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Economic Reconstruction in Europe After WWII: Recovery Programs & Their Effect

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  • 0:03 Economic…
  • 0:32 Post-War Europe
  • 1:42 Debate
  • 2:32 Marshall Plan
  • 3:36 Effects and Strings Attached
  • 4:58 Lesson Summary
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Lesson Transcript
Instructor: Christopher Sailus

Chris has an M.A. in history and taught university and high school history.

In this lesson, we explore the measures taken by the United States to aid its European allies in combating the severe economic depression in Europe immediately after World War II.

Economic Reconstruction Post-WWII

Sickness and injury can take many forms. While a broken leg may be a very noticeable and at times horrific injury, something like cancer can be undetectable in plain sight, but in the end far more malevolent, and often require a more invasive cure. The human body is not the only place where unseen illness can have devastating effects: economic conditions - like those in Europe after WWII - made life incredibly hard for many Europeans.

Post-War Europe

After all, most people have seen photos and know well what the devastation of post-WWII Europe was like: bomb craters dotted farmers' fields, roads were torn to pieces by tanks, trucks, and thousands of marching soldiers, and the skylines of entire cities and villages were leveled by fierce fighting.

However, what is less known and harder to photograph was the equally egregious economic devastation experienced by the countries ravaged by WWII. Many European countries had spent vast sums of money fighting the war, and their gold reserves were hopelessly depleted. Most countries had also taken out large loans, mainly from the United States, in order to help pay for the war effort, leaving most of these countries owing a massive financial debt to the Americans.

For example, Great Britain had been the world's largest creditor prior to the war, and in only six years became its largest debtor! In order to pay off these debts, many countries resorted to simply printing more money, which caused inflation to skyrocket. In a short period of time, many European currencies, like the French franc, became virtually worthless.

Debate

In the United States and other countries that had been less immediately affected by the war, the debate concerning what to do about the European economy raged. After all, the United States was not exactly flush with cash. Though it was far better off than Europe, it too had spent large sums of money fighting a two-front war, and it was barely a decade removed from the worst years of the Great Depression.

Furthermore, the United States had its own domestic issues. For example, millions of U.S. soldiers returning home needed jobs and/or housing. The full unemployment levels experienced during the war were unsustainable. Many worried about the economic effects this shock to the employment market would have on the precarious U.S. economy and warned that any aid to Europe might destabilize the U.S. market, claiming that European-based solutions should be found for European problems.

Marshall Plan

In the end, the U.S. government decided that the European economic tailspin required outside aid to be stopped. This aid came from the United States in the form of the Marshall Plan. Named after its creator, Secretary of State George Marshall, the Marshall Plan created a framework to reinvigorate the European and world economy through giving monetary aid to the war-ravaged countries of WWII. The offer was extended to all countries debilitated by the war, though the Soviet Union and those Eastern Bloc countries under Soviet control eschewed any foreign aid.

According to the plan, the United States and several other countries less economically depleted by the war combined to give gold and currency (in most cases U.S. dollars) to European countries so they could pay for basic government services and service their debt. This aid was given without any repayment requirements. The aid had immediate impact on war-ravaged Europe and Japan, and within only a few short years, most countries' economies were producing goods near or even exceeding pre-war production levels.

Effects and Strings Attached

Though repayment of this aid was not required, there were strings attached which affected the wider European and global markets. Indeed, in accepting U.S. dollars, many European states were required to remove tariffs, which protected domestic markets from cheap U.S. imports. The United States further urged countries to make trade agreements with multiple countries rather than bilateral agreements so that the full force of problems with one country's economy or goods would not be felt solely and entirely by that country's trade partner. This diversity of trade was encouraged with both the U.S. and within Europe.

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