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The Marshal Plan

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1.0 Introduction

Europe was left devastated by World War II with most of its human and economic infrastructure
left rendered non-functional. A large section of the continent was left on the brink of famine as a
result of war as it dragged on for years. What is more, most nations that are within the continent
were left with their economic state in ruins while political instability spread very fast. The U.S,
in order to salvage the population undergoing suffering initiated what came to be known as the
Marshal Plan. It was a recovery program officially referred to as the European Recovery
Program (EAC). The initiation of the program was aimed at offering help towards the
reconstruction of Europe, destroyed by war and which was sinking fat in humanitarian crisis,
political instability as well as economic turmoil. The renaming of the program to Marshal Plan

by the speech made by the serving Secretary of State at that time, George Marshall at University
of Harvard for the necessity of a self-help European program that would assist in reconstruction
of Europe.

2.0 The Marshal Plan: History and Purpose

Following the speech made in 1947 at Harvard by Marshall, Congress passed establishment of a
plan for recovery with Marshal acting as the right hand man of the government. In part, the U.S
feared the increasing activities of communists in Europe and especially in Russia. The plan was
aimed at benefiting all the nations in Europe however, rivalry between the U.S and Soviet Union
made this impossible to achieve this for countries that were under Soviet Union military
occupation. When the Eastern European countries and the Soviet Union pulled from the
program, only seventeen Western Europe countries were left as beneficiaries. These included
United Kingdom, France, Norway, Denmark, Greece, Iceland, Switzerland, Sweden, Austria,
Ireland, Portugal, Turkey, Western Germany, Iceland, Italy, the Netherlands and Luxembourg
(Hatzivassiliou, 2010, p. 2).
The initiation of the plan was done officially in 1948 through the approval of congress of over
$12 billion for the reconstruction of Europe. While the Plans major strategy was this, there were
also other economic and political motives that were instrumental in initiation particularly for the
US. Europe was the centre of focus of Cold War developed after World War II as such it was of
great importance to buffer it against spread of communism. Therefore, the Marshal Plan was a
weapon of Cold War yielded by the US against Soviet Union (Grunbacher 2012, p. 697). The
other reason the US granted Europe the 4 to 6 year grant was for purposes of securing its market
for manufactured goods since American industries were in production of surplus goods. As such,
the U.S required an integrated and strong European economy through which American goods,
both agricultural and industrial could be exported (Burk 2001, p.268). Additionally, for purposes
of building a strategic policy, there was also the need of a strong and united Western Europe
which would act as the buffer to increase the influence the soviets has in Western Europe. More
importantly, the US ceased to be one and the unselfish strain in the American political culture
encouraged desire of helping European countries get on their feet (Burk 2001, p. 268).

Though the Marshal Plan design included the Soviet Union and its allies, the conditions set
within it ensure the Soviet Union would ascent to the plan. It included disclosure of economic
collaboration as well as information. As such, the Soviet Union together with the allies was not
part of the formation of the Organization for European Economic Cooperation. The mandate of
the committee was coordination of proposals on the basis of national needs in tandem with the
United States goal on economic trade and cooperation among the recipient countries. Later, the
committee developed and also led formation of European Union.

3.0 The Marshal Plan in European Recovery

There is a lot of ongoing debate regarding success of Marshal Plan towards reconstruction of
Europe. Critics state the plan was not party to Europe reconstruction with specifics of countries

such as Germany and Greece (Grunbacher 2012, p. 698; Hatszivassilious 2010, p. 2). Such
critics claimed the process of reconstruction was involved already in the motion before Marshal
Plan initiation with restoration of dented private and public capital stocks almost complete. There
are others, on the other hand who considered the Marshal Plan instrumental towards Europe
reconstruction. Further, such proponents saw it as the foundation for the road map that would
lead to European Unity. However, when critically analyzed, how instrumental was the Plan
towards Europe reconstruction in the wake of World War II?
The environment of post war was prevalent with financial instability throughout Europe.
Predominantly, most governments retained their control due to budget deficits they were dealing
with. This opened grounds for black market deals to thrive and also discouraged trade at official
prices. Additionally, majority of the farmers refused to market their production taking into
consideration restrictions set by the governments. Therefore, throughout Europe, farmers and
manufacturers horded goods because of food shortage and price control of by governments. In
order to ease state of things, it became important for farmers and manufacturers to deliver their
results to the markets.
The spiral effect of this state was sacrifice among renters, workers and the taxpayers bearing
more liabilities. The Marshal Plan also proved instrumental in easing state of things as they were
at that time. While this might not have alleviated the need for different segments within
economic environment, it provided a small division of labor percentage for financial stability for
a couple of groups interested. The Marshal Plan, according to Delong contributed 2.5% of the
overall Gross Domestic Product of recipient nations. However, if the sum of notional demands
exceeded aggregate supply by five or seven-and-a half percent, Marshal Plan transfers could
reduce the sacrifices needed to compete distributional interests by a third or as much as a half.
Therefore, presence of Marshal Plan aid significantly lead to a reduction of costs at a
compromise level relative to benefits (De Long & Eichengreen 1991, p. 45).
A specific example of financial stability attained via the strategy was seen in Greece. The Plan in
that case was named American Mission for Aid to Greece (AMAG) (Vetsopoulos 2009, p. 281).
AMAG introduced trade controls in Greece through formation of foreign Trade Administration
in Greece. Therefore, all trade was channeled via this administration and in addition to missions
focus of the countrys convertibility currency, the banking system, public finance and wages.
Among the first AMAG actions was implementing and devising a price control policy that was
compliant with and restricting free sale of gold. What is more, A peculiar market exchange
system, controlled by the Bank of Greece, dealt with the currency issue, resulting in the indirect
devaluation of the drachma through the implementation of the Exchange Certificate Plan (ECP),
which offered a realistic rate of exchange for the drachma (Vetsopoulos 2009, p 281).
In Greece there was also the introduction of tax reforms series which helped increase revenue
within the country. This was inclusive of reduction of consumption taxes and increase of small
direct taxes. What is more, the program also instituted laws that prescribed the benchmark for
maintenance of a business record with penalties set for transgressors. The stabilization program
instituted by AMAG, according to Vetsopoulos encouraged agricultural rehabilitation (282).
AMAG through financial aid therefore was specifically responsible for decreased payment

deficit balance leading to success in economic recovery efforts by Greece government

(Vetsopoulos 2009, p. 282).
The US states conditions for the aid which included integration of European economy. While
majority of politicians were up against this, the United States pushed for a free market. The
leadership of Europe specifically was committed towards mixed economy however, there was
mounting pressure by the US on liberal market forces mix (De Long & Eichengreen 1991, p. 48).
The United States therefore has recipients of the program sign a bilateral trade agreement.
Consequently, the US continued to press on European economic integration in the belief
competition was attainable through intra-European and international trade. This was evidenced
through AMAG which helped the Greece to begin exportation of tobacco to Bizone area
(Vetsopoulos 2009, P. 283).
Between 1953 and 1973, the European economic growth skyrocketed above any other period
before and after it (De Long & Eichengreen 1991, p. 50). Much of this can be attributed to
reinstatement of free market plat forces as well as financial stability, all caused by Marshal Plan.
Europes GDP during that period increased at 4.8% rate per annum. The Marshal Plan in effect
sought financing labor movements that were concerned with productivity instead of income
redistribution to the rich and poor (De Long & Eichengreen 1991, p. 50). As such, through
financing, laborers and managers both worked towards maintenance of an equilibrium through
which the managers would be able to plough the profits back into the business while laborers
worked towards prospects that would be profitable in future. This situation called for social
contract and it also encouraged the European administrations towards adoption of policies that
were investment friendly.
4.0 Conclusion

While there are numerous critics whose opinion is that the Marshal Plan failed to achieve much
in helping towards stabilization of European economy after World War II, evidence portrays a
picture contrary to this. Greece is one of the countrys whose testimony is indicative of the
benefits that were accrued from the financial aid. The small percentage of aid that was given to
each country and the little effect it had on a countrys GNP could in large be the reason for
skeptic critics to state the plan did not have any far reaching effects. It was born from the
necessity of reconstructing Europe as well as stopping the spread of communism which was
architected by Soviet Union. What is more, America also had its economic and political reasons
for advancing financial assistance to Europe. However, conclusively, while Europe was on the
path to reconstruction already, the Marshal Plan managed to bring with it economic and financial
policy discipline and what is more, it also hastened the road to reconstruction throughout Europe
and especially after the end of World War II.

5.0 Reference

Burk, Kathleen. 2001. The Marshal Plan: Filling in Some of the Blanks. Contemporary
European History, Vol. 10 no. 2, pp. 267-294

De Long, J. Bradford & Eichengreen, Barry. 1991. The Marshall Plan: Historys Most
Successful Structural Adjustment Program. NBER
Grnbacher, Armin.2012. Cold War Economics: The Use of Marshal Plan Counterpart Funds
in Germany, 1948-1960. Central European History, Vol. 45, pp. 697716
Hatzivassiliou, Evanthis. 2010. Greek Reformism and its Models: The Impact of the Truman
Doctrine and the Marshal Plan. Journal of Modern Greek Studies, Vol. 28, pp. 1-25
Vetsopoulos, Apostolos.2009. Efforts for the Development and Stabilization of the Economy
During the Period of the Marshall Plan. Journal of Modern Greek Studies, Vol. 27, pp. 275302
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