Extract from report by Committee of European Economic Co-operation, 19th September, 1947 (PREM 8/495)
13. This improvement was not maintained in the winter of 1946-7. The European economy, still at the convalescent stage, suffered a most serious setback as a result of the continued shortage of coal, the increased cost of primary products and the prolonged world shortage of food and other essential commodities.
This crisis was intensified by the exceptionally severe winter and the drought which followed. Further advance from the levels of autumn 1946, would in any case, have been difficult in view of the continued inability of the German economy to supply the coal and other products upon which so much of Europe’s economic life depends. But the failure of production to recover in the other devastated parts of the world and the consequent development of further shortages, and further price increases created additional problems for Europe which threatened the whole basis of the recovery which had been made so far. The credits were becoming exhausted, and the upsurge of recovery had used up the stocks which countries had managed to retain or acquire after the liberation.
14. Early in 1947, indeed, it became clear that the effect of the war had been to destroy the balance between the productive power and resources of the Western Hemisphere and those of the rest of the world. The effect of this disequilibrium was shown most clearly in the surplus in the United States balance of payments which was running at the rate of $10,000 million a year. In order to maintain the progress which had so far been achieved, the European countries were bound to maintain the volume of their imports from the American continent at increasing cost. This process inevitably led to the rapid depletion of gold and dollar reserves. The effects of this process reach far beyond Europe and threaten the foundations of the World economy. But Europe was affected most acutely and urgently because of the dissipation of her financial and physical resources during the war.
15. By the early summer of 1947, the earlier hopes of a rapid and sustained recovery from the effects of the war had receded. Industry in most European countries in fact recovered well from the winter crisis, and the levels of the previous autumn had been generally restored by the middle of the year. But this improvement was being maintained only at the cost of depletion of financial reserves. When these were exhausted, the peoples of Europe would be threatened with an indefinite prolongation of insecurity and lower standards of living, unless drastic steps were taken to arrest the process. European production could never play its proper part in redressing the growing unbalance of the world economy.
16. On 5th June, 1947. Mr. Marshall, the United States Secretary of State, delivered a speech at Harvard University. He said:
“Europe’ requirements for the next three or four years of foreign food and other essential products principally from America- are so much greater than her present ability to pay that she must have substantial additional help or face economic, social and political deterioration of a very grave character,… Before, however the United States can proceed much further in its efforts to alleviate the situation and help start the European world on its way to recovery, there must be some agreement among the countries of Europe as to the requirements of the situation and the part these countries themselves will take in order to give proper effect to whatever action might be undertaken by this Government. It would be neither fitting nor efficacious for this Government to undertake to draw up unilaterally a programme designed to place Europe on its feet economically… The initiative …must come from Europe. The role of this country should consist of friendly aid in the drafting of a European programme and of later support of such a programme, so far as it may be practical for us to do so. The programme should be a joint one agreed to by a number, if not all, European Nations”
On 12th June, Mr. Marshall explained that he had it in mind the entire continent West of Asia- and including both the United Kingdom and the Soviet Union.
17. On 16th June, Mr. Bevin, the British Foreign Secretary, visited Mr. Bidault, the French Foreign Minister, in Paris. They agreed to seek to associate the Soviet Government with their initiative in framing a reply to Mr. Marshall, and discussion between Mr. Bevin, Mr. Bidault and Mr. Molotov started in Paris on 27th June. Much to the regret of the Governments of France and the United Kingdom, agreement could not be reached.