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Abdisalam M Issa-Salwe

Essay:

The Cold War and the Division of Europe:


Marshall Plan Case Study

School of Social Science, University of Greenwich

January 1996

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Acronyms:

CEEC = Committee for European Economic Cooperation.


ECA = European Cooperation Administration.
ERP = European Recovery Program.
IMF = International Monetary Fund
NATO = Northern Atlantic Treaty Organisation.
OEEC = Organisation for European Economic Cooperation.
UNRRA = United Nation Relief and Rehabilitation Administration

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1. Introduction

When World War Two ended the countries of western Europe were in a state of physical
and economic collapse, to which was added the fear of Soviet dominance by frontal
attack, subversion or political takeover through the western Communist parties. During
the war plans had been made to meet immediate needs in Europe. The United Nations
Relief and Rehabilitation Agency (UNRRA) for this purpose was created in 1943 and
functioned until 1947.

American administration envisioned that to stimulate the US economy it was necessary


that USA rehabilitate its European trade partners’ economies. To realise this goal, they
first began an aid plan whose impact did not create the desired aim. After a while, the
Truman administration changed strategy and determined on a new plan: to be known as
the Marshall Plan (1947-1952)  named after the then US Secretary of State, George C.
Marshall. It was a scheme for large-scale, medium term US aid to war-ravaged Europe.

In spite of some people wanting to make American aid conditional on the development of
an economic or political union, since the inception of the Marshall Plan, the goal was to
refashion Western Europe in the image of the United States.

In this essay I will attempt to look at the influence of economic power for political ends in
the context of the Marshall Plan. First through the Marshall Plan, and later through other
economic commitments, the economic power of the United States shaped western Europe
at the end of World War Two.

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2. The Background of the Marshall Plan

In July 1944, representatives of the western countries met in Bretton Woods, New
Hampshire, to create a new international monetary order. The objective was to establish
an international economic system that would prevent another economic and political
collapse and another military conflict. The United States, which was the strongest
economic country, was to assume primary responsibility for establishing the Bretton
Woods goals.

Following World War Two western European countries were in a state of physical and
economic collapse. American strategists viewed European markets, sources of supply,
manpower resources, and industrial capacity as vital and essential. For the US
Administration, therefore viewed to hostile power to take control of it.1 To realise such a
goal, however, required the Americans to take an active role in rebuilding Europe.

Initially, the economic aid under the mantel of the Marshall Plan was offered to all Europe
(including USSR) on the basis that the European governments would accept responsibility
for administering the programme and would themselves contribute to European recovery
by some degree of united effort.2 However, Stalin refused the offer, and instead began to
create his own version of economic aid institutions for Eastern Europe.

2. 1 European Economic Recovery

The Marshall Plan rested squarely on an American conviction that European economic
recovery was essential to the long-term interest of the United States. In Europe, the
Marshall Plan could alleviate the economic duress that encouraged experiment with
socialist enterprise and government controls, experiments which it was believed could limit
production and hamper recovery. In the United States, it could prevent the political and
economic management that would result from Western Europe’s collapse and America’s
isolation.

Furthermore, Truman and his administration policymakers maintained that the betterment
of the US economy required American trade and investment abroad. This policy involved
reconstructing the ruined economies of its trading partners in Europe and their
reintegration into a multilateral system of world trade.

The defeat of Germany and the impact of the war on Britain and France left a power
vacuum in Europe. Unless the United States decided to fill this vacuum, the Soviet Union
could expand. However, filling the vacuum involved rebuilding the ruined Western
Europe’s economies and political systems making them strong enough to forestall the
‘peaceful takeover’ by the Western Communist parties, “whose rise to power seemed the
most likely way for the Soviets to extend their influence.”3

1
Michael J. Hogan, The Marshall Plan, 1987, p.26.
2
Peter Calvocoressi, World Politics since 1945, 6th edn., pp.173-74.
3
Ibid., pp.27-8.

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American policy makers gave the idea of European economic integration a prominent
place in their policy planning. The Marshall Plan would replace the old European state
system with what they saw as a more viable framework for achieving their policy
objectives in Europe. The strategic assumption behind this policy held that an integrated
economic order, particularly one headed by supranational institutions, would help to
control German nationalism.

This could reconcile Germany’s recovery with its Western European neighbours,
particularly France. As a result of this policy they foresaw that a balance of power could
emerge which could contain Soviet expansionism.4

2. 2 A Piecemeal Approach to Economic Assistance

At the end of the war, American officials had optimistically assumed that the road to
European recovery could be smoothed by limited bilateral loans, currency stabilisation
through the International Monetary Fund (IMF), the largely American-financed relief and
reconstruction activities of the International Bank for Reconstruction and Development
and the United Nation Relief and Rehabilitation Administration (UNRRA).

American policymakers had abandoned the Morghenthau Plan by the time of the Potsdam
Conference, and in the next year or so the new base policy of the Marshall Plan was
solidifying. Alarmed by the spread of economic and social disorder in the occupied zones
and the retardation of recovery in other parts of western Europe, the US planned special
effort to revive the German economy.

The 1946 plan forecast a balanced recovery of the German and European economies. It
would put Germany on a self-reliant programme, without threatening the economic
requirements and military security of its former victims, and this would help pave the way
to stable political accommodation in Europe. In addition, Germany’s economic
restoration would promote recovery in Europe as a whole, which, together with the
United States and some international institutions such as the World Bank and the
International Monetary Fund (IMF), would lead to a general restoration of the world
economy and therefore advance the multilateral system of world trade.

However, at the start of 1947, there were still few tangible signs of the results of the US
plan to promote a stable economy in Europe. By this time the US had given over $9
billion in a variety of aid programs in Europe. Unfortunately, European industrial and
agricultural production fell below its pre-war output levels. 5

In spite of some European countries doing their very best to speed up recover, capital
equipment and plant facilities remained out of date for the task. Furthermore, shortages of
manpower and of basic resources, especially coal and steel, restricted production. In

4
Ibid., p.27.
5
Ibid., p.30.

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addition, the situation was deteriorating from the erosion of wages by inflation, which
discouraged maximum effort from a demoralised workforce. As a result, agricultural
production in Western Europe was 17 percent down on its 1938 volume, industrial
production 12 percent down, and exports 41 percent on figures from 1938. 6

What the American leaders realised that it was that there were key problems resulting
from the difficulty of reconciling competing economic and security requirements within the
framework of the 1946 level-of-industry plan. France agreed wholeheartedly to the 1946
agreement, which assumed France taking Germany’s place as the industrial hub of Europe
and as a the fulcrum in a new European balance of power. Based on this concept, the
Monnet Plan assumed French exports would become more competitive in the international
economy. It was in line with this policy that France objected to the revision of the 1946
level-of-industry agreement over Germany’s level of industry and refused to accept
proposals for German unification and central administration. The conflict of interest
became evident at the Moscow Foreign Ministers Conference of March-April 1944, when
France objected to the Anglo-American proposal for a higher level of German production
and a central administration of the Allied occupied zones. The Soviet Union, who had its
own strategy for Europe, supported France, and proposed a four-power ownership of the
Ruhr, which would give the Soviets control over economic and strategic assets of
incalculable value.7

Though still reluctant to abandon their goal of a balanced recovery, the American leaders
realised that unless the US abandoned its policy of piecemeal aid in favour of a
comprehensive recovery plan, things could fall apart and seeds of future conflict could be
sown.

3. The Use of the American Economic Power

In March 1947 the United States took over Britain’s traditional role of keeping the
Russians out of the eastern Mediterranean: Truman took Greece and Turkey  in spite of
them becoming full members of the Northern Atlantic Treaty Organisation in 1952 
under the American wing and promised material aid to states threatened by communism.8

After World War Two, a new world order was created in which the Soviet Union and the
United States became the only two world superpowers, and they had opposing ideologies.
In the first stage, the US began limited aid plans, which did not have good results. After
the first failure, the US administration took the matter seriously and changed their
piecemeal aid to one of real commitment.

Without a prosperous and expanding European economy, the argument ran that
democratic governments would give way to a coalition of totalitarian regimes tied to the

6
Ibid., p.30.
7
Ibid., p.38.
8
Peter Calvocoressi, World Politics since 1945, 6th edn., pp.10-2.

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Soviet Union, committed to state trading, and controlling markets and resources of
supply.

The new approach would merge economic sovereignties in a unified and supranational
system large enough to control the Germans. It would bring the gains in resource
utilisation, specialisation, and economies of scale needed to generate recovery.

If organised through supranational institutions of regional coordination, this approach


could control German power, allay French and Soviet security concerns, and prevent the
division of Europe into rival economies and political blocs.

American aid was conditioned by substantial evidence of a developing overall plan for
economic cooperation by the Europeans themselves, perhaps an economic federation to be
worked out over 3 or 4 years.

Together with supranational institutions of coordination and control, economic integration


would also to build a viable balance of power among the states of Western Europe and a
workable correlation of forces on the Continent. It would create a unity coherent enough
to harness Germany’s industrial strength without restoring its pre-war dominance and
strong enough to countervail the Soviet block in Eastern Europe. Seen in this light,
integration emerged as both an economic and a strategic concept, and putting this concept
into operation became even more important after the Soviets had turned their backs on the
second American effort to rebuilt Europe in the image of the US.

The Europeans were sceptical about the recovery strategy which aimed to transcend
sovereignties and subordinate national interest. The aim of the recovery was to re-create
the Continent’s segmented pre-war economic structure. On the other hand, in the
American camp, disagreements over the political economies, and over the degree of free-
market initiatives and supranational control that should be involved, was abandoned.
However, out of these disagreements finally emerged a composite strategy that relied on
both market forces and administrative mechanism. The Truman administration intended
that the strategy should do more than revive the European economies.

4. The Influence of the Marshall Plan

In 1948 the American Senate passed the Foreign Assistance Act under which the
European Cooperation Administration (ECA) was created which was to supervise the
European Recovery Plan (ERP). Approximately $5 billion was approved to support the
first twelve months of the European Recovery Program (ERP).

In the meantime, sixteen European countries established the Committee for European
Economic Cooperation (CEEC) which assessed their requirements in goods and foreign
exchange for the years 1948-52. Under the Marshall Plan, the US gave these countries
$17 billion in outright grants.9
9
Joan Edelman Spero, The Politics of International Economic Relations, 4th Edn., 1990, p.35.

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In April 1948 the ECCE was changed to the Organisation for European Economic
Cooperation (OEEC). In the following years the OEEC became the institution with which
western Europe moved from war to peace. It revived Europe’s production and trade by
reducing quotas, creating credit and providing a mechanism for the settlement of accounts
between countries.

The Integration of European Defence System

The first half of 1949 saw signs of progress towards the strategic economic goals of the
Americans for Western Europe. Industrial output in the OEEC countries rose by 18
percent compared with the same countries’ output in 1938; agricultural production went
up; overall volume of trade recovered to pre-war levels, and some countries went further
to curb inflation and balance their budgets.10

While the process of European recovery was going on, the Americans began to pave the
way for a military alliance that would lead to the integration of a European defence
system. As one of the main objectives of the Marshall Plan had always been to generate a
Western European block of nations which could itself resist the dangers of Communist
subversion and Soviet aggression, economic integration was central to the achievement.
At the same time, the result was to reconcile Franco-German differences and bind both
countries to a unit of power large enough to create recovery and contain the Soviet threat.

In spite of the economic goals being one of the main tools, Truman and his associates
believed that Western Europe had to organise and arm themselves against potential
adversaries.

To realise this goal, the Americans and their European associates began to negotiate in
July 1948 on what would become the North Atlantic Treaty Organisation. However, some
American officials, such as Kennan, warned against “a general pre-occupation with
military affairs, to the detriment of economic recovery.” This theory held that if
rearmament overshadowed recovery, if the North Atlantic Treaty substituted the Marshall
Plan, then economic recovery programs could crumble thus affecting living standards and
creating social unrest in Europe.

Before any thought was given to the other side of the rearmament, the effect provoked by
the escalation of East-West tension which followed the Czechoslovakian crisis and the
Berlin blockade was to change the Americans’ plans to press ahead with forging an
integrated defence mechanism. In 1949 Belgium, Canada, Denmark, France, Iceland,
Italy, Luxembourg, the Netherlands, Norway, Portugal, the UK, and the USA signed the
North Atlantic Treaty Organisation (NATO). The treaty committed the members to treat
an armed attack on one of them as an attack on all of them, and for all to assist the

10
Michael J. Hogan, The Marshall Plan, 1987, p.189.

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country attacked by such actions as are deemed necessary.11 The purpose of alliance was
to produce obligations more predictable and precise than an analysis of national interest.12

11
David Crystal, eds., The Cambrid ge Encyclopaed ia, 1990, p.835.
12
Henry Kissinger, Diplomacy, 1994, p.247.

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Conclusion

It was difficult to persuade the western Europeans to accept Germany as a partner and
help it to recover after only a few months since the end of the war. Europe had
experienced frequent wars in modern times, and all solutions to conflicts rested on a
balance of power. Winners would create a situation which would make the losers suffer
and this that in turn would create seeds of further conflict. It is believed that the Versailles
treaty resolutions were responsible for the World War Two, after the Germans believed
themselves to have been badly treated.

According to Edwin W. Pauley, a former US representative on the Allied Reparations


Commission, “the plan would revive Germany at the expense of its victims and raise anew
the dark spectre of German domination of the Continent.”13

The Marshall Plan met opposition from both right and left wing thinkers and politicians.
Left-wing critics such as Henry Wallace saw ERP as the work of American monopolistic
imperialists who were seeking to promote their interest at home and overseas at the
expense of social justice and world peace.

Whatever is said about the Marshall Plan, it was immensely powerful as it changed the
shape of post-war Europe. Its success demonstrated the advantages to the victor of the
principle of generosity and magnanimity in victory. By contrast the policy of the victors of
World War Two at the Treaty of Versailles of imposing damaging “war reparations” on
the vanquished Germany, had induced poverty and resentment in the German population
which gave birth to the extremism which led to World War Two.

13
Michael J. Hogan, The Marshall Plan, 1987, pp.34-5.

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References

Hogan, Michael J.; The Marshall Plan: America, Britain, and the reconstruction of
Western Europe, 1947-1952, (Cambridge: Cambridge University Press, 1987).

Calvocoressi, Peter; World Politics since 1945, 6th edn., (London: Longman, 1991).

Crystal, David; eds., The Cambridge Encyclopaedia, (Cambridge: Cambridge University


Press, 1990).

Spero, Joan Edelman; The Politics of International Economic Relations, 4th Edn.,
(London: Routledge,1990).
Kissinger, Henry; Diplomacy, (London: Simon & Schuster, 1994).