70 Years of the Marshall Plan in Austria

  1. Policy & History
  2. 70 Years of the Marshall Plan in Austria

The Marshall Plan was an American program of aid for 16 western European countries from 1948 to 1952. Its official name was the European Recovery Program (ERP). The Plan is named after the man behind it, US Secretary of State George C. Marshall, who in 1953 was awarded the Nobel Peace Prize for his initiative.

In the years after 1945, Europe was reeling from the aftermath of World War II. Devastation was widespread, the economy in ruins. Basic supplies, especially food and raw materials, were scarce. The American reconstruction program was conceived to help the economy in western Europe get back on its feet by its own efforts.

Marshall Plan aid for Austria was chiefly in the form of commodities that were sold there. The revenue from these sales was deposited in special accounts. The money was used to grant loans to Austrian commercial enterprises to promote growth, productivity and employment.

The program was a complete success and instrumental in the major economic upturn that Europe experienced after World War II. Additionally, it may well have saved Austria from division in the early days of the Cold War. It also paved the way for the European unification process. In 1961, the funds accumulated under the Marshall Plan were handed over to Austria by the USA (ERP Fund). To this day, the ERP Fund contributes significantly to promoting the Austrian economy.

The economy

The urgently needed revival of the economy (to peaceful ends) was thwarted primarily by the lack of raw materials. In the Soviet-occupied zone (in eastern Austria), industrial plant and equipment was systematically dismantled by the Soviets who laid claim to what had been “German property” as compensation for war damage inflicted on their homeland.

Following the end of World War II, Austria was considered “nonviable”.

The political situation

Added to all this was the political and social division of the country along the boundary between the Soviet-occupied zone and the rest of Austria. While the USA feared the threat of a communist takeover in Austria, as had already happened to its eastern neighbors, Moscow regarded the economic aid that the West, and especially the USA, was beginning to provide as an imperialist conspiracy.

In the European context, Austria — like Germany — was in a special position:

  • The countries that had won World War II were present in Austria as occupying powers.
  • Large parts of the country bordered directly on territories now under communist control.
  • Austria was one of the contested regions in the escalating East–West conflict (Cold War).
  • To stop the advance of communism it was vital that economic chaos be prevented.
  • To avoid long-term dependence on foreign aid, the country’s ability to supply its own needs had to be restored.
  • The large number of refugees and displaced persons caused severe supply problems.
  • The close economic ties with the East that were rooted in the region’s history had been broken.

In addition, Austria was the only country that was partially occupied by the Soviets and was receiving aid under the Marshall Plan.

Help from outside

In these circumstances, and following expiry of the UN aid program in 1947, the United States of America decided to help Europe back to its feet with an unprecedented rebuilding program. The method: Help towards self-help. The objectives were by no means purely philanthropic, however: the US economy was still at war-time levels and had urgent need of new sales markets. The political aims were clear, too: any further advance of communism towards western Europe had to be prevented at all costs.

The perspective of the USA

As one of the victorious powers, the USA had played a vital role in liberating Europe and Austria from the Nazi regime. This role also entailed a certain responsibility for the devastated national economies in Europe. To prevent famine and enable reconstruction, international aid programs were launched. The largest of these was the Marshall Plan. A further concern was to ensure that the development did not end as it did after World War I with an economic depression and the accompanying social and political repercussions.

During World War II, the USA had advanced to become the leading global economic power, and the damage on its territory was almost negligible compared to other countries involved in the fighting. Owing to the war, the US economy was operating at full capacity and once it was over, new markets were needed. The reconstruction of Europe contributed greatly to American prosperity.

The political landscape also changed rapidly after the war. Within only a few years, former allies became adversaries in the Cold War. The Marshall Plan’s most important strategic aim became the curbing of Soviet efforts to expand their sphere of influence into western Europe (containment policy). The communist coup in Czechoslovakia, Austria’s neighbor, helped convince the US Congress that support of European reconstruction was necessary. The architect of the Marshall Plan and the man whose name it bears, George C. Marshall, was a former five-star general in the US Army, and as such he was naturally also a strategist.

With the outbreak of the Korean War (1950), the priorities of Marshall Plan aid in the European context changed: from the liberalization of trade to the rearmament of western Europe.

The perspective of the Soviet Union (USSR)

The Potsdam Agreement of 1945 had awarded German property abroad (and therefore also in Austria) to the victorious allies as war reparations. 62% of German assets in Europe were in Austria. This was due partly to German investment in armaments in Austria following the Anschluss in 1938 and partly to the widespread transfer of Jewish property (Aryanization).

The Austrian government tried to counter the Allies’ efforts to take possession of German property by nationalizing the companies concerned. While the western Allies accepted this strategy — by and large — the Soviet Union, faced with widespread devastation on its territory, insisted on its claims. Whatever could be transported was dismantled. The remaining businesses were united in a conglomerate of over 300 companies under Russian control (USIA companies).

The reconstruction aid granted by the Marshall Plan was initially also offered to the Soviet Union and its eastern European satellite states. However, Moscow rejected the offer, calling it an “imperialist plot” of the United States.

The Marshall Plan therefore played a major role in the division of Europe in the early stages of the Cold War, and in cementing formation of the two blocs, East and West.

Start of the European unification process

From the outset, the USA regarded the aid granted by the Marshall Plan as “help towards self-help”. The countries of western Europe that benefited from this aid should regain economic stability and autonomy as quickly as possible. To achieve this, the USA urged the beneficiary countries to introduce sweeping measures: currency reforms, removal of trade obstacles, development of joint reconstruction concepts.

To coordinate these activities, the OEEC, the Organisation for Economic Co-operation and Development, was founded on April 6, 1948. This was the precursor of the OECD, founded in 1961. The military arm of the Atlantic union is NATO, which Austria, as a neutral country, has never joined.

The Marshall Plan therefore laid the foundation of European and transatlantic cooperation with the United States of America.

The Marshall Plan in figures

From 1948 to 1953, Austria received 962 million dollars from the United States of America under the European Recovery Program (“Marshall Plan”), a sum that equates to around USD 9.5 billion in today’s money. This means that Austria’s share of the total Marshall Plan aid of approximately USD 13 billion (USD 129 billion in today’s money) was 7.4%. On average, every American citizen paid 80 dollars under the Marshall Plan, and every Austrian received 132 dollars. In relation to its population, Austria’s share of Marshall Plan funds was the third largest in Europe.

During its active phase, the targets for Marshall Plan funds underwent a major shift. In its first two years, 1948 and 1949, the Marshall Plan was an emergency aid program whose primary aim was to ensure the survival of Europe’s population: 44.3% of the aid supplied was food, 23.4% raw materials. In the first year, this meant that 14% of Austria’s national revenue came from Marshall Plan funds. From 1949 to 1952, the financial aid from the USA was used chiefly to rebuild industry and develop the energy supply. In the last two years, the focus shifted to the production of consumer and export goods, and tourism.

Economic policy

The years 1951 to 1953 showed just how heavily Austrian (economic) policy was influenced by the USA. The Korean War (1950–1953) brought a significant change in the way the USA used the ERP funds. At that period, US foreign aid focused first and foremost on military aid. For Austria, this meant one thing above all else: less money from the ERP — aid to Austria was cut to half the previous year’s amount. The Austrian government headed by Leopold Figl was compelled to implement a “stabilization program” (the so-called “Raab–Kamitz course”). The USA’s main criticisms were that Austria was doing too little to combat inflation and level the balance of payments.

The course of stabilization was painful, but successful. The rise in unemployment proved to be only temporary, while the stabilization of the economy was long-lasting. By 1954, the Marshall Plan had already achieved its primary objective: The Austrian economy no longer depended on external aid.

The procedure

The reconstruction aid provided by the United States consisted mainly of commodities that were sold in Austria at domestic prices. The revenue from these sales (the so-called counterpart funds) was deposited in special accounts and subsequently formed the basis of necessary investment which was drawn on year by year to grant loans to Austrian businesses to promote productivity and exports, and to secure jobs. Until 1961, the Austrian federal government required the approval of the USA for its projected funding. Ultimately, the ECA/MSA, the US organization responsible for implementing the Marshall Plan, had the last word.

Handover to Austria

In 1961, the United States handed over the ERP funds — a sum of 11.2 billion schillings — to Austria. Within the constraints laid down in the bilateral agreement, Austria was now able to decide for itself which sectors to subsidize. This freedom was again significantly curtailed in 1994/95 when Austria joined first the European Economic Area and then the European Union, since the country now had to comply with European competition law (prohibition of state aid).
The original capital was maintained. Consequently, the ERP funds are instrumental to promoting the Austrian economy to this day. Every year, approximately EUR 500 million is paid to Austrian enterprises in the form of loans.

Key areas

The Marshall Plan had the aim of helping those countries that received aid to guide their economies towards long-term growth. Initially the aid provided was chiefly food to ensure the survival of the affected populations. Subsequently, ERP aid in Austria focused on rebuilding industry and the electricity supply. 23% of the counterpart funds granted went to the electricity industry, while 13% were allotted to the metal industry. In 1950, the targets for the aid shifted to the consumer goods industry, agriculture, and tourism.

Iron and steel industry

Because of the war, a trend towards a focus on primary industry had already begun in Austria under the National Socialists. Although continuation of this policy after the war was contested, it was eventually decided upon with the support of the Marshall Plan. The Vereinigte Österreichische Eisen- und Stahlwerke (VÖEST) may be seen as an outstanding example of this. Founded in 1938 as Reichswerke Aktiengesellschaft für Erzbergbau und Eisenhütten “Hermann Göring” Linz and badly damaged in the war, the iron and steel company, as “German property”, was nationalized after the war. With the aid of ERP funds, it was subsequently rebuilt and enlarged, becoming one of the pillars of Austrian nationalized industry.

Energy

Measures to develop the energy industry were already being taken during World War II. Because generating electricity was a prerequisite for rebuilding the economy, large sums had to be invested in this sector. This was achieved with the active support of the ERP. Between 1948 and 1952, 70% of the investment necessary in power stations and overhead power lines was financed with counterpart loans. The biggest single project was Kaprun power plant in the High Tauern mountains. Completion of the plant, which was begun under the Nazis and carried out in difficult circumstances using forced laborers, was financed chiefly by Marshall Plan funds and opened in 1955.

Tourism

After World War II, Austria was in urgent need of the foreign exchange that tourism brings in. The prospects, however, could hardly have been worse. Hotels had either been damaged in the war or requisitioned by the occupying powers. The spotlight was not turned onto tourism until the second half of the Marshall Plan. Between 1950 and 1955, 524.5 million schillings was spent on tourism projects. This money was invested in rebuilding hotels and constructing a large number of lifts and cable cars. Almost two-thirds of these funds were allocated to three provinces: Salzburg, Tyrol and Vorarlberg. This investment brought mass tourism back to Austria – and with it the coveted foreign exchange.