by Tony Judt
The second problem concerned not Germany but the USA, though the two were connected. In 1938, 44 percent of Britain’s machinery imports by value came from the USA, 25 percent from Germany. In 1947 the figures were 65 percent and 3 percent respectively. The situation was similar in other European countries. This sharply increased demand for American goods was, ironically, an indication of an upswing in European economic activity—but to buy American products or materials required American dollars. Europeans had nothing to sell to the rest of the world; but without hard currency they could not buy food to stop millions from starving, nor could they import the raw materials and machinery needed to move forward their own production.
The dollar crisis was serious. In 1947 the UK, whose national debt had increased fourfold since 1939, was buying nearly half its total imports from the USA and fast running out of cash. France, the world’s largest importer of coal, was running an annual payments deficit with the US of $2,049 million. Most other European countries did not even have currencies in which to trade. Romanian inflation was at its worst in August 1947. The inflation in neighbouring Hungary, the worst in recorded history and far exceeding that of 1923 Germany, peaked at 5 quintillion (530) paper pengos to the dollar—meaning that by the time the pengo was replaced by the forint in August 1946 the dollar value of all Hungarian banknotes in circulation was just one-thousandth of one cent.
In Germany there was no functioning currency. The black market flourished and cigarettes were the accepted medium of exchange: teachers in DP camps were paid 5 packs a week. The value of a carton of American cigarettes in Berlin ranged from $60-$165, an opportunity for soldiers in the American occupation forces to make serious money converting and re-converting their cigarette allocation: in the first four months of the Allied occupation US troops in Berlin alone sent home $11 million more than they received in wages. In Braunschweig, 600 cigarettes would buy you a bicycle—a necessity in Germany no less than in Italy, as depicted unforgettably in Vittorio de Sica’s 1948 film Bicycle Thieves.
The seriousness of the European crisis was not lost on the Americans. As we shall see, it was one of their main reasons for pressing forward with a solution to the problem of Germany with or without Soviet cooperation. In the opinion of well-informed Presidential counselors like George Kennan, Europe in the spring of 1947 was teetering on the edge. The frustrations of western Europeans, who had initially been led to expect quicker recovery and a return to normal economic conditions, and the hopelessness of Germans and other central Europeans, compounded by the unanticipated subsistence crisis of 1947, could only strengthen the appeal of Communism or else the risk of a descent into anarchy.
The attraction of Communism was real. Although the Communist parties of Italy, France and Belgium (as well as those of Finland and Iceland) remained in governing coalitions until May 1947, through their trade union affiliates and popular demonstrations they were able to mobilize popular anger and capitalize on the failures of their own governments. The electoral successes of local Communists, combined with the aura of the invincible Red Army, made an Italian (or French, or Czech) ‘road to Socialism’ seem plausible and seductive. By 1947 907,000 men and women had joined the French Communist Party. In Italy the figure was two and a quarter million, far more than in Poland or even Yugoslavia. Even in Denmark and Norway, one voter in eight was initially attracted to the promise of a Communist alternative. In the western zones of Germany the Allied authorities feared that nostalgia for the better days of Nazism, together with a reaction against denazification programmes, food shortages and endemic minor crime, could yet turn to neo-Nazi or even Soviet advantage.
The west European states were perhaps fortunate that their Communist parties in the spring of 1947 were still pursuing the moderate, democratic path adopted in 1944. In France, Maurice Thorez was still urging coalminers to ‘produce’. In Italy the British ambassador described Togliatti as a moderating influence on his more ‘hotheaded’ Socialist allies. For his own reasons Stalin was not yet encouraging his many supporters in central and western Europe to exploit popular anger and frustration. But even so, the spectre of civil war and revolution was never far away. In Belgium, Allied observers described communal and political tensions as serious and ranked the country with Greece and Italy as ‘unstable’.
In France the economic hardships of the winter of 1947 were already leading to popular disillusion with the new post-war Republic. In a French opinion poll of July 1st 1947, 92 percent of those questioned thought that things in France were going ‘badly or rather badly’. In Britain the Labour Chancellor Hugh Dalton, reflecting on the punctured enthusiasms of the first post-war years, confided to his diary: ‘Never bright confident morning again’. His French counterpart, André Philip, the Socialist Minister of National Economy, made the same point more dramatically in a speech in April 1947: ‘We are threatened,’ he declared, ‘with total economic and financial catastrophe’.
This sense of hopelessness and impending disaster was everywhere. ‘For the past two months’, reported Janet Flanner from Paris in March 1947, ‘there has been a climate of indubitable and growing malaise in Paris, and perhaps all over Europe, as if the French people, or all European people, expected something to happen, or, worse, expected nothing to happen.’ The European continent, as she had noted a few months before, was slowly entering a new ice age. George Kennan would have agreed. In a Policy Planning Staff paper six weeks later he suggested that the real problem was not Communism, or if so then only indirectly. The true source of the European malaise was the effects of war and what Kennan diagnosed as ‘profound exhaustion of physical plant and spiritual vigour’. The hurdles the continent faced seemed too great, now that the initial burst of post-war hope and rebuilding had drained away. Hamilton Fish, editor of Foreign Affairs, the influential house journal of the American foreign policy establishment, described his impressions of Europe in July 1947:
‘There is too little of everything—too few trains, trams, buses and automobiles to transport people to work on time, let alone to take them on holidays; too little flour to make bread without adulterants, and even so not enough bread to provide energies for hard labor; too little paper for newspapers to report more than a fraction of the world’s news; too little seed for planting and too little fertilizer to nourish it; too few houses to live in and not enough glass to supply them with window panes; too little leather for shoes, wool for sweaters, gas for cooking, cotton for diapers, sugar for jam, fats for frying, milk for babies, soap for washing.’
It is widely believed by scholars today that for all the contemporary gloom the initial post-war recovery and the reforms and plans of the years 1945-47 laid the groundwork for Europe’s future well being. And to be sure, for western Europe at least 1947 would indeed prove the turning point in the continent’s recovery. But at the time none of this was obvious. Quite the contrary. World War Two and its uncertain aftermath might well have precipitated Europe’s terminal decline. To Konrad Adenauer like many others, the scale of European chaos seemed worse even than in 1918. With the precedent of the post-World War One mistakes uppermost in their thoughts, many European and American observers indeed feared the worst. At best, they calculated, the continent was in for decades of poverty and struggle. German residents of the American Zone expected it to be at least twenty years before their country recovered. In October 1945 Charles de Gaulle had imperiously informed the French people that it would take twenty-five years of ‘furious work’ before France would be resuscitated.
But long before that, in the pessimists’ view, continental Europe would collapse back into civil war, Fascism and Communism. When US Secretary of State George C. Marshall returned on April 28th 1947 from a Moscow meeting of Allied Foreign Ministers, disappointed at Soviet unwillingness to collaborate in a solution for Germany and shaken by what he had seen of the economic and psychological state of western Europe, he was clear in his own mind that something rather dramatic would have to be done, and very soon. And j
udging from the resigned, doom-laden mood in Paris, Rome, Berlin and elsewhere, the initiative would have to come from Washington.
Marshall’s plan for a European Recovery Program, discussed with his advisers over the next few weeks and made public in a famous Commencement Address at Harvard University on June 5th 1947, was dramatic and unique. But it did not come out of nowhere. Between the end of the war and the announcement of the Marshall Plan, the United States had already spent many billions of dollars in grants and loans to Europe. The chief beneficiaries by far had been the UK and France, which had received $4.4 billion and $1.9 billion in loans respectively, but no country had been excluded—loans to Italy exceeded $513 million by mid-1947 and Poland ($251 million), Denmark ($272 million), Greece ($161 million) and many other countries were indebted to the US as well.
But these loans had served to plug holes and meet emergencies. American aid hitherto was not used for reconstruction or long-term investment but for essential supplies, services and repairs. Furthermore, the loans—especially those to the major western European states—came with strings attached. Immediately following the Japanese surrender President Truman had imprudently cancelled the wartime Lend-Lease agreements, causing Maynard Keynes to advise the British Cabinet, in a memorandum on August 14th 1945, that the country faced an ‘economic Dunkirk’. Over the course of the following months Keynes successfully negotiated a substantial American loan agreement to supply the dollars that Britain would need to buy goods no longer available under Lend-Lease, but the American terms were unrealistically restrictive—notably in their requirement that Britain give up imperial preferences for its overseas dominions, abandon exchange controls and make sterling fully convertible. The result, as Keynes and others predicted, was the first of many post-war runs on the British pound, the rapid disappearance of Britain’s dollar reserves and an even more serious crisis the following year.
The terms of the loan negotiated in Washington in May 1946 between the US and France were only slightly less restrictive. In addition to a write-off of $2.25 billion of wartime loans, the French got hundreds of millions of dollars in credits and the promise of low-interest loans to come. In return, Paris pledged to abandon protectionist import quotas, allowing freer entry to American and other foreign products. Like the British loan, this agreement was designed in part to advance the US agenda of freer international trade, open and stable currency exchanges and closer international cooperation. In practice, however, the money was gone within a year and the only medium-term legacy was increased popular resentment (much played upon by the Left) at America’s exploitation of its economic muscle.
By the spring of 1947, then, Washington’s bilateral approaches to Europe’s economic troubles had manifestly failed. The trading deficit between Europe and the US in 1947 would reach $4,742 million, more than double the figure for 1946. If this was a ‘hiccup of growth’, as later commentators have suggested, then Europe was close to choking. That is why Ernest Bevin, the British Foreign Minister, responded to Marshall’s Commencement Address by describing it as ‘one of the greatest speeches in world history’, and he was not wrong.
Marshall’s proposals were a clean break with past practice. To begin with, beyond certain framing conditions it was to be left to the Europeans to decide whether to take American aid and how to use it, though American advisers and specialists would play a prominent role in the administration of the funds. Secondly, the assistance was to be spread across a period of years and was thus from the start a strategic programme of recovery and growth rather than a disaster fund.
Thirdly, the sums in question were very substantial indeed. By the time Marshall Aid came to an end, in 1952, the United States had spent some $13 billion, more than all previous US overseas aid combined. Of this the UK and France got by far the largest sums in absolute amounts, but the relative impact on Italy and the smaller recipients was probably greater still: in Austria, 14 percent of the country’s income in the first full year of the European Recovery Program (ERP), from July 1948 to June 1949, came from Marshall Aid. These figures were enormous for the time: in cash terms the ERP was worth about $100 billion in today’s (2004) dollars, but as an equivalent share of America’s Gross Domestic Product (it consumed about 0.5 percent of the latter in the years 1948-1951) a Marshall Plan at the beginning of the twenty-first century would cost about $201 billion.
Immediately following Marshall’s speech the foreign ministers of Britain, France and the USSR met in Paris, at Bevin’s suggestion, to consider their response. On July 2nd the Soviet foreign minister Vyacheslav Molotov walked out and two days later Britain and France formally invited representatives of 22 European countries (excluding only Spain and the Soviet Union) to discuss the proposals. On July 12th sixteen European states took part in these discussions. All of these—Britain, France, Italy, Belgium, Luxemburg, Netherlands, Denmark, Norway, Sweden, Switzerland, Greece, Turkey, Ireland, Iceland, Austria and Portugal—would be among the eventual beneficiaries. But despite the initial interest shown by Poland, Czechoslovakia, Hungary, Bulgaria and Albania, no future Communist state took part in the European Recovery Programme or received a dollar in Marshall aid
It is worth pausing to consider the implications of this. The fact that the money was to be confined to the West (with Greece and Turkey as honorary west Europeans) undoubtedly made it easier for Truman to secure passage of the ERP through Congress the following year. But by then much had changed and Congress was willing to be convinced that Marshall Aid was an economic barrier to Soviet expansion. In June 1947, however, the offer of aid through Marshall’s new programme was made to all European countries without distinction. Stalin and Molotov were of course suspicious of American motives—the terms Marshall was proposing were quite incompatible with the closed Soviet economy—but their sentiments were not widely shared elsewhere in eastern Europe, in what was not yet a bloc.
Thus Jan Masaryk, Czechoslovakia’s non-Communist Foreign Minister, enthusiastically accepted the joint Franco-British invitation of July 4th. The very next day the Czech Communist Party leader and Prime Minister, Klement Gottwald, was summoned to Moscow and initially instructed to attend the Paris conference. But his orders were clear: he was to use his presence in Paris to demonstrate ‘the unacceptability of the Anglo-French plan, prevent the adoption of unanimous decisions, and then leave the conference, taking as many delegates of other countries as possible.’
Four days later Stalin reconsidered. Gottwald was told to withdraw his country’s acceptance of the invitation to Paris. Meeting with a delegation from the Czech government, including Masaryk, Stalin advised the Czechs that ‘[w]e consider this matter to be a fundamental question on which [Czech] friendship with the USSR depends. If you go to Paris, you will show that you want to cooperate in an action aimed at isolating the Soviet Union.’ The next day the Czech coalition government duly announced that it would not be sending a delegation to Paris. ‘Czechoslovak participation would be construed as an act directed against friendship with the Soviet Union and the rest of our allies. That is why the government unanimously decided it will not take part in this conference.’
Why did the Czechs give way? Their Polish and Hungarian neighbours, with the Communists already in charge and the Red Army in close attendance, had no option but to follow Soviet ‘guidance’. But the Red Army had long since left Czechoslovakia and the Communists did not yet have a monopoly of power. Yet Masaryk and his colleagues buckled at the first display of Stalin’s displeasure. Had the non-Communist Czech parties insisted on accepting Marshall Aid they would have carried the overwhelming majority of their fellow citizens (and quite a few Czech Communists) with them, making it that much harder for Stalin to justify enforcing his will. In the broader context of post-Munich politics the Czech decision to favour the Soviet embrace was understandable; but it almost certainly paved the way for the Communists’ successful coup in Prague seven months later.
Czechoslovakia’s exclusion from the Marshall Aid program
me was an economic and political catastrophe for the country. The same is true of the ‘choice’ imposed on every other country in the region, and above all, perhaps, for the Soviet Union itself. His decision to stand aside from the European Recovery Program was one of Stalin’s greatest strategic mistakes. Whatever their private calculations, the Americans would have had no choice but to include eastern Europe in the ERP, having made the offer available to all, and the consequences for the future would have been immeasurable. Instead, the aid was confined to the West and marked a parting of the ways between the two halves of the continent.
Marshall Aid was from the start intended to be self-limiting. Its goal, as Marshall himself set it out in his Harvard speech, was to ‘break the vicious circle and restore the confidence of the European people in the economic future of their own countries and of Europe as a whole.’ Rather than merely offering aid in cash it proposed the provision of goods, free of charge, delivered to European countries on the basis of annual requests formulated as part of a four-year plan by each recipient state. These goods, when sold in each country, would generate so-called ‘counterpart funds’ in the local currency which could be used according to bilateral agreements reached between Washington and each national government. Some countries used these funds to purchase more imports; others, like Italy, transferred them into their national reserves in anticipation of future foreign exchange needs.