April 28, 2020
A 2020 version of a Marshall plan - really?
In troubled times like these everyone calls for their own Marshall plan. Ursula von der Leyen suggested one for Europe, and Thierry Breton one for the tourism industry. There is also talk of a Marshall plan for African countries. French health care workers want a Marshall plan for health, others evoke one for vocational training, rail freight, SMEs, maritime transport, culture, air or sports.
The Marshall plan is the new buzzword that raises hopes for the time after the lockdown, a deus ex machina of public action, as Jean-Marc Vittori puts it. But a closer look to the history suggests that today's situation is not at all comparable with the aftermath of WWII, and that the Marshall plan had its own strings attached.
Back then the US invested to rebuild a European economy in ruins, sending about 5% of its GDP over four years, to be spent on European investment via the OECD's predecessor. Of it 90% were grants and 10% loans. The money helped the US too. Europeans bought more American products, they agreed to balance their current accounts and liberalise trade. They also agreed to adapt US standards of statistical reporting, and accepted technical assistance at firm level with an emphasis on productivity.
Imagine a similar intervention today. We are talking about the equivalent of €1tr dispatched to fundamentally change the makeup of our economies. Vittori translates the 2020 version of the Marshall plan into one where Beijing proposed to Europe a mix of loans and grants to speed up mass telephony 5G, provided Europe purchases Huawei equipment and adopts Chinese technical standards. Such a proposal would be a non-starter.
Also, compared to the aftermath of WWII, our economies are not in ruins. Structures and markets are still in place, finance is still flowing. We are facing a restructuring of our economies, though. Supply chains have been severed and demand has concentrated on essentials during lockdown. How and when both demand and supply recover after the lockdown will determine the rate of defaults and savings we will witness. This is where public action will define its role. And it is not coming from outside Europe.