In 1947 the Americans launched economic recovery in Europe through the Marshall Plan. Today, there are calls for Europeans to draw up a Marshall Plan of their own. European Commission President Jose Manuel Barroso and Polish Prime Minister Donald Tusk — the incoming president of the European Council of Ministers — warn that governments in Athens and elsewhere will be unable to sell further austerity measures to voters without some prospect of growth and renewal. Last week’s vote bought everyone time, but little more. Is a new Marshall Plan feasible? Or just wishful thinking? Casting our eyes back briefly to Europe’s plight in the 1940s helps put the issue in perspective and reveals the real obstacles ahead.
Then-US president Harry Truman and his secretary of state, George Marshall, took for granted that the crisis was above all a challenge for government. Marshall had been former US president Franklin Roosevelt’s chief military planner in the war and was hailed by then-British prime minister Winston Churchill as the “organizer of victory.” He was predisposed to take bold action to win the fight to restore Europe to economic health. Pushed into action by civil war in Greece in 1947, he launched the US into an unprecedented peacetime commitment to save the continent.
Against Europe’s problems then, ours pale into insignificance. In occupied Germany, the continent’s economic dynamo, food intake hovered above starvation levels, and national income and industrial output were barely a third of what they had been a decade earlier. Roughly US$13 billion was paid out in the European Recovery Program (the Marshall Plan’s official name) and this proved indispensable in laying the foundations for the “miracle” of sustained economic growth in the decade that followed. This US$13 billion amounted to about 5 percent of the US’ national income in 1948. (The equivalent sum for the EU today would be in excess of US$800 billion.) The US wrote off prewar French debts; everyone wrote down Berlin’s a few years later, even though they had just struggled through a war started by the Germans.
Marshall understood that the real value of the kind of decisive action he initiated was not quantitative but psychological. Only the confidence provided by powerful governmental leadership looking beyond the moment would reassure the markets. He was right. When the economic miracle transformed Europe, it was thanks to a happy combination of government commitment to growth and private investment.
NO MYSTERY
Now compare the challenge that Europe’s leaders face today. GDP has barely dropped in the EU since 2008. The fundamental debt problem emanates from three small countries — Greece, Portugal and Ireland — whose total contribution to EU GDP is less than 5 percent. The German economy is booming. If the stakes — the very future of the EU — are high, the sums required are not.
Moreover, the approach needed to tackle the crisis is no mystery. To give the Greeks any plausible chance of reducing their debt burden, effective interest rates have to come down, and as the markets will not do this by themselves, the only means is the kind of debt swap pioneered by the Brady Plan in South America in the 1980s. Such a scheme is under discussion in Athens and Brussels. At the same time the European commission should accelerate assigned development funds to Greece. In return, the Greek authorities will have to commit to further institutional and fiscal reforms, and a tighter degree of foreign monitoring. A combination of such measures will give Greece’s public a glimmer of light at the end of the tunnel. Without them, the austerity program will collapse before the winter.
In ascending order, three main problems present themselves. Least important is the public opposition in the wealthy north to more bailouts. This can be overcome. Indeed, each time that the EU recently has faced real crisis — after the collapse of Lehman Brothers in 2008 and again last year — the north’s leaders have backed substantial rescue packages and made the right arguments to their voters. The trouble is that they have made them late and unconvincingly. Poland’s prime minister was right last week to criticize his fellow EU heads of government for failing to convey the benefits of co-operation.
A more serious constraint on an effective recovery package is the power of today’s financial sector. One wonders how Marshall would have fared if he had worried about what the verdict of Standard & Poor’s would be on his plans for Europe. Fortunately for him he did not have to. After 1945, exchange controls and lack of liquidity meant policy-makers had no need to worry. Events of the past few months have shown, however, how much power such institutions now wield and how little was done in the aftermath of the 2008 banking crisis to rein them in. Mid-level officers at a ratings agency can exercise a chilling effect on European policy by announcing to the press what exactly they would count as a default. The vast power without responsibility that has accrued to the private sector complicates policy-making.
ALLOCATION OF POWER
However, it is not insuperable. After all, Europe’s leaders could, in theory, take what measures they like to regulate the role of private banks, hedge funds and other financial institutions. The fact that they have been so hesitant to do this reflects a deeper ambivalence about their own power. The biggest obstacle to effective governance lies here — in the minds of the politicians themselves.
In the late 1940s every government on the continent ran postwar reconstruction as it had run its war effort, as a national mobilization with the state as the prime planner, arbiter and coordinator. Ministries of planning were not confined to the Eastern bloc and their achievements across the continent were impressive. However, during the 1970s and 1980s optimism about what states can do evaporated. The members of today’s political class in Europe are former British prime minister Margaret Thatcher’s heirs, not Marshall’s. They find it hard to understand that the markets need to be saved from themselves if Europe is to survive in anything resembling its present form. They forget that Germany itself was allowed to cancel its prewar debts in 1953, one of the preconditions for its subsequent boom, and that when others, such as Poland in 1991, were allowed to write down their debts in their turn, they too prospered.
Right now what is needed is long-term political vision and a new willingness to argue for the benefits of continent-wide redistribution. Barroso has begun to do this, only to find himself bogged down in a shouting match about the size of the EU budget by the cutters in Downing Street. However, German Chancellor Angela Merkel and French President Nicolas Sarkozy, and European Central Bank President Jean-Claude Trichet have so far shown little sign of responding. US exhortations have fallen on deaf ears. The only ray of light is the impending Polish presidency, and the new energy and sense of history it may inject into a process so far unable to move forward more than an inch at a time.
This time round the Americans will not ride to Europe’s rescue, and the Europeans will have to act for themselves. Are they capable of it? The clock is ticking: In September the next package of aid for Greece will have to be announced. It will be a decisive moment and the outcome will be critical for Greece, and for the union too.
Mark Mazower teaches history at Columbia University.
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