for European Economic Co-operation (OEEC) to coordinate their requests and policies.

How the aid worked

Most Marshall Plan aid took the form of grants, with a smaller share as loans. Recipient governments submitted programmes; the ECA then paid American and other suppliers for goods shipped to Europe, such as food, fuel, fertiliser, cotton, raw materials and machinery.

A key mechanism was the system of “counterpart funds”. Importers in Europe paid for the goods in their own currencies, and governments placed the equivalent sum in special accounts. With American approval these funds were then used for investment, for example in power stations, railways, housing and industry, or to reduce public debt. In West Germany the counterpart funds later formed the basis of a state development bank.

The ECA also promoted productivity. It funded study tours that brought thousands of European managers, engineers and trade unionists to American factories, and it encouraged the removal of trade barriers. The European Payments Union, set up in 1950 with Marshall Plan support, made it easier for European countries to trade with each other without scarce dollars.

By the numbers

Amounts differ between sources because of different ways of counting interim aid, loans and the period covered.

Key people

• George C. Marshall (1880–1959): US Army chief of staff in the Second World War and Secretary of State from 1947 to 1949. He received the Nobel Peace Prize in 1953.
• Harry S. Truman: the US president who backed the plan and signed the Economic Cooperation Act.
• Arthur Vandenberg: the Republican senator whose support secured passage through Congress.
• Paul G. Hoffman: former president of the Studebaker car company and head of the ECA.
• Ernest Bevin and Georges Bidault: the British and French foreign ministers who organised the European response.

Consequences

Western European production recovered strongly during the plan’s years. By 1951 industrial output in the participating countries was well above its 1938 level, and agricultural output had also passed pre-war levels. Trade within Western Europe grew rapidly, and inflation and food rationing gradually eased.

Politically, the plan strengthened centrist governments. In Italy, the Christian Democrats defeated a Communist–Socialist alliance in the April 1948 election, in which the prospect of American aid was a major issue. The plan also hardened the division of Europe: the Soviet rejection meant that the line between the aided West and the Soviet-dominated East became an economic as well as a military border. The Berlin Airlift and the founding of NATO followed within a year.

The formal programme ended on 31 December 1951, when American aid shifted towards military assistance under the Mutual Security Act. The OEEC survived and in 1961 was transformed into the Organisation for Economic Co-operation and Development (OECD).

Myths and facts

Myth: the Marshall Plan alone rebuilt Europe. The aid equalled only a few per cent of the recipients’ combined national income each year. Economic historians such as Alan Milward argued that recovery had begun before the money arrived. Others, including Barry Eichengreen and J. Bradford DeLong, have argued that its main effect was to ease the dollar shortage and support market-friendly policies and cooperation. Most historians now see it as important but not solely responsible.

Myth: the aid was only for former allies. Former enemies were included: Italy, Austria and the western zones of Germany all received aid, as did neutral countries such as Sweden, Ireland and Portugal. Switzerland took part in the OEEC but received no aid.

Fact: the Soviet bloc was invited. The offer was formally open to Eastern Europe and the Soviet Union, but the conditions made Soviet participation very unlikely, and Moscow refused.

Legacy

The Marshall Plan is often cited as a model of successful foreign aid, and later proposals for large reconstruction programmes are frequently described as a “new Marshall Plan”. Its emphasis on European joint planning helped prepare the ground for later integration, including the European Coal and Steel Community.

In Europe it is commemorated by plaques, exhibitions and foundations, including the German Marshall Fund of the United States, founded in 1972 with a gift from West Germany. At the same time, historians continue to debate how far it was generous humanitarian aid and how far a strategic instrument of the Cold War. Most conclude that it was both.

Timeline

• 1947, 5 June: George C. Marshall proposes European recovery aid in a speech at Harvard University.
• 1947, 2 July: Soviet foreign minister Molotov walks out of the Paris talks.
• 1947, September: The Committee of European Economic Cooperation submits its report to the United States.
• 1948, February: Communist takeover in Czechoslovakia strengthens support in Congress.
• 1948, 3 April: President Truman signs the Economic Cooperation Act.
• 1948, 16 April: The Organisation for European Economic Co-operation is founded in Paris.
• 1950, July: The European Payments Union is established.
• 1951, 31 December: The formal Marshall Plan period ends; aid shifts to the Mutual Security programme.
• 1953, December: George C. Marshall receives the Nobel Peace Prize.

Why it matters

The Marshall Plan helped turn a ruined, divided and impoverished Western Europe into a stable, growing region tied closely to the United States. It shaped the Cold War map of Europe, encouraged the first steps towards European economic cooperation and remains the benchmark against which large international aid efforts are still measured.