Europe wants a new Marshall Plan after Covid-19. This is what it is

The World War 2-era Marshall Plan, bankrolled by US, helped western Europe recover from the economic impact of the war.

Representational image of lockdown in Spain | Bloomberg

New Delhi: The coronavirus pandemic is perhaps the biggest global crisis since World War 2. So it’s not much of a surprise that European leaders are looking to the past to figure out how to deal with the grave economic repercussions of the Covid-19 pandemic.

With Europe emerging as the epicentre of Covid-19, Spanish Prime Minister Pedro Sanchez as well as European Commission (the executive branch of European Union) chief Ursula von der Leyen have called for a new “Marshall Plan” to deal with the crisis.

The plan, bankrolled by the US and entailing financial assistance of $13 billion, helped western Europe recover from the economic impact of World War 2.

This initiative not only helped rebuild western European economies, but also laid out the groundwork for the new US-led world order. ThePrint explains what the plan — which didn’t come without conditions — was all about.

Post-war Europe in complete economic ruin

The World War 2 began as the UK and France (the erstwhile Soviet Union joined the alliance later on) declared war against Adolf Hitler-led Germany after it invaded Poland in September 1939 (Italy joined the war on the German side, or as an ‘Axis power’ in 1940).

The war propelled Europe into massive economic destruction just over 20 years after the devastation wreaked by the First World War.

Sustained aerial bombing during the war left much of Europe in ruins, with nearly 40 per cent of buildings in Germany’s 50 largest cities, 30 per cent of all of Italy’s assets, and 20 per cent of France’s houses completely destroyed.

“The need for reconstruction was everywhere apparent. Vast numbers of the war’s weary survivors were jobless, hungry, and desperate,” wrote American political scientist Ian Bremmer in his 2012 book Every Nation for Itself: Winners and Losers in a G-Zero World.

“The conflict had cut Europe’s agricultural output by half and its industrial production by two-thirds. Even after the fighting ended, food rationing continued and in some cases tightened,” he said.

From broken transportation lines to disrupted supply chains, all European nations were in dire need of massive and rapid economic assistance by the time the war ended.

Rebuilding war-torn western European economies

The US, which joined the war in December 1941 after Axis ally Japan bombed Pearl Harbor, was broadly undamaged by the war and emerged as a superpower in its aftermath. At the time, it was the only country with the economic resources to provide assistance to Europe.

The Second World War also resulted in the emergence of a bipolar world order as the wartime alliance between the US and the erstwhile Soviet Union came undone, their rivalry fuelled by their divergent ideologies, that is, capitalism and communism, respectively.

Germany — divided between the Allied powers of the war and subsequently breaking into two blocs, West and East Germany — emerged as a centre of the Cold War

In this context, the US decided to help western European countries, which were US-leaning, as opposed to central and eastern states, which leaned more towards the Soviet Union.

In an effort to rebuild Europe, other war-torn countries in Asia, and the broader global economy, the US launched a series of international institutions such as the World Bank and the International Monetary Fund in 1944.

But the assistance provided by them was deemed insufficient to rebuild western Europe.

“New institutions were not enough — Washington needed a more aggressive plan to rebuild Europe,” Bremmer noted. “In 1947, the value of US imports from Europe was only about half that of its Europe-bound exports. Without a substantial infusion of cash, Europeans would run out of money, and Americans would lose their most likely large-scale trade partners.”

Thus, the US under President Harry Truman decided to launch the Marshall Plan, named after the then US Secretary of State George Marshall.

Pegged at $13 billion (nearly $128 billion in 2020 terms), the Marshall Plan was largely prepared by the US State Department (foreign ministry) and its key officials such as George Keenan and William Clayton.

“With a price tag of 10 per cent of the US federal budget in its first year, the Marshall Plan allowed the United States to pour an additional $13 billion into Europe between 1948 and 1952,” Bremmer wrote.

In a 1977 essay for Time magazine, veteran journalist Frank Trippett noted, “Britain’s Foreign Secretary Ernest Bevin called it ‘the most unsordid act of history’. To Willy Brandt, speaking later as Chancellor of West Germany, it was ‘one of the strokes of providence of this century, a century that has not so very often been illuminated by the light of reason’.”

The plan drew to a close in 1952, and most countries treated it as aid and never paid back the US. West Germany was the major exception and it eventually paid back a third of the money it received.

By 1952, US assistance had already begun to show its effects. Western European economies were functioning at double the pre-war levels.

Specific features of the Marshall Plan

Under the plan, US economic assistance was coupled with Washington’s promise to maintain troops in Europe, to ensure these countries didn’t need to spend on defence and could focus on rebuilding their economies.

However, this financial assistance did not come without conditions. For a country to receive economic aid, it had to reduce trade barriers, initiate regulatory reforms, adopt American business practices, and, most importantly, increase productivity.

In essence, the US was not only rebuilding western European economies, it was also ensuring they were completely inter-linked with the American economy.

While Spain has now emerged as an advocate for a new Marshall plan, it wasn’t even a part of the first as it remained neutral during the Second World War, and was deeply unpopular in Washington at the time.

However, a few years later, the then Spanish leader Francisco Franco’s anti-Communist stand helped it mend ties with the US. As a consequence, starting in 1951, Spain received considerable American economic aid outside of the Marshall Plan.