The Marshall Plan was a U.S. aid program for 16 Western European countries between 1948 and 1952. The official name was the “European Recovery Program” (ERP). The Marshall Plan is named after its initiator, U.S. Secretary of State George C. Marshall, who received the Nobel Peace Prize in 1953 for his initiative.
In the years after 1945, Europe was badly affected by the Second World War. The war damage was enormous, the economy was devastated. The bare essentials were lacking, especially food and raw materials. The American reconstruction program was intended to help the Western European economy to get back on its feet through self-initiative.
Austria received the Marshall Plan aid mainly in the form of goods that were sold in Austria. The proceeds from these sales were invested in special accounts. These funds were used to grant loans to Austrian commercial enterprises in order to promote growth, productivity and employment.
The program was a complete success and made a significant contribution to the great economic boom in Europe after the Second World War. It may also have saved Austria from a division of the country in the early Cold War. It also laid the first foundations for the European unification process. The funds accumulated as part of the Marshall Plan were transferred from the USA to Austria in 1961 (“ERP Fund”). To this day, the ERP fund makes a significant contribution to Austrian economic development.
The urgently needed revitalization of the (peace) economy, primarily industrial production, failed mainly due to a lack of raw materials. In the Soviet zone of occupation (eastern Austria), the existing industrial plants were systematically dismantled by the Soviets, who claimed the former “German property” as compensation for the war damage incurred.
After the end of the Second World War, Austria was considered “unviable”.
The political situation
Added to this was the country’s political and social division along the border between the Soviet occupation zone and the rest of the country. While the USA feared the danger of a communist takeover of power for Austria – as with its eastern neighbors – Moscow saw an imperialist conspiracy in the increasing economic aid from the West, above all from the USA.
In the European context, Austria – like Germany – occupied a special position:
- The victorious states of the Second World War were present in the country as occupying powers.
- Large parts of the country bordered directly on the communist sphere of influence.
- Austria was one of the areas of conflict in the worsening East-West conflict (Cold War).
- Economic chaos had to be prevented in order to stop communism.
- In order to avoid permanent dependence on foreign aid, the country’s ability to survive had to be restored.
- The large number of refugees and displaced persons led to serious supply problems.
- The strong historical economic link with the East was severed.
In addition, Austria was the only country partially under Soviet occupation that benefited from Marshall Plan aid.
In this situation and after the end of the UN aid program in 1947, the United States of America decided to help Europe with an unprecedented reconstruction program. The method: help for self-help. Their goals were by no means selfless: the U.S. economy, which was still at wartime levels, urgently needed new sales markets. And the political goals were also clear: the aim was to prevent the further advance of communism into Western Europe at all costs.
The U.S. Perspective
As one of the victorious powers, the USA had made a significant contribution to liberating Europe and Austria from Nazi rule. This was also associated with responsibility for the devastated economies of Europe. In order to avoid famine and to enable reconstruction, international aid programs were set up. The largest of these was the Marshall Plan. They also wanted to ensure that the development did not end again in economic depression with the well-known social and political consequences, as it did after the First World War.
The US had become the world’s leading economic power during the war, and its domestic losses were very small compared to other belligerent countries. Due to the war, the economy was running at full speed and needed new sales markets after the end of the Second World War. The rebuilding of Europe was a major contributor to American prosperity.
The political situation also changed rapidly after the war. Allies in the world war became enemies in the cold war in just a few years. The most important strategic goal of the Marshall Plan was therefore the containment of Soviet efforts to expand their sphere of influence to Western Europe (containment policy). The communist coup in Austria’s neighbor Czechoslovakia helped persuade the American Congress of the need for support for European reconstruction. The architect and namesake of the Marshall Plan, George C. Marshall, as a former five-star general in the US Army, was of course also a strategic thinker.
With the beginning of the Korean War (1950), the focus of Marshall Plan aid at the European level also changed: from trade liberalization to Western European rearmament.
The perspective of the Soviet Union (USSR)
The Potsdam Agreement of 1945 had awarded German property abroad (including in Austria) to the victorious powers as war reparations. 62% of German wealth in Europe was found in Austria. On the one hand, this was due to German armaments investments in Austria after the Anschluss in 1938 and, on the other hand, to extensive property transfers (Aryanization) of Jewish assets.
The Austrian government tried to counter the victorious powers’ claim to German ownership by nationalizing these companies. While the Western Allies accepted this approach – with reservations – the Soviet Union, which had been badly hit by the war, insisted on its rights. Anything that could be transported was dismantled. The remaining companies were combined into a network of more than 300 companies under Russian controls (USIA companies).
Initially, the reconstruction aid provided by the Marshall Plan was also offered to the Soviet Union and its Eastern European satellite states. Moscow rejected the offer as an “imperialist plot” by the United States.
The Marshall Plan made an important contribution to the division of Europe in the early stages of the Cold War and to the consolidation of the bloc formation in East and West.
Beginning of the European unification process
From the start, the USA understood the aid provided by the Marshall Plan as “helping people to help themselves”. The Western European countries that benefited from the aid should be able to get back on their feet economically as quickly as possible. In order to achieve this goal, the USA urged the recipient countries to take comprehensive measures: currency reforms, removal of trade barriers, development of joint concepts for reconstruction.
To coordinate these tasks, the OEEC, the Organization for European Economic Cooperation, was founded on April 16, 1948, from which the OECD emerged in 1961. The military arm of the Atlantic community was represented by NATO, which Austria, as a neutral country, never joined.
The Marshall Plan thus laid the foundation for European and transatlantic cooperation with the United States of America.
The way it works
United States reconstruction aid consisted largely of goods sold in Austria at domestic prices. The proceeds from these sales (the so-called “counterpart funds” or “counterpart funds”) were invested in special accounts and subsequently formed the basis for necessary investments from which loans to the Austrian economy for the purpose of productivity and export promotion as well as job security. Until 1961, the Austrian federal government had to coordinate its funding projects with the USA. In the end, the ECA/MSA, the US organization responsible for processing, had the last word.
The Marshall Plan in numbers
In the period from 1948 to 1953, Austria received USD 962 million from the United States of America as part of the European Recovery Program (“Marshall Plan”), which corresponds to around USD 9.5 billion today. Austria’s share of the total Marshall Plan volume of around USD 13 billion (currently USD 129 billion) was 7.4%. Statistically, every American paid 80 dollars under the Marshall Plan, and every Austrian received 132 dollars. In terms of population, Austria had the third-highest share of Marshall Plan funds in Europe.
During its active term, the orientation of the Marshall Plan aid has changed significantly. In the first two years, 1948 and 1949, the Marshall Plan represented an emergency program that was primarily intended to ensure the survival of the population in Europe: 44.3% of the deliveries were food, 23.4% raw materials. In the first year, 14% of Austria’s national income came from Marshall Plan funds. In the years 1949 to 1952, the US aid money was primarily used to rebuild industry and expand the energy supply. In the last two years, the focus has shifted to consumer and export goods production and tourism.
The years 1951 to 1953 showed how significant the influence of the USA was on Austrian (economic) policy. The strategic use of ERP funds by the USA changed significantly as a result of the Korean War (1950-1953). US foreign aid was now primarily focused on military aid. For Austria, this meant one thing above all: less money from the ERP – the aid for Austria was reduced to half the means of the previous year. A “stabilization program” (the so-called “Raab-Kamitz course”) was imposed on the Austrian government under Leopold Figl. The main points of criticism from the USA: Austria is doing too little to combat inflation and to balance the balance of payments.
The stabilization course was painful but successful. The increasing unemployment proved to be temporary, but the stabilization of the economy was permanent. As early as 1954, the Marshall Plan had achieved its main goal: the Austrian economy was no longer dependent on external aid.
Transfer to Austria
In 1961, the United States handed over ATS 11.2 billion of ERP funds to Austria. Within the limits set out in the mutual agreement, Austria was now able to decide autonomously on the direction of its funding. This scope was again noticeably restricted in 1994/95 by joining the European Economic Area and the European Union, since it was now also necessary to take European competition law (ban on subsidies) into account.
The original capital was preserved. The ERP funds are therefore still an essential pillar of Austrian economic development. Around EUR 500 million in the form of loans are granted to Austrian companies every year.
The Marshall Plan aimed to support the countries receiving funding in putting their economies on a long-term growth path. At first, however, it was mainly food that was supposed to ensure the survival of the population. After that, the focus of ERP aid in Austria was on the reconstruction of industry and the electricity sector. 23% of the allocated counterpart funds flowed into the electricity industry, 13% were used for the metal industry. In 1950, the focus of the aid finally shifted to the consumer goods industry, agriculture and tourism.
Iron and Steel Industry
As a result of the war, the National Socialists in Austria had already started to focus on primary industry. Although the continuation of this course was controversial after the war, it was finally implemented with support from the Marshall Plan. The United Austrian Iron and Steel Works (VÖEST) can be seen as an outstanding example. Founded in 1938 as Reichswerke Aktiengesellschaft for ore mining and ironworks “Hermann Göring” Linz and badly damaged in the war, the company was nationalized as “German property” after the end of the war. With the help of ERP funds, it was finally rebuilt and expanded and developed into one of the cornerstones of Austrian nationalized industry.
The expansion of the energy industry had already been pushed ahead during the Second World War. Since electricity production was an essential prerequisite for economic reconstruction, large sums had to be invested in this area. This happened with the active help of the ERP. Between 1948 and 1952, 70% of the necessary investments in power plants and transmission lines were financed with counterpart loans. The largest single project was the Kaprun power plant in the Hohe Tauern. The project, begun under adverse circumstances by the Nazis and with the use of forced laborers, was finally completed largely with Marshall Plan funds and opened in 1955.
After the Second World War, Austria urgently needed foreign currency from tourism. However, the conditions for this were extremely unfavourable. Hotels had either been damaged in the course of the war or had been requisitioned by the occupying powers. Only in the second half of the Marshall Plan did the tourism industry become the focus of attention. Between 1950 and 1955, 524.5 million schillings were awarded for tourism projects. The funds were invested in the reconstruction of the hotel industry and the construction of numerous lifts and cable cars. Almost two-thirds of these counterpart funds benefited the three federal states of Salzburg, Tyrol and Vorarlberg. The investments brought mass tourism back to Austria – and with it the long-awaited foreign exchange.