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The drop in food production can be attributed to a drought that killed a major portion of the wheat crop while a severe winter destroyed the majority of the wheat crop the following year. This caused most Europeans to rely on a 1, calorie per day diet. Industrial production fell more than half and reached pre-war levels only at the end of While Germany struggled to recover from the destruction of the War, the recovery effort began in June , moving on from emergency relief.
The currency reform in was headed by the military government and helped Germany to restore stability by encouraging production. The reform revalued old currency and deposits and introduced new currency. Taxes were also reduced and Germany prepared to remove economic barriers.
During the first three years of occupation of Germany, the UK and US vigorously pursued a military disarmament program in Germany , partly by removal of equipment but mainly through an import embargo on raw materials, part of the Morgenthau Plan approved by President Franklin D.
Nicholas Balabkins concludes that "as long as German industrial capacity was kept idle the economic recovery of Europe was delayed. In the view of the State Department under President Harry S Truman , the United States needed to adopt a definite position on the world scene or fear losing credibility.
The emerging doctrine of containment as opposed to rollback argued that the United States needed to substantially aid non-communist countries to stop the spread of Soviet influence. There was also some hope that the Eastern Bloc nations would join the plan, and thus be pulled out of the emerging Soviet bloc, but that did not happen. With a communist, although non-Soviet, insurgency threatening Greece, and Britain financially unable to continue its aid, the President announced his Truman Doctrine on March 12, , "to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures", with an aid request for consideration and decision, concerning Greece and Turkey.
It cannot be done unless we exterminate or move 25,, people out of it. Hoover further noted that, "The whole economy of Europe is interlinked with German economy through the exchange of raw materials and manufactured goods. The productivity of Europe cannot be restored without the restoration of Germany as a contributor to that productivity.
The United States was already spending a great deal to help Europe recover. Much of this aid was designed to restore infrastructure and help refugees. The United Nations also launched a series of humanitarian and relief efforts almost wholly funded by the United States. UNRRA provided billions of dollars of rehabilitation aid and helped about 8 million refugees.
It ceased operation of displaced persons camps in Europe in ; many of its functions were transferred to several UN agencies. After six weeks of negotiations, Molotov rejected all of the American and British proposals. After the adjournment of the Moscow conference following six weeks of failed discussions with the Soviets regarding a potential German reconstruction, the United States concluded that a solution could not wait any longer.
Marshall gave the address to the graduating class of Harvard University on June 5, Standing on the steps of Memorial Church in Harvard Yard , he offered American aid to promote European recovery and reconstruction. The speech described the dysfunction of the European economy and presented a rationale for US aid. The modern system of the division of labor upon which the exchange of products is based is in danger of breaking down.
Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace.
Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the United States. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.
Marshall was convinced that economic stability would provide political stability in Europe. He offered aid, but the European countries had to organize the program themselves. The speech, written by Charles Bohlen , contained virtually no details and no numbers.
More a proposal than a plan, it was a challenge to European leaders to cooperate and coordinate. It asked Europeans to create their own plan for rebuilding Europe, indicating the United States would then fund this plan. The administration felt that the plan would likely be unpopular among many Americans, and the speech was mainly directed at a European audience.
In an attempt to keep the speech out of American papers, journalists were not contacted, and on the same day, Truman called a press conference to take away headlines. The two agreed that it would be necessary to invite the Soviets as the other major allied power. State Department officials, however, knew that Stalin would almost certainly not participate and that any plan that would send large amounts of aid to the Soviets was unlikely to get Congressional approval. Initially, Stalin maneuvered to kill the Plan, or at least hamper it by means of destructive participation in the Paris talks regarding conditions.
Stalin suspected a possibility that these Eastern Bloc countries might defy Soviet directives not to accept the aid, potentially causing a loss of control of the Eastern Bloc. On July 12, a larger meeting was convened in Paris. The Soviet Union was invited with the understanding that it would likely refuse. The states of the future Eastern Bloc were also approached, and Czechoslovakia and Poland agreed to attend. The Marshall Plan participants were not surprised when the Czechoslovakian and Polish delegations were prevented from attending the Paris meeting.
The other Eastern Bloc states immediately rejected the offer. He accused the United States of attempting to impose its will on other independent states, while at the same time using economic resources distributed as relief to needy nations as an instrument of political pressure. However, in Tito broke decisively with Stalin on other issues, making Yugoslavia an independent communist state.
Yugoslavia requested American aid. American leaders were internally divided, but finally agreed and began sending money on a small scale in , and on a much larger scale in The American aid was not part of the Marshall Plan.
Although the Eastern Bloc countries except Czechoslovakia had immediately rejected Marshall Plan aid, Eastern Bloc communist parties were blamed for permitting even minor influence by non-communists in their respective countries during the run up to the Marshall Plan.
Italian and French communist leaders were prevented by party rules from pointing out that it was actually Stalin who had directed them not to take opposition stances in Congress, under the control of conservative Republicans, agreed to the program for multiple reasons. The member conservative isolationist Senate wing of the party, based in the rural Midwest and led by Senator Kenneth S.
Wherry R-Nebraska , was outmaneuvered by the emerging internationalist wing, led by Senator Arthur H. R-Massachusetts admitted there was no certainty that the plan would succeed, but said it would halt economic chaos, sustain Western civilization, and stop further Soviet expansion. Taft R-Ohio hedged on the issue. He said it was without economic justification; however, it was "absolutely necessary" in "the world battle against communism.
Congress reflected public opinion, which resonated with the ideological argument that communism flourishes in poverty. Across America, multiple interest groups, including business, labor, farming, philanthropy, ethnic groups, and religious groups, saw the Marshall Plan as an inexpensive solution to a massive problem, noting it would also help American exports and stimulate the American economy as well.
Major newspapers were highly supportive, including such conservative outlets as Time Magazine. Vandenberg made sure of bipartisan support on the Senate Foreign Relations Committee.
The Solid Democratic South was highly supportive, the upper Midwest was dubious, but heavily outnumbered. The plan was opposed by conservatives in the rural Midwest, who opposed any major government spending program and were highly suspicious of Europeans.
Wallace , the former Vice President. He said the Plan was hostile to the Soviet Union, a subsidy for American exporters, and sure to polarize the world between East and West.
The appointment of the prominent businessman Paul G. Hoffman as director reassured conservative businessmen that the gigantic sums of money would be handled efficiently. Turning the plan into reality required negotiations among the participating nations. Sixteen nations met in Paris to determine what form the American aid would take, and how it would be divided.
The negotiations were long and complex, with each nation having its own interests. The Benelux countries Belgium, Netherlands, and Luxemburg , despite also suffering under the Nazis, had long been closely linked to the German economy and felt their prosperity depended on its revival. The Scandinavian nations, especially Sweden , insisted that their long-standing trading relationships with the Eastern Bloc nations not be disrupted and that their neutrality not be infringed.
The United Kingdom insisted on special status as a longstanding belligerent during the war, concerned that if it were treated equally with the devastated continental powers it would receive virtually no aid. The Americans were pushing the importance of free trade and European unity to form a bulwark against communism.
The Truman administration, represented by William L. A majority of Congress members were committed to free trade and European integration, and were hesitant to spend too much of the money on Germany. Agreement was eventually reached and the Europeans sent a reconstruction plan to Washington, which was formulated and agreed upon by the Committee of European Economic Co-operation in Attempting to contain spreading Soviet influence in Eastern Bloc, Truman asked Congress to restore a peacetime military draft and to swiftly pass the Economic Cooperation Act, the name given to the Marshall Plan.
Of the Soviet Union Truman said, "The situation in the world today is not primarily the result of the natural difficulties which follow a great war.
It is chiefly due to the fact that one nation has not only refused to cooperate in the establishment of a just and honorable peace but—even worse—has actively sought to prevent it. Members of the Republican-controlled 80th Congress — were skeptical.
Others thought he had not been forceful enough to contain the USSR. ECA was headed by economic cooperation administrator Paul G. The first substantial aid went to Greece and Turkey in January , which were seen as the front line of the battle against communist expansion, and were already receiving aid under the Truman Doctrine.
Initially, Britain had supported the anti-communist factions in those countries, but due to its dire economic condition it decided to pull out and in February requested the US to continue its efforts. Another unofficial goal of ECA and of the Marshall Plan was the containment of growing Soviet influence in Europe, evident especially in the growing strength of communist parties in Czechoslovakia, France, and Italy.
The Marshall Plan money was transferred to the governments of the European nations. The funds were jointly administered by the local governments and the ECA. Each European capital had an ECA envoy, generally a prominent American businessman, who would advise on the process. The cooperative allocation of funds was encouraged, and panels of government, business, and labor leaders were convened to examine the economy and see where aid was needed.
The Marshall Plan aid was mostly used for the purchase of goods from the United States. The European nations had all but exhausted their foreign exchange reserves during the war, and the Marshall Plan aid represented almost their sole means of importing goods from abroad.
At the start of the plan, these imports were mainly much-needed staples such as food and fuel, but later the purchases turned towards reconstruction needs as was originally intended. In the latter years, under pressure from the United States Congress and with the outbreak of the Korean War , an increasing amount of the aid was spent on rebuilding the militaries of Western Europe. Also established were counterpart funds , which used Marshall Plan aid to establish funds in the local currency.
This was prominent in Germany, where these government-administered funds played a crucial role in lending money to private enterprises which would spend the money rebuilding. These funds played a central role in the reindustrialization of Germany. The companies were obligated to repay the loans to the government, and the money would then be lent out to another group of businesses.
In it was worth DM 23 billion. Through the revolving loan system, the Fund had by the end of made low-interest loans to German citizens amounting to around DM billion. France made the most extensive use of counterpart funds, using them to reduce the budget deficit. In France, and most other countries, the counterpart fund money was absorbed into general government revenues, and not recycled as in Germany. However, in January , the American government suspended this aid in response to the Dutch efforts to restore colonial rule in Indonesia during the Indonesian National Revolution , and it implicitly threatened to suspend Marshall aid to the Netherlands if the Dutch government continued to oppose the independence of Indonesia.
At the time the United States was a significant oil producing nation — one of the goals of the Marshall Plan was for Europe to use oil in place of coal, but the Europeans wanted to buy crude oil and use the Marshall Plan funds to build refineries instead.
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