How Much Does Europe Need?

October 6, 1947

The sixteen European nations reporting on the Marshall Plan calculate their needs for outside help over the next four years at more than $25,000,000,000. Of this some $19,000,000,000 is presumably expected to come direct from the United States Government, some $3,000,000,000 from the International Bank, for financing equipment, and some $3,000,000,000 for currency stabilization loans (presumably—though this is not made clear in the report—from the International Fund). The chief contributor both to the Bank and the Fund is, of course, also the United States Government.

Here is a staggering bill. And when we put it on top of some $15,000,000,000 that the United States will have spent by the end of the present year in rebuilding Europe since V-J Day, it brings the total to around $40,000,000,000.

How much validity do the “deficit” figures presented by Europe really have? The original total that the sixteen nations arrived at, we must remember, amounted to more than $29,000,000,000—apparently not including the $3,000,000,000 estimate for currency stabilization. Not until after our State Department privately protested that this sum was too large was it reduced to $22,440,000,000 (with $3,130,000,000 of it assigned to the International Bank). The estimate now published presumably meets our State Department’s demands, in that it is lower than the original estimate, and tapers down each year. But suppose our government does all that is now demanded of it, and the scheme still breaks down? Will we not be told that it was our fault—that our aid was “too little and too late”—that these were not Europe’s real estimates of its needs, but merely slashed figures put forward to conciliate the State Department and an “economy-minded” Congress?

Even apart from this, what reason is there to take seriously these estimates of annual deficits? The report itself declares: “Unfortunately, the size of the problem has proved greater than was expected. The disruption caused by the war was more far-reaching and the obstacles to recovery more formidable than was realized even six months ago.” But if the sixteen nations admit that they then failed to guess right even six months ahead, what reason is there to suppose that they are now guessing right four years ahead? And if (as we must suspect) the deterioration in the last six months has not been the result of a war that ended more than two years ago but of new factors, and primarily of the unsound economic policies followed by European governments themselves in these last six months, then the prospective European “deficit” could be either much greater or much less than the figures presented, depending upon the future policies followed.

It is impossible, in fact, for any nation to predict its future trade deficit by adding together its future “requirements” of specific goods. For such “requirements” are arbitrary except in relation to some standard, and the standard adopted must itself be arbitrary. There is, moreover, no such thing as a predestined trade deficit independent of loans from outside, of internal inflation, of price fixing, of tariff policies, of trade controls, of domestic production, and of foreign-exchange rates.

One of the most serious factors in bringing about Europe’s recent chronic trade deficit has been overvalued currencies and pegged exchange rates which encourage imports and discourage exports. The unpegging of exchange rates might reverse the trade balance of many European countries almost overnight. Yet there is no indication that a free market will be restored in foreign exchange or, for that matter, in anything else. On the contrary, the report assumes that government economic controls will be tighter than ever. Ambitious production and export “targets” are fixed by the sixteen governments. Is there any reason to suppose that these are more likely to be attained than previous targets which are now consigned to oblivion? The report indicates that Europe will continue in the main to rely on the very controls that have prevented postwar recovery so far.