Sixteen European nations formed the European Payments Union, an organization designed to coordinate Marshall Plan expenditures and aid the rebuilding of European infrastructure damaged or destroyed in World War II. Formally created on July 1, 1950, the union was intended to be temporary, and it dissolved in 1958. It was succeeded by the European Monetary Agreement.
With victory over Nazi Germany assured but still distant in early 1945, the United States and the United Kingdom began to envision the postwar era. Critical to their designs of winning the peace were programs such as the Bretton Woods system, which locked the value of the U.S. dollar to an ounce of gold, and the International Monetary Fund, which aimed to assist countries with balance-of-payment difficulties. Both plans sought to encourage and facilitate trade liberalization on an international scale. This was deemed all the more necessary after 1947, when relations soured with former wartime ally the Soviet Union. The United States then looked to shore up “democratic,” “free-market economies” in Western Europe to win a budding Cold War. An instrumental part of this new U.S. strategic endeavor was the European Recovery Program (ERP), known more commonly as the Marshall Plan.
Formed[03220]
War;July 1, 1950: European Payments Union Is Formed[03220]
The ERP had been inaugurated in 1948 but proposed as early as 1947 by U.S. secretary of state George C. Marshall, working for the administration of President Harry S. Truman. The ERP established two entities of great importance: the European Cooperation Administration
Before turning to consider the demands and interests of each of the more significant countries participating in this economic entity, itself a masterstroke of diplomatic bargaining, it is necessary to examine how the EPU functioned. The basic principle behind the EPU was the facilitation of European trade. A member-state created a line of credit with the group (multilaterally) rather than with another individual country (bilaterally). A credit limit or “quota” was established, based on a nation’s annual economic output. That nation was then allowed to use that credit to “purchase” a given commodity or service from another state. Though a country might be a “debtor” to a particular trading partner, that debt would be cancelled by a “credit” held with still another party or parties. Credits and debts were thus mutually offsetting among member-states. Incentives were built into the system such that debtors were not overly penalized, and creditors not unduly rewarded.
Nonetheless, once a country exhausted its credit, a sliding scale of interest rates encouraged the correction of the imbalance. Trade liberalization smoothed the process of general exchange, but it also was an equally important goal of the EPU. Trade liberalization encouraged and, in some cases, required the reduction of import and export restrictions, doing for Europe what the International Monetary Fund sought globally. The purpose here was to promote competition, which would in turn boost productivity and efficiency and eliminate overlap, thereby ensuring European integration through economic interdependency and planning.
Each participating country brought its own agendas to the bargaining table over the formation of the EPU. Some nations were more important than others in sheer economic terms. Their participation or exclusion thus threatened to change the dynamic of the entire group. Perhaps most important was Great Britain, which, just before the collapse of Nazi Germany, had witnessed the ouster of its Conservative leader Winston Churchill. Into the breach had stepped Prime Minister Clement Attlee. His new Labour Party
In addition to protecting national sovereignty, British foreign secretary Ernest Bevin, in 1950, also sought to protect five years of Labour restructuring and nationalizations. In this case, the perceived threat was the challenge an EPU might represent for a Great Britain exposed to the financial volatility of other European powers. Equally important was the protection of the British Commonwealth
France wanted Great Britain to join the EPU, but not because of any innate trans-Channel fondness. In the eyes of the Fourth Republic, the English necessarily counterbalanced the might of the Federal Republic of Germany (West Germany). Germany—though reduced to rubble and divided into two halves (West and East) independently overseen by the “superpowers” of the United States and the Soviet Union, respectively—was still more than capable of dominating the continent economically. West German chancellor Konrad Adenauer, a Christian Democrat, felt that only through cooperation and integration with the rest of Western Europe could his country atone internationally for Nazi atrocities. This especially motivated his desires to smooth Franco-German relations throughout his tenure of office, which lasted until 1963. The United States sought nothing less. Postwar programs such as the Marshall Plan and the EPU aimed to root the Federal Republic to a continent looking west across the Atlantic, and not east to the orbit of Moscow.
Diplomatic wrangling—begun in late 1949 and not truly finished until the de facto establishment of the EPU in July, 1950—somehow managed to please or at least appease all parties. It even protected Great Britain’s Commonwealth interests, reaffirming the status of sterling as an international currency and even, perhaps, foreshadowing Britain’s abstinence from participation in using the euro.
The EPU was a true diplomatic success. Just one year before its formation, a number of setbacks had seemed to indicate that power might be shifting eastward. In 1949, the Soviet Union, for instance, broke the nuclear monopoly of the United States. Also, communists led by Mao Zedong seized power in China. Southeast Asia was astir with “Red” partisans, leading, ultimately, to the Korean War (1950-1953). The United States itself was aflame with McCarthyism, intent on rooting out communist sympathizers on its own soil.
As was the case with the establishment of NATO in 1949, the EPU was formed to recapture the forward momentum Western Europe had possessed but then feared it had lost. Neither the EPU nor the Marshall Plan were solely responsible for what would be known as the European “economic miracle,” running, roughly, from the war’s 1945 conclusion to the oil crisis of 1973. Nevertheless, both programs contributed at the outset to the staggeringly successful economic booms the Western powers would register across the period. Ultimately, the European Coal and Steel Community, also established in 1950 under the Schuman Plan, would best represent the Europe of the future. Until its abandonment with the Rome Treaties of 1958, however, the EPU was instrumental in promoting liberalization and integration, laying a basis for a cooperation that would endure. This was perhaps necessary in the transition from war-torn continent to economic and political union.
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Dinan, Desmond. Europe Recast: A History of European Union. Boulder, Colo.: Lynne Rienner, 2004. A rigorous yet rewarding examination of the long road to the Maastricht Treaty of the early 1990’s and beyond. -
Eichengreen, Barry. Globalizing Capital: A History of the International Monetary System. Princeton, N.J.: Princeton University Press, 1996. A detailed appraisal of the links between international economics and global politics from 1870 to the close of the twentieth century. -
Gillingham, John. European Integration, 1950-2003: Superstate or New Market Economy? New York: Cambridge University Press, 2003. Assesses the EPU within the broader context of growing European economic and political union. -
Hogan, Michael J. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952. New York: Cambridge University Press, 1987. A sophisticated analysis of the larger European Recovery Program of which the EPU was a part. -
Kaplan, Jacob J., and Günther Schleiminger. The European Payments Union: Financial Diplomacy in the 1950’s. Oxford, England: Clarendon Press, 1989. An essential monograph exploring the EPU in all of its nuances. -
Maier, Charles S. “The Two Postwar Eras and the Conditions for Stability in Twentieth-Century Western Europe.” American Historical Review 86 (April, 1981). An interpretive essay that argues that the Marshall Plan did not “save” Europe but merely contributed to furthering its economic recovery.
Marshall Plan Provides Aid to Europe
Soviet Bloc States Establish Council for Mutual Economic Assistance
European Coal and Steel Community Is Established
Value-Added Taxes Begin in Europe
Western European Union Is Established
Organization for Economic Cooperation and Development Forms
Agency for International Development Is Established
Johnson Restricts Direct Foreign Investment
Birth of the European Monetary Union Project