A boost from the USA

On June 5, 1947, in a speech he delivered at Harvard University, United States Secretary of State George C. Marshall announced a financial aid programme for Europe. Its aim was to help the war-torn continent get back on its feet. Even today, Germany continues to benefit from the funds of the largest civil reconstruction programme in history: the Marshall Plan.

Portrait of George C. Marshall
The Noble Prize

In 1953 United States Secretary of State George C. Marshall was awarded the Nobel Peace Prize for the Marshall Plan named after him.

Several years after the end of World War II, the residents of Germany still endure constant hardship. Allied bombings have either destroyed or seriously damaged one fourth of the residential buildings. People who have been bombed out of their homes, war orphans, refugees, displaced and returning persons need shelter. The calories allocated through food ration cards are insufficient and heating material is extremely scarce. Everyone is fighting to survive. Other European nations are also suffering from the tremendous consequences of the war. The British can hardly bear the cost of occupying Germany.

In that situation, Secretary of State George C. Marshall’s plan sounds very auspicious. During a speech at Harvard University in June 1947, he announces a European Recovery Programme (ERP) which everyone later simply refers to as the Marshall Plan. In the face of dire hardship, he warns, the continent will experience severe economic, social and political disintegration unless it receives additional aid.

Aid for 16 countries

Food, commodities and materials worth nearly USD 14 billion are sent to help rebuild the destroyed continent. The first supplies are shipped out to 16 countries in 1948. Eastern Europe is not taking part because the Cold War has already begun. The United Kingdom receives 25%, France 20% and West Germany 10%. Smaller countries such as Greece and Belgium are also included in the programme.

Instead of distributing the money indiscriminately, the Marshall Plan seeks to help countries help themselves from the very start. It allows them to decide how to rebuild. Shipments mainly include food, fuels and medicine. The recipient countries pay the value of these imports into counterpart funds that are used to help pay for the reconstruction of infrastructure and businesses. The shipments to Germany are worth USD 1.4 billion, or approximately nine billion euros in current euro value. Germany is the only country that is required to repay part of the funds: one billion dollars.

Start-up capital for KfW

Another difference to the remaining countries is that Germany uses the counterpart fund to capitalise Kreditanstalt für Wiederaufbau from 1949. Founded by law on 18 November 1948, the promotional bank is to fund its initial operations on the German capital market or from the budget of the American-British Bizone. When it turns out that this does not work, it receives counterpart funds from the Marshall Plan.

In its early years, KfW is deluged with loan applications but cannot approve all of them. Its loans initially focus on energy supply and housing. Roughly half the loan volume goes to the resources industry and mainly to coal and steel producers.

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75 years of Marshall Plan

Learn more about the European Recovery Programme.

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The reconstruction phase lasts until around 1954. The Federal Republic of Germany rises to become one of the world’s leading industrial states – much faster than anyone had expected. Its economy grows by eight per cent a year, it has full employment, and a high dollar exchange rate favours German exports. Export finance is added to KfW’s functions in 1951.

Two years later, the legislature establishes that payments of principal and interest into the ERP Special Fund from the Marshall Plan are to be used to promote the German economy on a permanent basis. Within just a few years, the Federal Republic is transformed from a hungry aid recipient into an economic power that itself will soon extend aid to other countries.

Europeans are forced to trade in goods

At the time, Minister of Economics Ludwig Erhard is critical of the Marshall Plan. He is convinced that the German economic miracle was the result of the currency reform, not aid from the Americans. At a ceremonial address on the occasion of KfW’s 40th anniversary in 1988 Hermann Josef Abs, one of KfW’s very first management board members, declared the following: ‘One condition for the currency reform to succeed was that there had to be no supply shortages which the public might have been able to blame on the new currency. Direct shipments under the Marshall Plan solved that problem’.

Today experts tend to see the Marshall Plan’s indirect effects as its main strength. ‘The immediate economic impact was small’, says economic historian Dr Harald Wixforth. ‘But the programme was instrumental in integrating the economy of the Federal Republic into Western Europe.

‘The Americans forced the Europeans to engage in trade. That was the only reason the European Coal and Steel Community could be founded as early as in 1951,‘ said the historian. ‘It was very much in the Americans’ interests because it kept the Federal Republic outside the Soviet sphere of influence’. Wixforth adds that the psychological effect of the Marshall Plan should not be underestimated either. Even before the first funds were disbursed, the USA advertised the recovery programme with an unprecedented promotional campaign across Europe.

That turned the foe into a friend and the Marshall Plan into a silver lining. At KfW’s 40th anniversary, Hermann Josef Abs said that the Americans’ trust in the Germans had given them the courage to take their country’s reconstruction into their own hands.

The German economy is still benefiting from the Marshall Plan funds to this day. Seventy years after the start of the programme KfW is still supporting businesses with disbursements from the ERP Special Fund. As before, the aim is to help them to help themselves.

The bank extends low-interest loans and grants exemptions from liability to small and medium-sized enterprises, business founders and innovative companies. ‘The Marshall Plan has made a very important contribution to developing the SME sector in Germany’, Dr Leonhardt is convinced. The ERP Special Fund has also played a crucial role in the reconstruction of eastern Germany.

Published on KfW Stories: 16 June 2017, republished 15 November 2021