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25 May 2022

How the Marshall Plan made Europe

It is 75 years since the US launched its ambitious aid scheme to rebuild postwar Europe and protect it from Soviet hostility. Is this the model the West should now use to help Ukraine?

By David Reynolds

Seventy-five years ago, on 5 June 1947, the US secretary of state George C Marshall delivered a brief address at the Harvard University commencement ceremony. He told the graduating class that urgent action was needed to address the economic crisis in postwar Europe, so as to “permit the emergence of political and social conditions in which free institutions can exist”.  Many students took little notice of his words – Marshall was a soldier, not an orator and he spoke for only 12 minutes – but his dry, clipped speech launched a defining initiative of the early Cold War.

What became known as the Marshall Plan – officially the European Recovery Program (ERP) – played a vital role in the resurrection of western Europe between 1948 and 1951, helping its coalescence as a group of capitalist democracies oriented to the United States. In the process, the ERP also sharpened the Cold War division of Europe into two hostile blocs.

Today, as Vladimir Putin wages war on Ukraine, there is talk from Western politicians of a new Marshall Plan. But is this serious policy or mere sloganising? The 75th anniversary is a good moment to ask what that Harvard speech was about and to explore its relevance for our own troubled times.

Europe was not at war in 1947. Marshall spoke more than two years after Allied victory against Nazi Germany and – despite Winston Churchill’s speech at Fulton, Missouri in March 1946 – the “iron curtain” had not yet descended irretrievably to divide the continent. Politically, much of Europe had lurched leftward: for many people, memories of the 1930s Great Depression as well the horrors of Nazi rule discredited both capitalism and fascism. In parts of eastern Europe peasant and socialist parties worked with communists to redistribute large estates and nationalise heavy industry. Further west, the Labour party had trounced Churchill’s Tories in Britain’s 1945 election, social democrats held sway in Norway and Sweden, and centre-left coalitions governed France, Belgium and Italy – including communists, who had played a leading role in the wartime resistance.

[See also: How Britain’s failure to reckon with global forces led to a cost-of-living crisis]

Many Europeans inclined towards a “third force” strategy to avoid close alignment with either of the new “superpowers”. In March 1946 Ernest Bevin, Labour’s foreign secretary, called Britain “the last bastion of social democracy”, holding its ground against “the red tooth and claw of American capitalism and the Communist dictatorship of Soviet Russia”.  Britain and other western European countries remained sceptical of the US as a peacetime ally, mindful of how after 1918 Woodrow Wilson’s internationalist crusade had degenerated into economic nationalism and diplomatic isolation. Yet there was no doubting America’s importance for postwar Europe. In 1945 it produced half the world’s manufactured goods and held over half the world’s gold reserves. US credits were essential to bridge the “dollar gap” and purchase vital imports.

After 1945 the Truman administration continued to dole out aid on a bilateral basis to countries ranging from France to Greece. But Europe was not recovering. In his speech Marshall attributed this less to physical destruction than to “the dislocation of the entire fabric” of Europe’s economy, including loss of faith in national currencies and the withdrawal of many farmers from the market. People in the cities were short of food and fuel. “So the governments are forced to use their foreign money and credits to procure these necessities abroad.” Therefore “substantial additional help” must be provided to restore “the confidence of the European people in the economic future of their own countries and of Europe as a whole”.

The secretary of state ruled out any idea that the US would “draw up unilaterally a programme”, declaring: “The initiative, I think, must come from Europe. The role of this country should consist of friendly aid in the drafting of a European programme and of later support of such a programme so far as it may be practical for us to do so.” He also stated that “the programme should be a joint one, agreed to by a number, if not all European nations”.

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Marshall delivered his speech in the wake of a visit to Moscow, where for seven weeks the foreign ministers of the four Allied victor powers – Britain, France, the US and the USSR – failed to reach agreement on what to do about Germany: the most formidable economy in continental Europe back in 1913 and now the potential powerhouse of European recovery. Marshall had no doubt that the Soviets were the main stumbling block.

But the debate was not yet a simple Cold War divide. Whereas Britain and the US wanted to revive the German economy and reduce the costs of feeding and supplying their zones of occupation, opposition came from France as well as the USSR. As the two victor powers that had suffered most from Nazi rule, they feared Germany would once again convert its economic power into military might. Haunted by the humiliation of 1940 and Hitler’s brutal occupation, many in Paris were attracted by the punitive policy advocated by the Kremlin, whose wartime losses amounted to perhaps 27 million people, about one-seventh of the 1940 Soviet population. Without any Allied agreement on German reindustrialisation or a currency to replace the worthless Reichsmark, let alone a new German government, the country staggered along as a barter economy. In the US and British zones, the main medium of exchange was cigarettes.

So ludicrous was the situation that in the summer of 1946 the Labour government introduced bread rationing in Britain – something not imposed even in the depths of the war – so as to free up grain imports from America to feed Britain’s occupation zone in the Ruhr. “We are paying reparations to the Germans,” fumed Hugh Dalton, the chancellor of the exchequer.  This was the “vicious circle” that Marshall wanted to break. But, as he said, the initiative had to come from “Europe” – whatever that meant.

Within six weeks of Marshall’s speech, the shape of postwar Europe could be discerned. Bevin and the foreign office quickly got his message – “It is up to us to tell them what we want.”  So, too, did the French foreign minister, Georges Bidault, representing the centre of a shaky coalition against the extremes of the anti-German Gaullist right and the pro-Soviet communist left. After some jockeying between the two governments, Bevin agreed that a European conference to discuss Marshall’s offer should be held in Paris and that the USSR had to be invited to placate the French left. In return he extracted a firm commitment from Bidault that France would go ahead regardless of any obstruction from Moscow. 

Stalin didn’t reject the invitation out of hand. He sent a delegation of 100 to Paris, which suggested a readiness to talk. But the Russians came to find out how much money might be on the table, to demand huge reparations from Germany, and to block any “joint” European programme intruding into the USSR’s closed economy. Once clear that none of their conditions would be met, the Soviet delegation left, and eastern European countries, notably Poland and Czechoslovakia, were warned off participating in the Paris discussions. And so, Bidault later reflected, Moscow chose “the only way to lose for sure”.  If the Soviets had stayed, they might have secured some aid or, more likely, ensured by their involvement the Plan’s defeat in the Republican-controlled US Congress. 

In any case it was hard enough to get “western Europe” to draw up a statement of “availabilities and requirements” for 1948 to 1951. National income accounting was still in its infancy: even pioneers such as Britain and Norway struggled to satisfy the voracious US appetite for economic data. The British resisted Washington’s attempts to make aid conditional on opening up its empire-based trade and currency system. The French feared that the Marshall Plan would mean putting Germany first. Smaller countries resented direction by London and Paris, and the Scandinavians hoped to continue “bridge-building” with the USSR and its satellites.

[See also: War at the end of history]

Given all this friction, it was almost miraculous that the Paris conference came up with anything within the six-week deadline. This was in large measure due to its British chairman, Oliver Franks. But Washington was unhappy with the amount requested ($28bn over four years) and what it considered the obstinately national approach (“sixteen shopping lists”), rather than a joined-up plan for mutual help and structural change to move Europe on from war. After tough transatlantic bargaining, the total amount was cut and vague pledges were added about boosting production, cutting trade barriers and creating a permanent organisation. In December 1947 Truman sent his ERP to Capitol Hill, asking for $17bn over four years.

The president had to deal with a Republican Congress – controlling both House and Senate for the first time since 1931. Suspicious of federal spending, it insisted on close accountability and annual appropriations, rather than a four-year package. But context was as critical as content in gaining congressional support. In February 1948 the communists had seized power in Czechoslovakia, and in mid-April Italians would go to the polls in an election that many Western observers feared could lead to a socialist-communist government. It was this general sense of alarm that helped ease the Marshall Plan through Congress. On 3 April Truman signed it into law and the aid began to flow that summer.

In 1948-51 the funds provided for western Europe amounted to some $13.2bn. If this was a form of American imperialism, it was “empire by invitation” – as the Norwegian scholar Geir Lundestad observed. The Kremlin practised empire by coercion. Over that same period the USSR extracted a comparable amount from eastern Europe in reparations and rip-offs.

Early commentators struck a celebratory note. In 1970 the historian Richard Mayne lauded the Plan as Europe’s “great leap forward” which saved the continent from “imminent economic ruin” and laid “the real foundations of later prosperity”. Recent economic historians have been less effusive. Over its entire course, the Marshall Plan probably amounted to no more, on average, than 2.6 per cent of the recipient countries’ GDP. It’s also clear that western Europe’s economy was already recovering by the time the aid began to flow in mid-1948. It therefore sustained, rather than triggered, growth, serving, to quote the historian Charles Maier, like “the lubricant in the engine – not the fuel – allowing a machine to run that would otherwise buckle and bind.” 

But none of this academic revisionism has dampened Mayne-style hype. The Marshall Plan developed a life of its own – proffered as a panacea for a plethora of economic and social problems. In 1991-2 George HW Bush was pressed to mount a Marshall Plan to help post-Soviet Russia; his son urged one for post-Taliban Afghanistan after 9/11. Politicians today have also proposed it for Ukraine. Taking the lead was Boris Johnson, who responded to Volodymyr Zelensky’s video-address to the British parliament on 8 March by promising “a new Marshall Plan” for the country’s recovery.  Characteristically, Johnson did not add any detail, and critics discerned another headline-grab to divert attention from the political problems of the Tory party’s Party Leader. But other European politicians also deployed slogans without substance – among them Christian Lindner, the German finance minister, and Johannes Hahn, the European Commissioner for budget and administration.

Here are example of how politicians often use “history” – as clichés that can be cited without need for further comment because they are immediately recognised as a “good thing” (such as the Marshall Plan or “Finest Hour”) or else as a “bad thing” (appeasement, for instance, or the “Fourth Reich”). Although it sounds erudite, history for effect can often be an excuse for sloppy thinking or easy nostrums. In the case of the Marshall Plan the idea of a quick-fix injection of financial aid misses the larger historical context of Europe in the late 1940s. The legislation was officially called the Economic Cooperation Act, but it was about politics as much as economics. This is critical to understanding the true significance of the Plan in its time and also its relevance for 2022.

The political dimension took three forms: stabilisation, state-building and security. Even before the aid began to flow, the promise of the Plan helped stabilise politics in key countries. A month before the crucial Italian election, Marshall warned that if Italy chose a government hostile to the ERP, it would effectively rule itself out of the programme. Similar warnings were issued to the coalition governments in France and Belgium. More positively, Washington presented the ERP as largely development aid, downplaying its more technical aspects such as currency reform. This was an early sign that Marshall Hype mattered as much the Marshall Plan in the battle for hearts and minds. On 18 April 1948 the Christian Democrats under Alcide de Gasperi won a majority in Italy’s Chamber of Deputies. Vatican warnings about communism and CIA money helped, but the prospect of aid influenced the result. Across western Europe the centre-right began to look with hope to what seemed a new America, different from the era of isolationism.

It was in Germany that stabilisation proved most important. In January 1947 the British and Americans merged their occupation zones in order to revive industry and trade. In April and May 1948, as the Marshall Plan was signed into law, they met in London with the French to agree a policy on Germany, including the fusion of all three zones and a new currency. The introduction of the Deutsche Mark into West Berlin prompted Stalin’s attempt to blockade the city and the ensuing Anglo-American airlift all through the winter. Meanwhile, as was also agreed in London, the Germans convened a constituent assembly to create a new government for western Germany. Bidault warned reluctant colleagues that, if they refused, Britain and the US would go ahead anyway and France would probably be cut out of the ERP. It was not until May 1949 that the Federal Republic of Germany was born – with Konrad Adenauer, a Christian Democrat, as chancellor – but already, in the Marshall Plan summer of 1948, stabilisation had developed into state-building.

And also into revolutionary new security relationships. While the ERP was being haggled through Congress, the Czech coup spurred Britain, France and the Benelux states to form the Brussels Pact – a military alliance that was intended to advance economic and cultural cooperation as well. The crisis was nudging Britain beyond its “finest hour” sense of splendid isolation. Talks began in Washington to enlarge the Brussels Pact into a transatlantic alliance. Bevin told the state department that this was essential to “inspire the necessary confidence to consolidate the West against Soviet infiltration”. With the Berlin blockade adding urgency to the discussions, the North Atlantic Treaty was signed in April 1949 – bringing together the US, Canada and ten disparate Western European states, from Iceland to Italy, in a mutual defence pact. At this stage the alliance was simply a pledge, but the North Korean invasion of the South in June 1950 put the “O” into Nato – to quote Washington insider Averell Harriman – turning a paper pact into a proper military organisation, with a US commander-in-chief backed by four American combat divisions.

Breaking the blockade: the Anglo-American airlift of 1948 brings supplies to West Berlin. Photo by Bettmann

Aid, stabilisation, state-building and security: this European revolution of 1947-50 depended on fortuitous political conjunctions on both sides of the Atlantic. In the US, despite Republican hegemony on Capitol Hill, there was a degree of bipartisanship inconceivable in our time. Arthur Vandenberg was chair of the Senate Foreign Relations Committee. A diehard isolationist in the 1930s, he concluded that Pearl Harbor had ended isolationism for any realist. Vandenberg worked closely with the Democratic administration to push the North Atlantic Treaty through the Senate. Later, after Truman’s surprise victory in the November 1948 presidential election, the Republicans lurched into knee-jerk opposition against anything he proposed. But that brief bipartisan moment was crucial in shaping transatlantic history.

Equally creative was the period of Christian Democrat leadership in western Europe. Bidault and his colleague Robert Schuman headed France’s Mouvement Républicain Populaire (MRP) – a Christian Democrat party akin to those led by De Gasperi in Italy and Adenauer in West Germany. The MRP espoused a positive policy towards Germany, unlike the communists and the Gaullists. Their predominance didn’t survive the 1951 elections, but in that short time they not only brought France into the Marshall Plan but also transformed relations with Germany through the Schuman Plan.

Much of France’s Marshall aid was channelled into intensive industrialisation – centred on coal, steel and electric power. In peacetime, France had been reliant on coal imports from the Ruhr. With Germany now recovering fast under American aegis, Schuman recognised the need to prevent its revival becoming a threat. On 9 May 1950 he proposed that all French and German production of coal and steel should henceforth be “placed under a common High Authority, within the framework of an organisation open to the participation of the other countries of Europe”. This, he said, would “make it plain that any war between France and Germany becomes not merely unthinkable, but materially impossible”.

European integration had always been an aim of the Truman administration. It hoped that the Organisation for European Economic Cooperation that oversaw the European end of the ERP would become an instrument of integration, but this was resisted by Britain and France. A rare exception was the European Payments Union set up in September 1950, which opened the way for full currency convertibility in 1958. Yet the Schuman Plan is an example of how Marshall Aid fostered integration less directly. As the historian William Hitchcock has observed, “the genius of the scheme” was that by “restoring economic choices to Europeans, the Marshall Plan also restored political choices. US aid helped boost economic activity and gave the parties of the centre-right that had won this generous support credibility and legitimacy”.  In 1950 it gave Robert Schuman the courage to dare. The European Coal and Steel Community was a first step towards the Treaties of Rome in 1957, foundations of the European Communities.

Much more than a dash of cash was  therefore required to create what George Marshall called “political and social conditions in which free institutions can exist”. That should be remembered by those who breezily advocate a Marshall Plan for today’s Ukraine. Indeed, as Adam Tooze recently remarked in the New Statesman, “judged by the actual scale of the original ERP, the sobering fact is that between the Russian annexation of Crimea in 2014 and Vladimir Putin’s invasion in February 2022, Europe, the US and the IMF already delivered a ‘Marshall Plan for Ukraine’ and the results have been underwhelming”. The country was notorious for fractured politics and endemic corruption. Money disappeared down a black hole – just like it did in Russia after 1991.

In 2022 perspectives on Ukraine changed dramatically. Zelensky’s charisma, and the courage of his people and armed forces in the face of Putin’s invasion, saw to that. Millions followed the fate of Kyiv or Mariupol on TV news bulletins or applauded Ukraine’s triumph in the Eurovision Song Contest. But the country’s economic problems have not disappeared; on the contrary, the war has made them worse. Yet Ukraine’s new hero status has made the West eager to help on a scale hitherto inconceivable. 

Many of the bright ideas fail to appreciate the magnitude of the challenge. If the Marshall Plan era is to offer any model, we have to take seriously the nexus of stabilisation, state-building, security and integration that financial aid enabled. All of this in relatively developed countries whose brutal enemy had been totally defeated. None of this applies to Ukraine. Not only is the country still a battleground but the war shows no sign of ending soon, and that means no hope of stabilisation. Zelensky’s Ukraine may now have a keen sense of nationhood, but state-building remains in suspense. Only when (or if) there is a definitive end to the war can we see whether the country has avoided another partition or significant loss of territory. Would Ukraine without the Donbas and the Black Sea ports be a viable and prosperous state?

[See also: How the UK became the sick man of Europe again]

Most challenging of all is security. A recent “Blueprint for the Reconstruction of Ukraine” – published on 6 April with commendable speed by a group of economists – was built around two basic assumptions. First, “Ukraine has security guarantees such that another Russian invasion cannot happen” and, second, that it could and should be put on the fastest possible track for EU membership. Yet neither of these proposals seems like practical politics. What security guarantees would be sufficient? Western policy has been to keep Ukraine fighting while avoiding being drawn directly into war against Putin’s Russia. So the Nato protection that worked for western Europe, especially West Germany, around 1950 is ruled out. As for the EU, it usually takes several decades for a candidate country to reach the standards of economic, social and democratic convergence deemed essential. This point is made repeatedly by Emmanuel Macron, as guardian of these hallowed verities – most recently on 9 May, the anniversary of Schuman’s visionary speech and also of Russia’s Victory Day in the Great Patriotic War.

Ukraine’s fight for freedom has rejuvenated Nato and the EU. The institutions created by Marshall and Bevin, Adenauer and Schuman were adapted after 1989 to manage the transition into what seemed like a new era. As the historian Kristina Spohr showed in Post Wall, Post Square, these bodies were “conserved, modified and eventually enlarged to encompass the states of Central and Eastern Europe”.  By the 2010s – the era of Trump and Brexit – Nato and the EU seemed tired and embattled but Russia’s invasion of Ukraine has given them new energy. Yet will it spur fresh thinking suited to the 21st century? Are both organisations simply going to keep enlarging the membership without addressing the structural problems avoided by the men of 1989 as they trod softly-softly out of the Cold War? How long can Western Europe expect to shelter under America’s nuclear umbrella? Do Macron’s cherished criteria hinder a multi-speed EU that could accommodate the likes of Ukraine more easily?

The window of opportunity for decisions, like that in 1947-50, will be short. After this November’s midterm elections, will the US Congress become deadlocked? Will an emboldened Trump return to the White House in 2025? And how might an ailing Putin react to endless war in Ukraine – whose reconquest is his legacy project?

On 5 June 1947, the day of that momentous Harvard speech, twelve honourees (all male) were recognised by the university. Sitting with George Marshall on the stage were TS Eliot – the visionary 20th-century poet of The Waste Land – and J Robert Oppenheimer – godfather of the atomic bomb. Which of those three, one wonders, might be the muse of our own times?

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This article appears in the 25 May 2022 issue of the New Statesman, Out of Control