exploitation of the German Saarland or development of nuclear energy. Currencies were subject to exchange control, and all but a tiny fraction of trade was carried out by barter, with mountains of paper in ministries. For this Europe to develop an economic character, French fears over Germany would have to be overcome, and this took time: for the moment, the French aimed mainly to take the coal of the Saarland for themselves, and, if possible, to loot the Ruhr. It was the great heavy-industrial powerhouse, and for the moment it was still operating far below par, partly because of trade controls, partly because the French feared German resurgence, and partly because of British maladministration — the Germans said that it caused greater damage than the bombing had done. But its relative inactivity was harming everybody else. Next-door Holland, half of the economy of which depended upon Germany, was still in poor shape. Two things were needed. Germany would have to be reintegrated into the European economy, and the various countries would have to trade with each other. This needed practical steps, far beyond a Western Union.
It was here above all that the Marshall Plan mattered. In the first two years, with roughly $5bn each for essential goods, and food in particular, it had amounted to a vast charitable enterprise, built upon the already considerable American transfers of the immediate post-war period, when UN Relief and Rehabilitation Administration (UNRRA) and Cooperative for American Remittances to Europe (CARE) parcels had kept body and soul together. That had been vitally necessary, because of the terrible winter of 1947 and the dollar shortages and the inflation which, in most countries, but especially in Germany, had wrenched trade into the black markets and below the counter. But for various reasons the Plan changed character after the first two years. To begin with, each country had taken its handout and kept the money in the bank. But trade was the real engine of growth, the dollars being used as a basis for that, not with the USA but over European borders. That meant the Rhine; the immediate point was German integration, through an increase in European trade. As the international crisis developed, there was a further element of great importance: American defence expenditure shot up, from the $13.5bn of 1949 to the $50bn of 1950, and a good part of this went to Germany, where forty American divisions were now stationed, and which produced the essential steel. The Ruhr wheels turned, slowly, again, and the great smokestacks emitted. Marshall money also saved the French Plan, which, again, required German coal and steel. The British, still attempting to refloat their empire as a bloc, were much less intimately involved. They used the dollars just to pay off debts.
It was on continental western Europe that the Marshall Planners concentrated, and its unity, in that sense, came in the (considerable) logistics trains of the American army. The essential was trade liberalization, and that could not be managed unless there were some means of payment, i.e. recognition of the various paper currencies. The old Bank for International Settlements at Basle in Switzerland — originally set up to handle the Reparations payments of the First World War — was revitalized, with a European Payments Union (in 1950). This again followed an Atlantic example. In 1944, at Bretton Woods in New Hampshire, the Americans and British had developed institutions that were meant to stop the collapse of world trade that had occurred in the Great Slump of the 1930s. The collapse — two thirds — had been a disaster, causing unemployment in millions and millions, and bringing dictatorships in dozens, the worst of them Hitler’s. A chief reason for the disaster had been monetary — the loss of a common standard of exchange, in this case gold, when the British ran out of reserves and neither the Americans nor the French, who had gold, would move in to support the system. In 1944, the Americans recognized that they would have to use their economic weight sensibly, and an International Monetary Fund (IMF) was established (with a World Bank) so that countries importing more than they exported could be tided over with foreign reserves until they could bring their payments back into balance. This was a good idea, but in the first post-war years, as western Europe went through near calamity, the IMF did not have much of a role, and could not, until the various trading currencies had established themselves. With the European Payments Union, there came a limited version. It did not, at the time, seem to be at all simple. Most countries lacked earnings in dollars, the real currency. The Belgians, still controlling the mineral resources of the Congo, did have a dollar surplus, and had to be persuaded to use it for the common good; the British, who needed their European surplus to pay dollar debts, were in a still greater odd-man- out position, and made difficulties.
The Americans lost patience with it all, and preached the virtues of their own big and unified market. Marshall’s successor as Secretary of State, John Foster Dulles, knew his Europe from the old days, when he had been an international banker, and said that unification was ‘an absolute necessity’. More, the Americans lost patience with national currencies and said there should be a common one. This was formally suggested by the deputy director-general of the ECA, William Foster, in June 1950: call it the ‘Europa’, he said, or perhaps the ‘Euro’. The Marshall people saw each country’s storing its Marshall dollars in some bank or other, not using them to trade with, across the various borders. In response, there were indeed ideas of trade areas within Europe, but there were still fears as regards Germany. In part these were French, but the real difficulties were made by the British, fearing German competition. Various phantom schemes came up, to combine Britain, France, Scandinavia, Italy and the Benelux countries as a free-trade area: ‘Fritalux’, ‘Finebel’, ‘Uniscan’, none of which were worth much without the Ruhr. But in October 1949 the Federal Republic of Germany emerged, and the French had to rethink.
There now came an interesting affair, indicating the shape of things to come. The western Europeans received a further fillip, and one that, at least formally, did more for economic recovery than anything else: they devalued. The pound especially had been overvalued, partly to enable the British to pay off dollar debts, and partly to let them reconstitute their pre-war investments (which, strangely enough, by 1950 amounted to more than in 1939). Since trade was strictly controlled, the artificially high exchange rate was not menaced by any great imbalance of exports and imports. However, with the Marshall Plan, trade went ahead, and there was considerable difficulty in controlling it, because an exporter and an importer could connive to make ‘false invoices’, the money held in surreptitious foreign accounts. But the pound was a soft currency, given the size of British wartime debts, and foreigners sold it when they could — at that time, even more dollars were going back to the United States than were coming into Europe through the Marshall Plan. In the summer of 1949, there was a run on the pound. The Labour government that had swept into power in 1945 had become tired and divided: New Jerusalem had not happened, and the severely rationed British were now living at a lower standard than most liberalized Germans. If they were to rejoin the international trading network, to export, then the pound would have to be devalued; if the pound were again to become an international trading currency, alongside the dollar, then Atlantic co-operation would be needed. After discussion with the Americans, the pound was devalued by a good 30 per cent (to $2.80) on 18 September. The International Monetary Fund was not involved in this, and the German Mark was also devalued, but only by 20 per cent — the hardest sign so far of a rift between the Common Market to come and the British.
British exports did in fact do quite well, in part because other countries were still restocking with machinery, and a modest boom was under way by 1950, but the real boom started in continental Europe. The Germans did indeed restock, and for a time had a drastic problem as regards the balance of imports and exports: they had some difficulty in meeting their obligations under the Payments Union, and there was some question, for a time, of their dropping out. But the managers of the German economy held out, and the Americans as ever gave support. For a few months, the other Europeans accepted German IOUs. And then the German economy, on the basis of exports, boomed, and boomed. Then it boomed again, in 1955 overtaking British figures. In fact even by 1951 the export surplus amounted to more than the entire Marshall Plan had done. Now, surplus Germans could carry indebted Italians, whose economic recovery also got under way. There is an interesting question in this period, as to how far the Marshall Plan really produced the European recovery. The ‘dollar gap’ was greater in 1950 than it had been back in 1947, but no-one bothered; the sums spent under Marshall were quite trivial, in comparison with the proceeds; there are German experts who consider that the economy was recovering quite well, under the regulated and semi-socialized regime of 1946, and that it was the terrible winter of 1947 that caused the problem. Later on, international aid programmes, set up on Marshall lines, had very questionable results. Perhaps the answer lies straightforwardly in the presence of those forty US divisions: behind that shield, western Europe recovered.
By 1950 the Europeans had indeed understood that intra-European trade would have to be promoted. A key, here, lay in Paris. Late in 1948 an international authority had been set up for the Ruhr, an attempt to square the various circles — coal, coke, steel being allocated between exports (partly to France) and the Germans’ own needs. But its budget was limited — under $300 million. The French were not going to be able to control German raw materials in that way, and they would have to alter their strategy. In 1949 the American desire to relaunch Germany was clear enough, and the main point of the French Plan was therefore hopeless. The fact was that Marshall and other money alone let the French import the machinery with which their own Plan could work, and the French needed direct access to the raw materials in Germany (or Belgium).
