Question 8

Did Marshall Aid save Europe from economic collapse?

Paragraph One

• Start by explaining the nature of Europe’s economic crisis:
• 1947 food and raw material shortage (especially coal) caused by slow production recovery
• Also: poor harvest and severe winter – caused inflation and labour unrest
• Financial crisis (the ‘dollar gap’)- European export industries dislocated by war and its aftermath, so hard to earn foreign currency
• Pre-war foreign investments mainly lost
• Most European states had large balance of payments deficits with USA from importing capital goods and machinery for reconstruction.
• West German production 1/3 of pre-war level
• Danger that economic expansion programmes would have to stop due to lack of dollars – this would cause further unrest and a political crisis that the political Left would exploit, thus damaging business confidence even more

Paragraph Two

• Next look at Marshall Aid and its effects:
• June 1947 the Plan was announced in Marshall’s speech at Harvard
• The distribution of US aid was worked out by the states of Europe through the OEEC (Organisation for European Economic Cooperation) but not the Soviet Bloc states - Stalin wouldn’t allow it
• The money was used to pay for imports from America, in particular, capital goods and for investment in basic industries
• In the first year Marshall Aid accounted for 4% of the national income of the 14 receiving states in Europe
• Result – rapid industrial growth and the restoration of the trade balance between America and Western Europe by 1950-51

Paragraph Three

• Now examine the contribution of the Aid:
• Economic – ended the dollar gap, revival of German machinery production to supply Europe (helped by 1948 German currency reform)
• Political – solved problem of German recovery – their neighbours needed their produce but there was fear that a resurgent Germany would become a military threat
• Marshall Plan overcame this because German recovery took place in the context of Western Europe as a whole, and because there would be no need for reparations
• Also German recovery was within a political framework of a US military presence in Europe, and of French alliances with Great Britain e.g. Treaties of Dunkirk and Brussels (1947 and 1948) and with USA in NATO (1949)

Paragraph Four

• In conclusion, Marshall solved the dollar gap problem and allowed German recovery without the problems post WWI so France was reassured even if the Soviets didn’t like it