Fortifying Europe: The Marshall Plan in the

United Kingdom and West Germany

Georgetown University
Anthony Eames
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

The Marshall Plan revised and completed American policy designs for the

reconstruction of Western Europe, which were first discussed at the Bretton Woods

Conference in 1944. The plan directed American aid toward vital sectors of recovering

European economies and allowed Washington to exert pressure on aid recipients to fall in

line with its foreign policy objectives. Of the sixteen aid recipients, the United Kingdom

and West Germany were the most important to the American strategy in Western Europe.

Though weakened, Britain maintained the largest trading bloc in the world (sterling area),

a global military presence, and the biggest economy in Western Europe. West Germany

represented the most substantial supply of underutilized capital materials and labor on the

continent. Its proximity to the Soviet Union made it the primary battleground of the Cold

War and the lynchpin of the dual containment strategy.

In the face of Soviet aggression, Washington decided to implement a highly

politicized aid policy to consolidate its position in Western Europe. American aid

countered Soviet economic warfare by helping to rebuild the West German economy and

fortify Britains position as a strategic ally, all while allaying French concerns over the

restoration of a hostile Germany.1 The decision to grant coordinated aid was welcomed

in Western Europe, but each of the major sovereign states had their own plans for

distribution, trade liberalization, and European integration. Marshall aid in each country

was received differently. In the UK, officials pushed the limits of their Special

Relationship with the US to press for an individual aid package.2 West Germany

1
For the purposes of this paper the zones of Germany occupied by the Americans, British, and the French
and which later became the Federal Republic of Germany in May 1949 will be referred to as West
Germany.
2
For more on the Special Relationship see; Roger Louis and Hedley Bull,, The Special Relationship:
Anglo-American Relations since 1945 (Oxford: 1986); C.J. Bartlett, The Special Relationship: A Political

1
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

embraced the Marshall Plan without objection, allowing for aid distribution to help build

the functionality of the West German-American relationship. The decisive action of the

Marshall Plan is even more striking when considered alongside the possible alternatives:

the Morgenthau Plan and the Monnet Plan. These options would have destabilized the

European economy, created an imbalance of power within Europe and undermined its

fragile recovery. The choice and effective implementation of the Marshall Plan locked

Western Europe into an interdependent framework with a West German foundation. At

the same time, it helped Britain manage the decline of its empire and sustain its

international prestige.

At the close of the Bretton Woods Conference in the late hours of 22 July 1944,

Henry Morgenthau declared, we have come to recognize that the wisest and most

effective way to protect our national interests is through international cooperation-that is

united effort for the attainment of common goals.3 Economic collaboration became the

primary strategy for the defense of national sovereignty and helped spread the philosophy

of American political economy. The Anglo-American financial agreements, confirmed at

Bretton Woods, aimed to lubricate trade through the free convertibility of currencies.

From the conference came the International Monetary Fund (IMF) and the International

Bank for Reconstruction and Development (World Bank), which were conduits to supply

aid for the implementation of financial objectives. Before currency convertibility could

happen the United Kingdom and the rest of the European allies needed to restore the

national economies and infrastructures while managing the dismembered German state.

History of Anglo-American Relations since 1945 (London: 1992). John Dumbrell, A Special Relationship:
Anglo-American Relations from the Cold War to Iraq (London: 2006).
3
Henry Morgenthau Jr., Proceedings and Documents of the United Nations Monetary and Financial
Conference vol. II (GPO: 1948), 1226.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

In the first two years following the German surrender in World War II there was

no coordinated international strategy for a European recovery. The occupying powers

could hardly reach a consensus. Plans for economic restoration varied from reparations

extracted from an agrarian German state to the restoration of imperial trading preferences

and experiments with national currency values. Few of these plans matched the

objectives of Bretton Woods and none recommended the restoration of the German

economy as a foundation for a comprehensive revival of European. Not until Secretary

of State George Marshall called for coordinated aid policy in Europe in a speech given at

Harvards commencement on 5 June 1947, did Europeans and Americans alike embark

on a strategy of mutually beneficial aid coordination that would reconstruct the political

economy of Europe and transform it into a viable common market and bulwark against

Soviet economic and military aggression. The development of a coordinated aid strategy

drew in politicians, policy makers, and scholars who attempted to reconcile aid to Europe

with American interests, largely outlined in the Truman Doctrine.

The European Recovery Program, commonly called the Marshall Plan,

immediately attracted the attention of scholars. Today, little continuity exists throughout

the lineage of Marshall Plan scholarship. Each generation of scholars has attempted to

dispel the conclusions of their predecessors. The first line of thought, pushed by the likes

of Ellis and Price contends that Marshall aid was critical to overcoming the logjam of raw

materials by supplementing domestic sources of investment with additional funds used to

purchase capital goods from the US. Additionally, the American technological assistance

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

was paramount in boosting Western European economic growth.4 The second generation

of Marshall Plan scholars was right to challenge the legitimacy of their forerunners

conclusions. Though not completely wrong, much of the early literature on the Marshall

Plan was initiated by government bureaucrats for the purposes of justifying aid for the

European recovery.

Looking back on Marshall aid from the late 1970s and early 1980s, the second

group of Marshall Plan scholars, headlined by Abelshauser and Milward, asserted that

Western Europe was already operating in a boom economy and that contemporary

politicians and policy makers believed Europe was still struggling because little had been

done to fix the cosmetic damage left largely untouched after the war. When distribution

of Marshall aid began in 1948, essential communication and transportation links were

already repaired and industrial production was increasing. These scholars believe that

Western Europes economic fortunes would not be much different with or without

Marshall aid. In this round of Marshall Plan literature, technical assistance and foreign

exchange constraints are largely ignored, but the contributions to these areas by the

Marshall Plan are substantial enough to merit attention in a comprehensive revisionist

history of the European Recovery Program.5

The most recent school of revisionists led by Casella and Eichengreen claim

Marshall aid did not stimulate investment, avert supply bottlenecks or rebuild

infrastructure. Instead, they believe the Marshall Plan compelled European states to

4
Barry Eichengreen, Europes Postwar Recovery (Cambridge: 1995), 16; Howard S. Ellis, The Economics
of Freedom: The Progress and Future of Aid to Europe (New York: 1950); H.B. Price, The Marshall Plan
and its Meaning (Cornell: 1955).
5
Eichengreen, Europes Postwar Recovery, 18; W. Abelshauser, Weideraufbrau vor dem Marshall-Plan.
Westeuropas Wachstumschancen und die Wirtschaftsordnungspolitik in der zweiten Haelfe der vierziger
Jahre, Vierteljahrshefte fr Zeitgeschichte (1981): 545-578.

4
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

negotiate with labor unions and generate new social contracts that increased personal

compensation and created a consumer economy within a common market. These

developments were the preconditions for the subsequent years of high profit margins and

rapid growth.6 The reconstruction of the European consumer economy benefited national

economies in Europe and guaranteed the US a sufficiently wealthy market for its exports.

Michael Hogan adds an important addendum to the third generation of

scholarship in his well-reasoned analysis of the Marshall Plans strategic objectives. He

avoids the trap of a bipolar Cold War explanation, noting, In American thinking,

integration was the way to reconcile Germanys recovery with Frances security and

bring both together in a unit of sufficient scale to contain the Soviets.7 The Franco-

German connection restrained Germany and pulled its resources into the allied camp,

creating an informal policy of dual containment.

Each successive revision adds another layer to the complex set of analyses that

interprets the successes and failures of the Marshall Plan and its impact on the current

state of European affairs. Still none of the three generations of scholarship offers a

completely accurate picture of the Marshall Plan. These contradictory histories must be

taken in synthesis and supplemented with additional perspectives to fully understand the

ramifications of Marshall aid. For a nuanced assessment, the Marshall Plan must be

deconstructed from its integrative policies and distribution practices down to national

case studies. This study uses each generation of scholarship to help construct a

comparison of the Marshall Plan in the UK and West Germany. This comparison

6
Eichengreen, Europes Postwar Recovery, 19-20.
7
Michael Hogan, The Marshall Plan: American, Britain, and the reconstruction of Western Europe, 1947-
1952 (Cambridge: 1987), 20-22.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

uncovers the internal and external obstacles to the implementation of the plan and the its

subsequent success in integrating and then fortifying Western Europe.

In the weeks immediately following Marshalls call for a plan of coordinated aid

to Europe, Britain fell into a monetary crisis that threatened its international position,

damaged its prestige, and left the government fighting for an aid package developed

specifically for Britains unique position as a slowly declining great power and Americas

chief ally. By July 1947, the dollar drain from British reserves rose from $100 million to

$300 million placing sterling on the brink of massive devaluation and challenging the

British abilities to maintain the sterling area. A special aid package to Britain would

undermine the concept of a coordinated European Recovery Program. The British

position was further complicated by their decision to rapidly convert from a wartime

economy to a peacetime economy based on full employment a promise that captured

the government for the Labour Party and the premiership for Clement Atlee.

By June 1947, the promise of full employment was completely dependent on

Marshall aid. A government report established If we are forced, in the absence of

external aid, to balance our overseas payments before our reserves are exhausted, we

shall be obliged to make such drastic cuts in our dollar and gold purchases as will bring

wholesale unemployment, distress and dislocation of our production.8 Whitehall used

the unmanageable dollar drain from the UK economy as a negotiating device. The

British threatened the consequences of competition for a common pool of dollars for

Europeans would be for them to abandon the whole concept of multilateral trading and

seek to eke out a painful existence on the best terms of bilateral trade we can secure.

8
Economic Survey for 1948, CAB/129/24.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

They further warned, unless sufficient steps can be taken to fill the gap in the worlds

dollar supply we shall be confronted with the choice as hard fact which has to be faced.9

Washington remained steadfastly opposed to special aid for Britain, hoping that common

aid would compel Britain to take up a position of leadership in Europe and combat

French fears of possible German economic hegemony in an integrated European

economy. Effective coordinated aid to the three largest nations in Western Europe would

then create the preconditions for a common market. Robert Tiffin, the Director of the

IMFs Exchange Control Division, believed this would create a large and stable area of

freer trade, gradually drawing non-member countries into its orbit.10 The British feared

that the US remained too narrowly focused on a continental approach. The UK only

conducted 25% of trade with European partners and a massive dollar shortage remained

in the sterling area the primary financial foundation for a healthy British economy.11

The near concurrent announcement of the Marshall Plan and the sterling crisis in 1947

highlighted the opposite directions the two leading nations in the Anglo-Saxon world

were headed.

Washingtons rejection of special aid to Britain in neglect of its traditional

position as world banker and arbiter between the economies of the Western and Eastern

hemispheres demonstrated that the United States was willing to push Pax Britannica

aside and claim its mandate as Pax Americana. Washington did not want to undermine

British strength at the expense of their overall strategic objectives. The US still

considered Britain their most valuable strategic ally in the world Washington had to

9
C.C.S. Newton, The Sterling Crisis of 1947 and the British Response to the Marshall Plan, The
Economic History Review 37 (1984): 396.
10
Ibid., 396.
11
Ibid., 397.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

make concessions within the Marshall Plan, such as a $600 million in operating capital to

the European Payments Union, to coax Britain into full cooperation and fall in line with

its policy objectives. Despite complaints leveled by the British concerning aid, if the

offer came it would be immediately snatched up and directed toward strengthening the

British economy. Even with domestic humanitarian concerns the cabinet agreed, If aid

is given to us [UK], we must use it, to the limit of our freedom to do so, for recovery and

not relief: to make it more certain that when the time comes for us to rely on our

resources we shall, in fact, be in a position to do so.12

Both states believed fortification of Britain was necessary for the overall

economic and defensive policies of the West. Whitehall hoped the similar geopolitical

position of Britain and the US would afford it special consideration and separate

treatment from Europe. Britain was an unoccupied victorious power without a significant

communist party. They were a sovereign state with significant assets in both manpower

and territory overseas, and they maintained the largest trading bloc in the world backed

by a reserve currency.

Britain had the energy capabilities to help fuel the European recovery with

adequate domestic supplies of coal and secure access to oil in the Middle East and

elsewhere in the world through their two super-majors (AIOC, Royal Dutch Shell). Even

with these advantages the UK was still the largest debtor nation. It was in the process of

scaling back its empire and remained financially dependent on not just the US, but also

countries within its commonwealth (i.e. Canada). These issues forced Britain to accept

American aid and fall in line with American foreign policy. In the early stages of

12
CAB/129/24, Economic Survey for 1948.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

implementation the British struggled to come to terms with the Marshall Plan. American

aid was one more sign of British decline, a status many struggled with, especially Lord

Beaverbrook, who noted, The British people are not prepared to sell their financial

independence for cigarettes, prunes, and dried eggs of the Marshall Plan. Stand on your

own two feet!13 The British wanted more than European influence, Whitehall aimed to

sustain its international prestige. This attitude proved to be the biggest obstacle for the

British in maximizing the political, economic, and integrative advantages of Marshall aid.

From 1945-1947 Germany paid the price for being the primary European

antagonist of the preceding seventy years. Allied aid efforts were mostly focused on

relief rather than recovery. In the case of France, the country that had suffered the most

at the hands of the German pariah, direct efforts were undertaken to stall the

reconstruction of the German territories - France adopted a simple tactic: the French

Government prevented the work of the Allied Control Commission that had been setup to

restore transport, electricity, and other utilities to the whole of Germany.14 Though their

remains active debate in academic circles as to whether or not Marshall aid was the

critical element in transforming the West German economy there is no doubt that the plan

came in place of others that may have forever set Germany behind. Henry Morgenthau

Jr., the overseer of the Bretton Woods Conference and Secretary of the Treasury under

Roosevelt and briefly under Truman, organized a scheme for the industrial disarmament

of Germany. Reducing the German state into three separate regions: a North German

state, a South German state, and an international region administered by a collection of

13
Henry Pelling, Britain and the Marshall Plan (New York: 1988).
14
A.W. Lovett, The United States and the Schuman Plan: A study in French Diplomacy, The Historical
Journal 39 (1996): 427.

9
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

allied states. The plan aggressively attacked German industry, calling for the dismantling

of German plants and in some cases re-erecting them in allied states. It would have

forced the separation of industrial areas from Germany and placed limits on production.

Any remaining industries on German soil were subject to allied confiscation. This

complete de-industrialization would in theory create an agrarian Germany populated by

small farmers with a less savage military outlook.15

This American sponsored Morgenthau Plan, which counted Franklin Roosevelt

among its supporters, had a similar counterpart in Europe. The French backed Monnet

Plan was the radical predecessor of the Schuman Plan. Jean Monnet, an influential

French economist, called for the internationalization of the Ruhr in addition to the French

annexation of the coal rich Saarland. This plan guaranteed the French steel industry

access to coal, which accounted for 70% of steel production costs.16 During a period

without plastic, steel production not only supplied military industries with capital

materials, but also dominated manufactured consumer goods. Though Monnet did not

directly call for the pastoralization of Germany, removing its coal deposits and claiming

the heartland of German heavy industry would have undercut any chance of a future

German economic recovery, precisely what the French hoped for.

In America, Marshall Planners sympathized with French calls for access to

German coal. Marshall Planners recommended, Government should give serious and

sympathetic attention to the feelings of the French Government with respects to questions

of military and economic security.17 The report later stated, special arrangements

15
Frederick Gareau, Morgenthaus Plan for Industrial Disarmament in Germany, The Western Political
Quarterly 14 (1961): 517-518.
16
Lovett, The United States and the Schuman Plan, 428-430 .
17
Certain Aspects of the European Recovery Problem from the United States Standpoint, 23 July 1947, 45.

10
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

should be made with respect to coal production. In these arrangements, recognition

should be given to the need for enlisting a greater spirit of cooperation and responsibility

of the Germans themselves.18 Marshall Planners considered the French, but they

ultimately concluded, restoration of German production is essential to European

Recovery.19 Though the French were resolute on limiting Germanys war making

capacity, food and financial factors forced Paris to accept American aid and

Washingtons position on the German Question.

The general grain shortage in Western Europe hit France especially hard. The

need for grain to feed the population tested the shallow dollar and gold reserves of the

French Export-Import Bank. A State Department report testified, By October 15 France

will have exhausted these resources to a point where she will have to suspend imports of

food and coal for lack of dollars.20 After exhaustion of dollar resources France would

fall short by $250-300 million over the following 6 months.21 Without the dollars to

import coal, steel production and the Monnet Plan would be unrealizable and a starving

population could jeopardize the life of the 4th Republic. The dollar aid from the Marshall

Plan saved the objectives of the Monnet Plan, which were refitted into the more palatable

and integrationist Schuman Plan in 1950.22 With food and dollar shortages preventing

France from pursuing unilateral plans for recovery at the expense of Germany, Paris soon

championed the integrationist movement. Opting instead to work with the US and the

UK to bind West Germany into a series of interdependent institutions. In this series of

events, Marshall aid overcame French objections to the restoration of West Germany

18
Ibid., 47.
19
Ibid., 45.
20
The Immediate need for Emergency Aid to Europe, 29 September 1947, 2.
21
Ibid., 4.
22
Lovett, The United States and the Schuman Plan, 428.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

removing obstructions to the road to recovery that went through the German industrial

heartland.

Before a self-sustaining common market could emerge in Europe, countries

needed to slash their tariffs and other trade barriers to facilitate intra-European trade.

Initially the 23 member countries that signed the General Agreement on Tariffs and

Trade (GATT) in 1947 did so as a stopgap measure until a more comprehensive approach

materialized under the guidance of the International Trade Organization (ITO). When

ITO negotiations stalled GATT became the de facto anti-tariff reform agreement, its

members accounted for nearly 80% of world trade and went about setting duty rates on

an impressive 45,000 items.23 The US made the most aggressive cuts to its tariffs,

reducing tariff rates by 35%.24 American cuts were meant to induce Europe to do the

same and liberalize intra-European trade with the US included in the framework. The

drawback to GATT is that it complicated the states ability to manage its own

employment rates against import/export ratios. Loosing this recourse could force a

country, such as the UK, to resort to inflation in attempts to reach full employment of its

population. GATT was not an unqualified success, but it did establish the distribution of

transparent trade data and practices while lowering tariff for countries most favored

nation status.25 The post-war growth miracle could not have occurred in the

absence of the Marshall Plan, the GATT, and the Breton Woods System.26 Coming as a

precursor to the distribution of Marshall aid, GATT proved to be a practice exercise in

trade liberalization and European integration for the European Recovery Program.

23
Douglas A. Irwin, The GATT in Historical Perspective, The American Economic Review 85 (1995):
325.
24
Ibid., 325.
25
Wytze Gorter, GATT After Six Years: An Appraisal, International Organization 8 (1954): 15.
26
Eichengreen, Europes Postwar Recovery, 5

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

To handle the recovery operations, a number of institutions on both sides of the

Atlantic materialized to direct aid dollars and lock recipient states into binding

cooperation. The American organization charged with distributing aid was the Economic

Cooperation Agency (ECA), headed by Paul Hoffmann. The ECAs recipient

counterpart, the Committee for European Economic Cooperation (CEEC), emerged from

the Paris Conference on 12 July 1947, where delegates from 16 European states authored

a proposal for economic cooperation within Europe. Britains Foreign Secretary, Ernest

Bevin, and Frances Foreign Minister, George Bidault rapidly assembled conference

participants illustrating Europes desperation for outside assistance. On the urgent need

for aid the CEEC delegates reported to the US, Many of the participating countries have

already reached the point at which they are forced by lack of foreign exchange to restrict

their imports of the fuel and raw materials which are indispensable for their industrial and

agricultural production.27 The initial report from the CEEC indicates that there was a

bottleneck issue in the European recovery, noting, From the devastation of war

Europe has recovered well. But that recovery is now halted and the crisis is deepening

and its repercussions are spreading.28 The Marshall Plan changed the use of dollars

from earlier programs like Government Aid for Relief in Occupied Areas (GARIOA).

Marshall aid was directed toward recovery, not relief.

The sum of aid, a mere 2 percent of recipient states GDP and mostly lent in the

first year, could not realize the objectives of the Marshall Plan with out careful direction.

The hidden value of the plan rested in the genius of its planners and the timely investment

27
CAB/129/21, Committee of European Economic Cooperation General Report, 17 September 1947, 5.
28
Ibid., 5.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

of capital into intra-European institutions that trimmed the deficiencies of European

trade.

The European Payments Union (EPU) allowed countries to continue trading even

with multiple outstanding trade deficits. The EPU functioned as a central clearing house

for European trade payments. Credits were distributed and could be applied to cut down

national deficits, essentially allowing for each state to consolidate its deficit payments.

The trade union had a dramatic impact on intra-European trade and reduced European

governments need to resort to discriminatory quantitative restrictions for balance-of

payments considerations.29

London remained hostile to the idea; believing their safest route to economic

recovery remained in a three-ring approach connecting their commonwealth obligations

and European affairs with leadership in the English-speaking world. Bevin continued to

press the Americans on the need for a separate continental integration aid package and

one for Britain. British officials agreed on the need for economic cooperation on the

continent, but looked for their own special position alongside Europe. Bevin feared

lumping Britain into the European package would relegate Britain to just another

European country.30 Apart from the sterling zone argument used against Britains place

in European integration, Bevin claimed the relatively high level of shared economic

interests that Britain and the commonwealth shared with the US placed Britain in a

precarious position. Leaving it with little protection from the next United States

recession. The United States might then change its policy and leave Britain helpless.

29
Thomas Oatley, Multilateralizing Trade and Payments in Postwar Europe, International Organization
55 (2001): 949.
30
Milward, The Reconstruction of Western Europe, 62.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

Bevins policy was that the United Kingdom should have a special interim position for

some years rather than have to seek dollars from a common pool as its European

neighbors.31 After having allayed French fears of future German hostility through the

coordinated aid approach, Washington could not afford to loose face by supplying the

British with a special aid package. The French long had been suspicious of the Anglo-

American relationship and special aid would have heightened these suspicions, making

the already stubborn French a more intractable negotiating partner. Americans at home

may have also perceived an individual aid package to Britain as a negative sign that the

Truman administration was helping to restore the British imperial system.

Marshall planners remained insistent on British participation in European

integration schemes. In the end, dollars were provided to Britain in the form of operating

capital for the EPU. The $600 million in working capital to the EPU was primarily a

means of enticing Britain to join the community.32 With British access to extra dollars,

commonwealth countries with positive balance-of-payments positions were able to make

significant contributions to the European recovery. Additionally, British participation in

the EPU succeeded where the suspension of free currency convertibility in September

1947 did not. Before the suspension of convertibility many countries, especially

Belgium, accumulated massive sterling balances and then used convertibility to pass their

dollar problems onto Britain.33 Britains convertibility suspension eliminated the

problem in the short term, but damaged their European trade. Forcing the UK to rely

increasingly on trade with the commonwealth and the rest of the world, which faced its

31
Ibid., 62.
32
Ibid., 53.
33
Newton, The Sterling Crisis of 1947, 399-400.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

own dollar shortage. Membership in the EPU restored British trade with Europe while

simultaneously protecting it from bilateral trade agreements that would drain its dollar

reserves. The EPU was the first step to increasing intra-European trade on a multilateral

basis. It allowed the British to release its exports onto the European market and helped

protect the vulnerable European states near Soviet satellites or with large communist

political minorities from subversive Soviet economic warfare.

Britains position in the Western camp was guaranteed, but West Germanys

pressing neighbors and its rapid, yet fragile economic restoration left the state vulnerable

to a monetary crisis that could have destabilized its economic recovery and placed the

revival of Europe at risk. Germanys traditional position as exporter of chemicals, raw

material, and capital goods to Europe collapsed after World War II. In the early years of

recovery, West Germany relied on the US and the UK to supply food and raw materials.

When the Korean War broke out in 1950 the price of importing these commodities

skyrocketed. The extension of EPU credits covered the West German deficit and allowed

her to continue importing long beyond her capacity under bilateral agreements. The

multilateral trading mechanism worked. When demand for capital equipment and

industrial products returned in 1952, West Germany was adequately supplied with raw

materials to allow for production to move its balance-of-payments position back into

surplus.34 The EPU mechanism worked as planned West Germany being the first

member state to call on credits confirmed her orientation toward the West. The

34
John Killick, The United States and European Reconstruction, 1945-1960 (Edinburgh: 1997), 141.

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

effectiveness of EPU operations convinced Europe that integration would be a successful

safe guard against external economic disasters and consequent political upheaval.35

Other sectors of the economy followed the EPUs example of integrations. The

influx of Marshall aid boosted British and West German coal production. In the spirit of

cooperation, the increase in West German coal production pacified the French. Secure

French access to West German coal was both economically binding and good for the

common market. A contemporary scholar noted, French ores and German coal are the

economic cement initiating a permanent peace between France and Germany.36

Marshall aid topped off investment to bring coal production back online, while forcing

recipient countries to follow the American lead in foreign policy, fortifying the dual

containment of West German hostility and Soviet designs on Western Europe.

Essential to the interdependent economic framework was the coal-steel-oil

relationship. In 1947, Britain and West Germany were critical fuel states in Western

Europe; supplying the energy to recovery and creating a common market economy that

could resist and exert pressure on Eastern Europe and the USSR. The British owned

Anglo Iranian Oil Company, later BP, prospered from concessions in Iran. At the time

the Marshall Plan was announced Iran was the fourth largest oil producer in the world.37

The partly owned British company, Royal Dutch Shell, also had substantial holdings in

Venezuela, the worlds second leading oil producer.

Britains secure access to substantial oil supplies allowed Europe to rely on

sterling oil instead of dollar oil, alleviating further strain on sovereign balance-of-

35
Ibid., 141.
36
Louise Sommer, The Franco-German Steel and Coal Pact: The Monnet-Schuman Plan, World Affairs
113 (1950): 81.
37
DeGloyer & MacNaughton, Twentieth Century Petroleum Statistics, 2005 (Dallas: 2005).

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

payments deficits. Dollars were still needed to offset transportation costs and royalty

payments, but of all the oil used for the European recovery, only 24 percent came either

from the US or was paid for with Marshall aid dollars compared to 71 percent for coal.38

Though prewar Europe relied on coal for 90 percent of its energy needs, postwar

Europes thirst for oil grew as the revolution in the transportation industry hit the

continent.39 The U.S. recognized the potential for transforming Europe into an oil based

society and the Economic Cooperation Agency (ECA) allocated upward of $430 million

for the purchase of vehicles, including cars, planes, tractors, and auto manufacturing

plants. The ECA granted additional funds for the repair and improvement of

transportation infrastructure with a recommended focus on the road construction.40 By

1950, the passenger car accounted for 11 percent of industrial production in Britain,

France, Italy, and West Germany.41 When the British stumbled in negotiations over

secure access to Middle East oil, the Americans stepped in to maintain a steady supply

from the Middle East into the fuel tanks of Europe, keeping the recovery alive and well.42

The automobile bump in industrial output demanded more coal for steel production.

Making the formation of the European Coal and Steel Community an even more

attractive option for integration.

In 1947 Europe had just struggled through the most severe winter in decades,

government offices went unheated, industrial operating costs skyrocketed, and labor

38
Killick, The United States and European Reconstruction, 1945-1960, 91.
39
D. S. Painter, The Marshall Plan and Oil, Cold War History 9 (2009): 164.
40
Ibid., 168.
41
Alan S. Milward, The Reconstruction of Western Europe, 1945-1951 (Berkeley: 1984), 491.
42
D.S. Painter, Oil and the American Century (Johns Hopkins: 1986).

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 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

productivity dropped as people stayed in bed.43 The coal shortage was at the center of the

problem; in 1947 UK coal output was a full 32 million tons short of its prewar production

levels. Conditions were worse in West Germany, coal production fell 77 million tons

from prewar totals.44 European steel production fell by equally impressive margins. The

Committee for European Economic Cooperation (CEEC) immediately set to revitalizing

the coal-steel industry in Europe. In their initial appeal to Marshall planners, the CEEC

prominently featured the need to increase coal and steel production under the guidance of

the European Coal Community, the forerunner to the European Coal and Steel

Community (ECSC). However, the plan failed to outline how increased production of

coal could benefit other sectors of the West German economy. The plan aimed to keep

West German steel production below British and French production and well below

prewar production totals.45

The announcement of the Schuman Plan on 9 May 1950 by the former French

Prime Minister, Robert Schuman came as a sign of Europes economic realization of

American political goals for interdependent institutions. The plan was rooted in the idea

that the pooling of coal and steel production will immediately assure the establishment

of a common basis for economic development, which is the first step for a European

Federation.46 Through the evocations of the Marshall Plan, Europe organically

developed political and economic institutions geared toward the formation of a common

market without trade barriers. Washington believed these interdependent institutions

43
Helmut Schmidt, Miles to Go: From American Plan to European Union, Foreign Affairs 76 (1997):
214.
44
CAB/129/21, Committee of European Economic Cooperation General Report, 17 September 1947, 19-
21.
45
Ibid., 21.
46
Gerhard Bebr, The European Coal and Steel Community: A Political and Legal Innovation, The Yale
Law Journal 63 (1953): 2.

19
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

would integrate the West German lynchpin into Western Europe, reducing the

effectiveness of subversive Soviet tactics. Contemporary scholars agreed, arguing the

plan would counterbalance the strength of the Soviet satellite system. The danger that

West Germany, with its vital industry, would be lured into the Soviet web by promises of

political unification to German nationalists, and by offers of vast hungry markets within

the Soviet orbit to German industry.47 The Schuman Plan and the ECSC represented the

pivotal move toward a united and self-sustaining Europe.

Britains decision to remain outside of the ECSC cemented the division between

the inner six and the UK.48 The Special Relationship between the US and the UK

problematized the cohesive action in the Western world. From the European Coal and

Steel Community the inner six formed the core of the European Economic Community

(EEC) and promoted and increasingly unified continental Europe. The Marshall Plan

initiated the development of an integrated Europe. Washington held the conviction that a

Western Europe rooted in a common market, with the United Kingdom in the lead role

would allow the Americans to utilize the Special Relationship with to influence

coordinated European foreign policy outcomes. Allan Dulles explained clearly,

The Marshall Plan is not merely a philanthropic program. It is an attempt, in one

vitally important area of the world, to protect free institutions, because we feel
that in the world today we cannot live safely if these institutions disappear
elsewhere. It is a logical extension of traditional American policy, a policy for
which we fought two world wars, a policy which can be stated simply as this:
That we do not propose, if we can help it, to permit a great power, with a system
incompatible with ours, to overrun Europe or Asia.49

47
Ibid., 2.
48
The inner six is comprised of the Benelux countries, France, Italy, and West Germany. These were the
founding members of the European Economic Community.
49
Alan Dulles and Michael Wala, The Marshall Plan (Oxford: 1993), 125.

20
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

The British decision to remain outside of the ECSC and jeopardize its future ability to

cooperate with Western Europe elevated the status of West Germany in the minds of US

government officials. With the UK refusing to take the lead in the European integration

movement, Washington was forced to consider other Special Relationships to ensure

the fulfillment of their policy objectives in Western Europe. France repeatedly scoffed at

Anglo-American rejections for triumvirate leadership of the West.50 Leaving West

Germany the only viable alternative for an intimate political relationship. One of the

most important legacies of the Marshall Plan is that Britains absence from leadership left

the door open for Konrad Adenauer and West Germany to pursue a close working

partnership with the US, which was searching for allies to counter the Soviet threat.

By 1948, the ideological dimension of the Marshall Plan in West Germany was in

full effect. Washington planned for Marshall aid to transform the German public into

ideological counterparts of Americans within the Europe. As the first line of defense in

the Cold War, a prosperous consumer based standard of living would shield West

Germans from communist ideology and serve as living Western propaganda for the

democratic capitalist system. From the American point of view the future of democracy

in West Germany is the central test of the major premise of US foreign policy.51

Monetary reform was the first step to transforming West Germany from a relief aid

society to a consumer society. The deutschemark replaced the near worthless reichsmark

in June 1948 and the ration cards Germans used for food allowances fell by the wayside.

The former Prime Minister Helmut Schmidt reflected, Now money became all-

50
Matthew Jones, Anglo-American relations after Suez, the rise and decline of the working group
experiment, and the French challenge to NATO, 1957-1959, Diplomacy and Statecraft 14 (2003): 49-79.
51
Carl C. Hodge and Nolan J. Cathal , Shepherd of Democracy?: American and Germany in the Twentieth
Century (London: 1992), xii.

21
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

important. The rations cards slowly disappeared over the next two years, and shops

began to fill with goods we had only dreamed about: bread, butter, fruit, even coffee and

cigarettes. This monetary revolution would have never transpired had it not been for the

Marshall Plan.52 If Western Germany was the lynchpin in the American European

strategy, Schmidts reflections indicate Washington succeeded, he further noted, [We]

saw the United States as the military, political, and economic anchor of the security and

well-being of Western Europe Pax Americana seemed to me an accurate description

of the age, and we Germans turned in hope and faith to the United States.53 West

Germans were provided with new currency to play the part, and the US State Department

was intent on providing the consumer model.

The US State Department sponsored trade shows and exhibitions to appeal to

West Germans who were eager to leave the material suffering of the immediate postwar

years behind. In October 1950 the West German Industrial Exhibition coincided with

elections in East Germany, providing the perfect opportunity for the State Department to

launch its Konsumterror campaign in Berlin.54 The Marshall-Haus, designed by Bruno

Gimmek, soon became the most popular exhibit and was the perfect example for West

Germans to pursue the course of consumer materialism. Capitalizing on the large crowds

drawn to the exhibition German Finance Minister Ludwig Erhard encouraged West

Germans to become Free nation of consumers, one in which citizens determine

whether production would be employed for the ends of human and social welfare.55

The ideological impact of Marshall Plan impact slammed against the Soviet dominated

52
Helmut Schmidt, Miles to Go, 215.
53
Ibid., 216.
54
Greg Castillo, Domesticating the Cold War: Household Consumption as Propaganda in Marshall Plan
Germany, Journal of Contemporary History 40 (2005): 268.
55
Ibid., 268.

22
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

political economy of East Germany. West Germans, impressed with American standards

of living, and were encouraged to push forward with US strategies to achieve an idyllic

representation of American consumerism. The West German public received

encouragement to follow American models of consumerism from government officials.

These officials recognized an opportunity to attach domestic policy to American foreign

interest, and worked tirelessly to do so.

France was the obstacle standing between West Germany and a close working

relationship with the US. Early in its recovery the newly formed West German state

remained, to a certain degree, under Franco-European politics. Konrad Adenauers

diplomatic efforts were indispensable for West Germanys noncontroversial foreign

policy. Adenauer began his political career as Mayor of Cologne, but was dismissed

during the Nazi ascendency. Following World War II he quickly rose through the ranks

of the CDU and was elected the first Chancellor of the Federal Republic of Germany on

15 August 1949. Adenuaers diplomatic outlook mirrored the course of his political

career, moving from regional to national and eventually international politics. Adenauer

aptly recognized the Franco-American divide in the Western camp. He proved to be

singular amongst his Christian Democrat colleagues because of his comparatively

relaxed attitude toward tensions between Atlanticism and Gaullism.56 The US cherished

Adenauers objectivity. The bipolar world of the Cold War was enough to convince any

sound minded Western European leader that the US security guarantee deserved the

highest political premium. Coupled with the apparent success of Marshall aid in

stimulating the West German economy, Adenauer needed only to follow a direct political

56
Hodge, Shepard of Democracy, 96.

23
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

course. It is fair to say that he welcomed the Cold War to the extent that it simplified

the choices available to West Germans in both foreign and domestic policy, while

simultaneously drawing the two realms together.57 In West Germany, the Marshall Plan

won the favor of the public and persuaded government officials that the American plan

for recovery would restore the nation. The offers made by the US Government were

substantial enough to convert the West German population into strongholds of

democratic thinking. The infusion of democratic principles rested on an interdependent

common market that rapidly converted West Germany into the strongest economic ally of

the US in the Cold War.

The Special Relationship between the US and the UK was much more

complicated than German-American relations. For one, contact between the two states

spilled into every arena of diplomacy. Marshall aid to Britain was perhaps the most

philanthropic element of the relationship. During distribution of Marshall aid

Washington withheld nuclear technology. They challenged the British to maintain their

costly military positions around the world. All while allowing American oil companies

to pursue aggressive strategies against traditional British concessions in the Middle East.

The British wished to follow Harold Macmillans famous Greeks to Romans path for

hegemonic mentorship. Whitehall made its best efforts to persuade the US to follow past

examples of philanthropic foreign policy. Ernest Bevin noted,

The US was in the position today where Britain was at the end of the Napoleonic
Wars. When those wars ended Britain held about 30 percent of the worlds
wealth. The US today holds about 50 percent. Britain, for eighteen years after
Waterloo practically gave away her exports but this resulted in stability and a
hundred years of peace.58

57
Ibid., 99.
58
Newton, The Sterling Crisis of 1947, 398.

24
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

For the most part, Washington ignored British economic advice. The British remained

stubborn and pushed the limits of the Special Relationship. The UK recognized that

Washington wished Britain to integrate with Europe for more than functional purposes.59

In spite of its relatively poor economic outlook relative to Western Europe the US looked

first to Britain to lead integration. In Britain there was no need to sell the public on the

ideals of a democratic consumer based society. The UK shared an innate kinship with the

US. Britain had significant experience in world leadership, and they were least

vulnerable to Soviet subversion.

The comparison of the Marshall Plan in West Germany reveals many

commonalities, but more importantly highlights certain differences between Anglo-

American and German-American relations. The economic potential of West Germany

dwarfed that of Britain. The imperial ambitions of the Germans were swept away with

the defeat of Hitler. Defeated Germany was the prize in the American-Soviet rivalry, but

for purely functional reasons. Functionalism of the West German relationship did not

lessen the value of the alliance, but it did contain German-American diplomacy to select

issues. Conversely, the Anglo-American relationship went beyond functionalism. The

two countries shared an intersecting history, a language, and common ancestry in

addition to strategic interests. These factors allowed Britain to assume a more important

position in the Atlantic world. The relationship with the US allowed Britain to extend its

influence far beyond that of countries of equal economic status through its power-by-

59
John Dumbrell, A Special Relationship: Anglo-American Relations in the Cold War to Iraq (London:
2006).

25
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

proxy relationship with the US.60 By the late 1950s West Germany enjoyed a more

robust economy than that of the UK, but it could hardly be argued that the FRG held

more geopolitical influence than the UK. The functionality of the German-American

relationship encouraged West Germany to prosper within the European framework, but

Bonn was not given additional privilege.

The three preceding generations of scholarship on the Marshall Plan have lacked

theoretical continuity. Since the initial treatment of the Marshall Plan in the early 1950s,

scholars have constantly revisited and attempted to disprove the conclusions of their

predecessors. Each generation offers a degree of valuable analysis. When synthesized

and supplemented with new perspectives, ample grounds for comparison of the West

German and UK Marshall Plan experience emerges. At the time of the Marshall Plan

announcement the UK and West Germany were in drastically different geopolitical

positions, but the bipolar world of the Cold War and the leverage of Marshall aid pushed

both toward increased contact with their European neighbors.

The Harvard speech given by Secretary of State George Marshall spurred a

transformation of the postwar political economy of Western Europe. Recipient states

acted quickly to produce a convincing appeal for American aid, based on coordinated

macroeconomic strategies. Washington intentionally politicized the purpose of aid to

consolidate its strategic position in Western Europe and prevent further Soviet expansion.

The Marshall Plan distributed aid to sixteen states, of these Britain and West Germany

were the most vital pillars of the American strategy. Acting decisively to ensure the full

recovery of West Germany and Britain, the Truman administration leveraged aid to

60
Kevin Ruane and James Ellison, Managing the Americans: Anthony Eden, Harold Macmillan and the
Pursuit of Power-by-Proxy, in the 1950sContemporary British History 18 (2004): 147-167.

26
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

overcome French objections to restoration of the West German economy. At the same

time Washington asserted itself as the undisputed leader of the West. The US forced

Britain into a common aid package with the rest of Europe, intentionally neglecting its

imperial legacy and compelling Britain to collaborate on issues of European integration.

The common market and interdependent institutions that emerged from the

Marshall Plan demonstrated the successful American strategy for dual containment of

Germany and the USSR. This was done by inextricably linking German economic and

political developments to the rest of Western Europe. The unwillingness of Britain to

assume leadership of an integrated Western Europe added value to the Bonn-Washington

relationship, but the strength of the relationship was purely rooted in functionalist

principles. Contrary to the diplomatic course pursued by West Germany, Britain pushed

the limits of its Special Relationship with the US. At every turn Whitehall fought the

policy decisions of Marshall Planners. The British were able to pursue a more forceful

diplomatic course than West Germany because the Anglo-American relationship went

beyond functionalism. The generous distribution of Marshall aid to Western Germany

and the UK successfully countered Soviet economic warfare and infused American

principles into the reconstructed political economy of Europe.

27
 Fortifying Europe: The Marshall Plan in
the United Kingdom and West Germany

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