Yuri Ivanovich Sum,
INT: ... vincing that this legislation must go through.
TG: The Truman Administration had made the decision to make the main argument in favour of the Marshall Plan: the fact that in economic and social terms, it was absolutely essential, and that even if there were no Communists in Europe, it would have been a necessity in order to prevent political and economic collapse in Western Europe. And this... and that was pretty much what... the way in which the programme was presented all during the fall of 1947. But it wasn't too clear that that would be sufficient in itself to convince enough of the Republicans in Congress to support the programme. The Democrats, of course, were supporting it, but they were in a minority. And then, in February of 1948, the Czechs suddenly... the Soviets suddenly engineered a Communist coup in Czechoslovakia, and that was a great shock in the United States because it indicated that the Soviets were prepared to use force to attain power in countries. And since the one thing that the isolationist Republicans in Congress feared most of all was Communism, this provided the addition of an anti-Communist argument which helped to pass the legislation, particularly in the House of Representatives, and more importantly, to pass the appropriation, because in the United States the legislator process is a twofold one: first the programme had to be authorised, and then funds had to be appropriated to carry out the programme.
INT: Well, now that the programme is passed, it's up and running, could you just give us an example of how a European country... well, let's take Italy... could get hold of a vital piece of machinery through the Marshall Plan?
TG: OK. The legislation provided for the establishment of a new agency in the United States: the ECA, the Economic Co-operation Administration, to administer the official name of the Marshall Plan, which was European Recovery Program - ERP - to administer the ERP; and also for the creation of a central office in Paris, and of separate missions in each of the recipient countries that would be staffed by the United States, that is part of... become part of the American embassies. And that... Now... Oh, yes, the... the legislation also included that those portions of Marshall's original proposal about co-operative action by the Europeans and so on, that the United States would respond to that. So the first step in any country getting any aid under the Marshall Plan, was taken in Paris by a new organisation that was created, called the Organisation for European Economic Co-operation - OEEC. Each participating country had a delegation established in Paris to represent it in the OEEC. There were 16 participating countries, counting Iceland, which is... I don't know whether (Laughs) you want to call Iceland in Europe, but Icelanders decided they were Europeans and wanted to participate. At any rate... and this organisation had a staff of its own. This had all been decided by the Europeans at their original conference in Paris in the summer of '47; and by April of '48 the OEEC had been set up and staffed and was operating. The United States was not an official member of the OEEC. We had observer status - that is, an American could be present at every... any meeting of the OEEC, on meetings of its sub-committees and so on and so forth, but without any vote; they had the right to talk but not to vote. And (Coughs) during the fall of... once the OEEC was established, each member country had to present a four-year recovery programme to the OEEC, and... with the first year in great(er) detail than the other three years, in broad outline; and those programmes were reviewed collectively by the organisation. In other words, each country's programme was reviewed by all the other 15 countries meeting together, and they were asked to make revisions. The effort was to eliminate duplication, not to let everybody build new steel mills, but to... since resources were scarce, at least initially, that steel should be... steel production should be recovered in those countries which already had some to build on, and so on. The same with automobile production, and so on. Then... the total amount of aid needed to support the first-year programme was determined by the OEEC, and that request, plus the screened, reviewed programmes of the 16 countries, was presented to the United States, to the ECA in Washington. The ECA then had to respond to that, and it did respond, and eventually an agreement was woout as to how much the first year was going to be.
INT: Could we take...
INT: Sorry. Could we take a specific example...
TG: Right. Now...
INT: ... of...
TG: ... I'm co...
INT: Coming to - right.
TG: (Overlap) ... take Italy. It was agreed, let us say, that Italy would get $6- or 7,000 million for the first year of the programme; and it was agreed in broad areas, so much for the import of food, so much for the import of fuel, so much for the import of machine tools and machinery, so much for transportation equipment, and so on. And then it was up to the Italian Government to decide how this was going to be done within Italy. And you take... the leading automobile manufacturer has always been Fiat, and naturally the Fiat would play a very important part in the recovery of the Italian automobile industry. The Fiat as a company would then inform the Italian Government of what its needs were in terms of, let's say new machine tools to replace those that had worn out during the war or had been destroyed during the war, and so on, and the Italian Government would agree with the Fiat Company that a certain number of, let's say metal stamping presses were needed, of such and such a size. The... Italy, or each recipient country, also established in Washington a purchasing mission, and the purchasing mission in Washington of the Italian Government would be informed that Fiat needed these particular kinds of presses, and so on. And the purchasing mission in Washington would then go to the ECA with the specifications of what was needed, and the ECA would check as to whether this fitted into the programme approved by the OEEC and so on. If it did, then it would issue to the Italian purchasing mission what was called a "commitment letter", and that is that the United States committed to pay for these machines. Then it was up to the Fiat Company to negotiate with an American manufacturer for the particular machines to get a place in that manufacturer's production schedule, to produce the particular machine. And when that... the ECA was informed that these arrangements had been made, it issued a procurement authorisation, which was a piece of paper saying that the United States undertook to pay x dollars for this particular machine. The Fiat Company would take that piece of paper to a bank, and the bank would then issue payments in dollars - that is, to an American bank in the United States, or a branch of an Italian bank in the United States - would then pay the American manufacturer, and usually in progress payments as the machinery was produced. And the bank would then take the procurement authorisation to the US Treasury and would be reimbursed by the US Treasury in dollars. In other words, no dollars actually left the United States for goods being purchased in the United States. When the metal presses were ready, they were shipped to Italy, and at that point the Italian Government was the owner, you see, of the machinery... the Italian Government then sold the machinery to the Fiat Company for lire, you see. So what had happened was really that lire which could not be used in the United States to buy goods, were... the goods were bought in the United States with dollars, but then were sold in Italy to the Fiat Company in lire. Those lire which the Italian Government got for the sale of machinery, of wheat, of any other product imported with Marshall Plan money, were known as "counterpart funds"; they were the local currency counterpart of the dollars that had been spent to buy the... whatever it was that was authorised to be bought. And this held not only for machinery and fuel and building materials and transportation equipment, railroad equipment, and so on and so forth, but even for bread, you see. If the Italian Government imported flour for Italy, which it did, or wheat, it sold the wheat to the bakers; the bakers milled it to flour, baked bread, sold it to the people, and then reimbursed the Italian Government, paid lire to the Italian Government for that money. So the counterpart funds were equal, pretty much, to the amount of dollars that were spent.
INT: What were they going to be used for, what were the counterpart funds used for by the...?
TG: (Overlap) Now the counterpart funds were...
INT: I'll just ask you again because my voice overlapped with yours. How would the Italian Government use that money?
TG: The Italian Government... Well, in the legislation passed by the Congress, it was provided that 5% of the counterpart funds that were generated would be for the use of the US Embassy in that particular... in each country, to pay for embassy expenses and other expenses that... of the Marshall Plan that is over and above the regular expenses of the embassy itself. And that's 5%. And I just want to say, on that, that eventually those... that 5% of the counterpart funds which were used by the United States became the money that financed the Fulbright scholarships. And I think they're still (Laughs)... that money is still being used today for Fulbright scholarships, but I don't know. The 95% could be programmed by the Italian Government for any use which it wanted, but that use had to be approved by the United States. Now, as I... the... all of the European countries were, except for... The participating countries, except for Switzerland and Sweden, were running large deficits in their budgets, and they had been printing money in order to cover those deficits, and inflation had been rampant. One of the things that had to be done was to suppress inflation in Europe, (Coughs) if it was going to recover. And so the United States took the view that the bulk of the counterpart funds should be used toward the deficits, so that less new money would printed each year by the governments, and this would help to reduce the inflation, which it did. But part of them could be used for other purposes by the Italian Government. So the bulk of the counterpart funds were usually used for deficit reduction, but some were used directly. But really, since money is fungible, it didn't make any difference. The reason for insisting that part of the counterpart be used for deficit reduction, was to prevent the Italian Government from using the money and spending the money, the counterpart funds, and then printing additional new money, which would only have fuelled the inflation further. So, by insisting that part of... the large part of the counterpart had to be used for deficit reduction - it prevented the Italian Government from increasing the total of its expenditures... and thereby prevented the printing of additional lire and turning the inflation around. (Overlap) Have I made that clear?