Routledge Dictionary of Economics, Second Edition
US AID to sixteen countries of Western Europe proposed by General George Marshall, US Secretary of State, which, in the form of economic and military grants and loans, amounted to $16.4 billion in the period 1948–52. Western Europe’s loss of overseas investments, the ending of much of its trade with Eastern Europe and the decline in its TERMS OF TRADE necessitated outside help. In 1946, large European balance of payments deficits required immediate US assistance consisting of shipments of goods and finance for reconstruction. It was given to these countries, members of the ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, as part of the European Recovery Programme and was administered by the European Co-operation Administration.
The recipient countries were expected to follow orthodox economic policies to control inflation, get their exchange rates at the right level and adjust their domestic policies to achieve an external balance. It was hoped that Marshall Aid would avoid a major world depression after the Second World War.
The gift of US dollars to Europe enabled European countries to finance imports from the USA, but the dollar gap was slow to disappear and the amount of Marshall Plan assistance far from generous: more was given after the plan than during the period of its operation. The Marshall Plan hoped to create a new international order by linking Europe, North America and the Third World. The USA would purchase raw materials from less developed countries which would then be able to buy exports from Western Europe. The economic plight of East European countries after 1989 has prompted demands for a similar major aid initiative.
See also: European Bank for Reconstruction and Development
References
Hogan, M.I. (1987) The Marshall Plan: America, Britain and the Reconstruction of Western Europe, 1947–52, Cambridge and New York: Cambridge University Press.
Wexler, I. (1983) The Marshall Plan Revisited: The European Recovery Program in Economic Perspective, Westport, CO: Greenwood.
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