I. The background : civil war and the truman doctrine

1Greece constituted a « special case » within the Marshall Plan Programme. In the first place, Greece was in the midst of Civil War which had started in 1947 and was to end three years later. In the second place, the economy was in a very bad shape ; a massive transfer of aid resources was required in order to save the country from economic collapse. This was initially provided by UNRRA and the British, and, from 1947 onwards, by the U.S. In the third place, another Programme based on the Truman Doctrine was already in progress ; according to it, the American Mission for Aid to Greece (AMAG) was endowed with extended power over the fiscal, monetary and trade policies of the Greek state. At the same time, AMAG operated on the basis of the so-called « theatre command principle » which allowed it relative autonomy from Washington. Fourthly, the official policy of the Truman Doctrine followed the recommendations of the Porter Report which, besides the « defeat of communism », had set as the major objective of U.S. policy in Greece the « development » rather than the « reconstruction » of the economy, the aim being to secure the terms of its being « self-sustained1 ».

2The declaration of the Marshall Plan (a programme aiming at the speeding up of the reconstruction process in Europe and strengthening Inter-European trade) posed the problem of whether or not it could accommodate Greece within its framework. A number of issues were of crucial importance and required significant administrative and policy re-adjustments.

3The most obvious problem sprang from the very fact that the Marshall Plan was called upon to help a country which was deeply involved in civil war. AMAG had assumed all military and economic functions related to the Truman Doctrin, while the Embassy preserved the traditional diplomatic-political activities. Thus, in terms of organization, U.S. kept in Greece two different structures that existed side by side, while at the same time being tied, not so much horizontally between themselves as much as vertically, in direct and separate connection to Washington. This generated a great deal of conflict between the two bodies, as AMAG tended to express the reformist spirit of the Porter Report, while the Embassy was more conservatively oriented. Washington, however, refused to integrate the command of all three functions despite pressure on behalf of the Embassy to subjugate them under the Ambassador. On its part, Washington provided in early 1948 full autonomy to the military division, by establishing JUSMAG as a third organization, in order to accommodate the Greek case within the Marshall Plan framework. In this way, AMAG came to be a merely « economic » Mission that could transfer its activities to the new ECA/G Mission.

4The second problem at issue concerned the form and extent of US intervention in Greece – that is the extended powers of AMAG not only over policy planning but even over the day-to-day management of the economic and financial affairs of the Greek goverment. This intervention aspect was dominant in the Public Law 75 (Truman doctrine) and the subsequent Agreement between the US and the Greek government2. It had also constituted one of the basic recommendations of the Porter Report. The latter, drawn in a highly liberal spirit, was very critical of both the local bourgeoise and the Greek government. The Greek bourgeoise were criticized for their inclination towards profiteering and their lack of commitment to the reconstruction effort ; the Porter Report explicity identified speculation as the main concern of the Greek bourgeoisie, who did not care at all about genuinely productive investment. In addition, social inequalities and the provocative life style of a tiny but extremely wealthy minority had shocked the members of the Porter Mission. In a similar fashion, the government was described as incompetent and corrupt and it was therefore judged as totally unable to initiate (and even less to implement) the required stabilization and reconstruction programme. It was therefore suggested that the American Mission should assume full responsibility of the planninig and implementation of the Aid Programme, so as to safeguard a productive and socially just use of resources.

5Consequently, AMAG was organized in departments, each one of which was to control a particular economic sector (industry, mining, agriculture, energy) and a broad sphere of economic policy (finance, trade). In addition to instituting its own internal division of labour, AMAG forced the Greeks to revive or found two powerful economic bodies. Firstly, the Monetary Commision, which, in actual fact, was a British inheritance but which was now furnished with full control over all financial matters ; this was totally independent from government and included two foreign members with a veto right, a British and an AMAG representative. Secondly, the Foreign Trade Administration (FTA), which was a totally novel institution that was formed in order to control external trade ; its director was a Mission member and was directly appointed by the Americans. In addition, one AMAG representative was appointed to practically every ministry, with a consultant status, yet with significant power over the policy management of the ministry. Finally, an American was appointed as director to the Social Security Organization (IKA) ; the appointment aimed at the implementation of a restructuring programme, with little, however, success.

6The interventionist spirit of the Porter Report and AMAG practices brought to surface two crucial issues that would keep recurring until the early 1950s. The first was the contradiction that existed between the suggestion of a reformist programme and the lack of internal agents, both economic and political, who could initiate and implement it. The second was the vagueness of the relationship between the stabilization and the reconstruction/development of the economy.

7The evidence from the 1944-1947 period is quite telling ; both the government and the bourgeoisie had resisted internal reforms that affected the inherited patterns of production and income distribution. The Varvaressos Reform3, for instance, had attempted to increase state intervention in the economy by regulating of prices, wages and profits, and by introducing direct taxation, a balanced budget and controlled shifts of investment resources to production ; it met, however, with stiff opposition by the local enterpreneurs, so that, despite its initial success, it was finally abandoned. Instead, a « free market » approach4 was favoured in relation to both production and trade and with emphasis on free imports, fluctuation of prices and limited state intervention. Such policies, though, required the reintroduction of the « gold policy », i.e. the free sale of gold coins by the Bank of Greece as the only available stabilization policy option against a weak drachma and a huge budget deficit. Besides, as far as trade was concerned, the new policy demanded the infusion of exchange, in order to finance the balance of payment deficit. The British had opted for such policies back in 1946 but this was due to the political circumstances of the time, namely the general elections and the referendum on the return of the King ; these circumstanses made imperative an attempt at a drastic improvement of the economy. Yet, it soon became clear that AMAG, heeding to the recommendations of the Porter Report, favoured a more systematic approach to the problem of stabilization ; as a result, its reformist programme in 1947-1948 abandoned the gold policy, reduced the budget deficit through taxation and tried to limit speculation through the take-over of the import trade by the FTA.

8Such measures, however, were highly distasteful to both goverment and businessmen. On its part, the U.S Embassy reported in early 1948 that « we should be alert against abuse of our credit or support to provide unwarranted advantage or freedom from taxation to special groups, but we should also avoid any attempt to use our aid to « reform » Greece or redistribute its wealth in a major way ». And, more emphatically, it pointed out that « instead of coming to Greece to help put Greek capital and private initiative back to work, ..., AMAG seems to have come here determined to institute a paternalistic state-controlled economy run by American advisers and technicians, who regard existing Greek businessmen, industrialists and Government officials almost without exception as corrupt and diabolically clever oppressors of the poor...5 ».

9Although the AMAG reformist programme was put so seriously in doubt, the very return to the stabilization policies of 1946, did not resolve the problems of how the developmental aspect of the Truman Doctrine could effectively be pursued. If gold and trade were allowed to become again the favoured terrains of speculation, then the prospects of productive investment would be seriously undermined. As the Report of the British Economic Mission stated back in 1946, « as things are, men who have cash are not going to invest it in fixed assets and those whose money is already invested in fixed assets are going to exploit these assets to the maximum in order to turn them into cash as soon as possible6 ».

10The problem was to stay unresolved until the arrival of the ECA/G Mission in 1948. Yet the choice between, on the one hand, policies which were « unpopular » but advanced the prospects of speedy recovery and, on the other, policies which were not « unpopular » but reintroduced the danger of wasting aid resources and delaying the development effort remained open.

11To fully grasp the difficulties of the situation we should bear in mind the precise character of governnment end enterpreneurship in Greece at the time. The parliamentary elections of 1946 had produced a conservative majority. US policy, on its part, strongly favoured a conservative-liberal coalition which would be able to deter the conservatives from implementing extremist policies and to improve the image of Greece abroad by abating international criticism of US intervention. Thus during that whole period and until the end of the civil war, the « weak government » principle was dominant in Greek policy, despite the fact that this undermined the effectiveness of goverment.

12At the same time, the state, in this early postwar period had been expanding its activities and increasing its role. Almost one third of the population depended, for its very survival, on various state-provided incomes : families of servicemen, an increasing number of civil war refugees and an expanding sector of public employees all depended for their living directly on the state. The latter administered the rationing system and consequently became a major buyer of foodstuffs and other basic goods. It also controlled the financial sector through the large state banks ; even more importantly, it was directly involved in the finance and collection of certain agricultural products such as tobacco, oil and others. In addition to all these, the reconstruction of the economic infrastructure and the financing of military activities entailed a huge increase of the resources managed by the state through its budget. The question of the reconstruction of state institutions themselves was therefore crucial and the « weak government » principle was, in this respect, self-defeating, while at the same time highly indicative of prevailing circumstances.

13Greek enterpreneurship is also a highly problematic aspect of the time. The occupation period had a strong negative effect on shipping, external trade and industry. In the rural sector, which covered 70 % of employment, petty-commodity producers adjusted to the war conditions by returning to non-commercial, self-subsistent forms of production. The massive urban « middle strata » simply collapsed. The spread of black markets generated new social elements -the black « marketeers »– who gathered wealth and, in the post war era, began exploring new and legitimate activities. Recasting the traditional bourgeoisie was one of the top priorities of US policy in Greece and, as early as 1945, the sale of liberty ships to greek shipowners made good almost 60 % of damages suffered during the war. With the arrival of AMAG, the FTA introduced the « quota system » in import trade, according to which the rights to trade were distributed on the basis of the percentages allocated before the War to each trader. In industry, the policies of UNNRA, the British Economic Mission and the Industrial Loans Program of AMAG favoured the remobilization of the traditional industries by providing raw materials and credit.

14Yet, recasting the Greek bourgeoisie did not automatically imply the immediate recovery of the economy. Shipping brought very litle exchange into the economy ; besides, taxing the profits of shipping companies would eventually become an issue of debate in Parliament and of conflict between AMAG and the Greek goverment, without however, coming to an effective solution. Import trade licences produced a paralell « free market » which was legalized in 1949 by the ECA/G Mission through the system of the « free exchange certificates ». Even more, traders were putting pressure for the relaxation of the FTA policy, that prohibited the imports of luxury goods. Finally, industrial production presented a faster rate of recovery during the 1945-1947 period, when high profits attracted the quick remobilization of the existing productive capacity than in 1947-1948, when the availability of finance for new investments to expand the productive capacity found little response among the industrialists.

15Within this compex socio-economic framework, the decision to integrate Greece into the Marshall Plan Program was taken without U.S strategy becoming any clearer as on how existing contradictions were to be resolved and specific priorities were to be determined. At the organizational level, the tri-partite solution was accompanied by the provision to the ECA/G Mission of all the powers of Public Law 75 over internal policies7. Thus, ECA/G in the Marshall Plan Agreement was furnished with the interventionist powers of AMAG. The questions of short and long term stabilization and development policies remained unresolved and the arrival of the ECA/G Mission in mid-1948 was accompanied by deep American concern not only with regard to the outcome of the civil war as much as with regard to its duration.

II. The fate of the four year plan

16Most studies of the period in question tend to identify the Marshall Plan with the fortune of the Four-Year Plan8. The latter was drawn jointly by the Greek Committee on Reconstruction and ECA/G and was submitted to Paris in November 1948. It incorporated most of the Porter Report suggestions on industrialization as well as the ideas of other Reports drawn by greek officials. The plan predicted that 500 million dollars in exchange would be required (a) for the reconstruction and expansion of the energy, transportation and telecommunication networks, (b) for the improvement of the economic infrastructure of agriculture and (c) for the expansion of the production capacity of industry by new investments that would strengthen its vertical and horizontal linkages.

17The industrial part was undoubtedly the hardcore of the four-year plan. Seven new large-scale investments in steel, alumina, magnesium, fertilizer plants, oil refineries, and lignite mining were of strategic importance to the programme. Each investment would require five to fifteen million dollars in foreign exchange. Another ten medium-scale investments (in the range of one to five million dollars) were included, most of them being in the mining and heavy industries. Finally, the programme included a number of investments aiming at the modernization of existing industries such as cement and textiles. In total, the industrial programme would require 123 million dollars in foreign exchange and an additional equal sum in drachmas. Sixty five percent of the funds were to be absorbed by the seven large-scale investments.

18Improving the balance of trade in industrial products was the main preoccupation of the programme and estimates predicted that the existing deficit would be eliminated by the completion of the programme inl953. By then industrial production would be doubled in comparison with the 1948 index, which standed at almost eighty percent of the pre-war level. The more detailed analysis of the programme reveals that the elimination of the trade deficit would be the result primarily of the « import substitution » effect and to a much smaller degree the effect of the expansion of exports. Actually, production aiming at the substitution of imports was planned to absorb almost eighty five percent of the investment funds, with the improvement of exports being restricted to the cases of alumina and magnisium. This went against the dominant thinking of the time, which was also expressed in the Marshall Plan « philosophy », and gave emphasis to specialization and the development of intra-european trade. Still, it remains an aspect that underlines the problem faced by planners at the time, who had to come up with specific solutions as to how to proceed with industrialization in the case of an undeveloped, primarily agrarian, economy. In effect, the export performance of the industrial sector could only be improved, if succesive rounds of investments were broadening the industrial base of the economy, allowing in each case the multiplier effects of the previous round to materialize and to gradually lead to an improvement in terms of « comparative advantages ». Such a process could hardly be conceived without some kind of notion of the « infant industry » argument and the consequent search for « import substitution » activities.

19Still, the central issue that remained unresolved concerned the investment agents that would and could implement the various industrial projects. With the exception of the fertilizers plant for which local entrepreneurs had expressed strong interest, the programme did not go into specifics with the rest of the projected investments, stating only vaguely that attempts would be made to mobilize either foreign capital or the greek state.

20The programme was never to be implemented. A member of the ECA/G Mission visiting Paris in late 1949, stated in his report to the Chief that « in regard to the difference between a programme and a project, the programme submitted by the Mission and the goverment are never approved by anybody as far as I can learn. In fact, I can’t find anybody who has ever read the Mission Programme in OSR except Carter de Paul. I took a copy to Coes last week, who likes reports, so maybe he has now read it. The « projects », i.e. the individual items in the programme which require equipment, etc. do require OSR, OEEC and Washington approval in each case9 ». As is known, the administrative structure of the Marshall Plan was based on sectoral committees, each one having a view of the reconstruction process in the specific sector at the European level. Thus, the emphasis was on the coordination of investment initiatives, taken at the national level, so as to facilitate European rather than national recovery. In that respect, national plans were merely « indicative » and provided the neccassary information for evaluating developments at the macro-economic level. Decision making was taking place at the sectoral committees and on specific projects, a process which required both the availability of investment agents, the soundness of the proposed projects and the negotiating abilities and strength of national representatives in the various administrative bodies in Paris. Such a structure was rather inappropriate for the « special » case of an undeveloped economy, seeking both finance and investment agents and functioning under very unfavourable political circumstances which had their unavoidable impact upon both the effectiveness of government and its negotiating strength.

21Subsequent developments exemplify two dominant trends : firstly, the shift of resources from the Reconstruction to the Current Requirements Programme ; and secondly, the proportionally greater cut of the productive investments part of the programme in relation to that of infrastructures. The relevant data reveal that total civilian aid in the period from July 1948 to December 1951 was 831 million dollars, with the Reconstruction Programme being reduced from 500 to less than 200 million and the industrial programme from 123 to 41 million dollars. Due to the « freezing » of the Counterpart Fund, the drachma part of the programme suffered an even greater proportional cut.

22Among the new « projects » the ones that survived were those of the fertilizers and the lignite, while among the modernization investments it was only the cement industry that proceeded with a couple of large-scale investments. All investments were included in the Industrial Loans Programme of ECA/G, with the few investments that exceeded the one million mark being approved also by OSR, OEEC and Washington. Refusal of such bodies to approve specific projects was noticed only in the case of the steel mill and in the German Reparations Programme, where the demands of the Greek government for a steel and an electric energy plant were not endorsed.

23A more detailed examination of the Industrial Loans Programme reveals a paradox as far as the relation between finance and industrial reconstruction is concerned (Stathakis 1991). While there was no long-term finance available to Greek manufacturing until 1947, the reconstruction process proceeded relatively « smoothly », and production, starting from a low forty percent of the pre-war level in 1945 increased to seventy percent by 1947. On the other hand, the availability of such finance through the AMAG and ECA loan programmes, in 1947 and 1948, produced a low demand for loans (something in the range of five to six million). Until 1951, total loans in the manufacturing sector reached 22 million dollars, while production had already exceeded the pre-war level by twenty percent. In effect, it seems that the Industrial Loans Programme played a limited and complementary role in the reconstruction process, as a significant part of industry proceeded by mobilizing either its own resources or by using non-banking forms of finance. Thus, the availability of finance may be considered as one, and probably not the most significant, among many factors that, under the specific economic circumstances, influenced the investment behaviour of industrial firms.

24Within the specific economic setting and the prevailing type of the accumulation process, the Industrial Loans Programme as well as the previous policies of UNRRA and the British Economic Mission (that laid most emphasis to the supply of raw materials and technical assistance) contributed to the remobilization and reconstruction of the pre-existing industrial production system. Yet, this being said, they all seemed to have been inadequate for the prospect of generating new production initiatives.

III. The Marshall Plan in Greece : a reinterpretation

25The Industrialization Project proclaimed by the Porter Report and expressed in the Four-Year Plan was to become a subject of conflicting interpretations among studies of the period (Stathakis, 1990). Early studies tend to emphasize the political factors and the shifts of US policy in the early 1950s. Sweet-Escott [Sweet-Escott, 1954 : 111-118] underlines « the war against the querillas that held up reconstruction until well in the four year period » of the Marshall Plan [ibid. : 114], difficulties in financing the programme both in terms of providing the necessary foreign excange and of obtaining the drachmas required [ibid. : 112] and finally « the change in the attitudes th the Americans towards the economic reconstruction of Europe induced by the outbreak of hostilities in Korea in June 1950 » [ibid. : 113].

26Later studies tend to reproduce such interpretations. Candilis identifies various reasons, « two of the most important being political instability and lack of sufficient funds » [Candillis, 1968 : 44], In a similar fashion, Freris emphasizes the « on-going civil war and the cold war climate » that « meant that the US became far keener to see Greece pursue an anti-communist struggle than devote its efforts to industrialization » [Freris, 1986 : 151].

27Amen and Wittner go even further and question the very existence of such a « motive » on the U.S side in the first place. The attempt to substantiate their claim by pointing out that, despite the initial official U.S attitude of identifying both military and economic goals, the actual policy shifted in favour of the former.

28By 1949 according to Amen such priority was clearly evident and « the use of aid during 1949, destroyed the insurgent movement while attempting to sustain the semblance of an economic reconstruction and monetary stabilization programme. This programme was carried out, in fact, to perpetuate a Greek economic subsistence... sufficient to create confidence in the government while mobilizing all internal forces for the attainment of a military victory. The American objective is thus seen was clearly military » [Amen, 1978 : 186]. And as Wittner argues, « with the civil war coming to an end, American officials were inclined to regard the economic situation with less urgency » [Wittner, 1982 : 188],

29Such interpretations tend on the one hand to overemphasize the role of U.S policy in forming specific outcomes in the Greek economic developments and on the other to identify the economic issue with the fortunes of the industrialization scheme. They, therefore, imply that, with the abandonment of the Plan, there was no long-term vision on the part of the US on postwar arrangements and the role of Greece in them. Three interrelated issues may be seen as posing a major objection to all previous ’studies and, consequently, as setting the research agenda anew for a re-evaluation of the period.

30The first issue concerns the relative significance of the external and the internal agents in influencing economic developments. As the evidence from the AMAG experiment indicates, although the American Mission had a « legitimized » control of all major policy institutions, the resistance of the internal agents was capable to neutralize the effect of specific policies and, under certain circumstances, to reverse the policies themselves. Subsequent developments during the 1948-1950 period indicate that consensus rather than conflict prevailed in the relation between internal and external agents, as economic policies were readjusted in order to prevent, precisely, the emergence of friction. In actual fact, some of the reformist AMAG policies were withdrawn.

31The second issue concerns the Industrialization Scheme. Identifying it with the Four-Year Plan is a working hypothesis that may only be accepted under highly speculative assumptions. The character of the Four-Year Plan was, above all, « technical » ; it incorporated the outcome of a variety of earlier studies, in order to exploit all available local raw materials as well as the technical potential for developing specific manufacturing activities (of both the import-substitution and the export-oriented type). Although it was a « technically » sound and feasible project, it also had to provide for the presence and commitment of the necessary social agents for its implementation – and these terms were not quite fulfilled.

32On the ideological plane, the protagonist of such an Industrialization Scheme were the Left. The most elaborate formulation of the Left’s stance on the question was the work of a team led by Batsis in 1947 [Batsis, 1947]. The political significance of the Industrialization Scheme was crucial and the Porter Mission was influenced by these political parameters. In effect, the Porter Report incorporated most of the pre-existing ideas and attempted to break the ideological hegemony of the Left on this issue. A more detailed investigation of the various versions of the scheme reveals a strong affinity of all sectors and types of production that were to be developed. The political preconditions for the application of the sheme were emphasized by the Left, who remained highly critical (a) of the foreigners’ unwillingness to allow any competition to their interests in the less developed countries, (b) of the government inability to negotiate and defend the national interest and (c) of the inelasticity of the local bourgeoisie who remained attached to commercial rather than productive activities.

33Thus, the Industrialization Scheme evolved into a propaganda issue, so that, even as late as 1950, the Greek Goverment and the EGA Mission felt the need to declare that the Programme was not to be abandoned and that it would remain a top priority for the coming years. The question, however, remains : did the programme constitute a sound « social » project which was prevented by some unfavourable external or internal force ? Or did it simply constitute a « historical idea » that emerged under specific political and economic conditions, yet subsequent developments produced a social and economic « vacuum » which did not allow it to materialize ?

34The main line of argument of this paper is that the abandonment of the Four-Year Plan cannot be seen as either a criterion of « motives » on the part of all agents involved or as the outcome of unfavourable political circumstances. It was an « idea » produced by specific historic conditions which, however, proved unable of materialization due to the specific socio-economic conjucture. The lack of investment agents, the condition of the Greek state, the specific structure of the Marshall Plan Organization, all these factors produced a specific conjucture that forced the whole Scheme into a permanent and unresolved state of abeyance. All agents concerned, i.e. the Greek government, the ECA/G Mission and the Paris Administration, were in no position to take the initiative to implement anyone of the suggested projects and the whole Plan, instead of being abandoned, was forced into relative oblivion.

35The third issue concerns the lack of commitment on the U.S side as to the longterm economic and political stability of Greece. The « neglect approach » can hardly be reconciled with the « hegemonic » role which the US assumed and the urgency with which it took care of lasting arrangements in the international economic and political setting. As will be argued in the last part of this paper, such arrangements were indeed imposed in the Greek case in the early 1950s. Priority was then given on internal institutional and economic reforms, on the establishment of new external links for the Greek economy, and on a medium-term programme aiming at the mobilization of private capital, both foreign and national. The « stabilization at any cost » policy enforced in 1951 and 1952 was conceived as the major prerequisite for the successful adjustment of the Greek economy to the new international arrangements.

IV. Stability and development in the post civil war period (1949-1952)

36The Greek Civil War came to an end in September 1949. From the following months until the mid-1950s, US policy in Greece was typified by an urgency to cut military expenses, reduce the budget deficit and speed up the reconstruction process. The demilitarization policy was officially announced in a public statement on 25th October by Ambassador Grady, who named 1950 as « the year of opportunity for Greece » as Greece by then had had « the chance to lighten the crushing burden of military expenses10 ».

37Two days earlier, in a letter to the Greek Prime Minister, Grady had asked for his support to a demilitarization programme that would reduce the armed forces by fifty percent within fourteen months and would cut the military budget by twenty percent within a year.

38The « demilitarization » policy was part of a more general attempt on the US side to implement a whole package of fiscal reforms that would eliminate the budget deficit. This included the abolition of various import and export subsidies, the imposition of budget constraints on state firms, the reduction of the pension fund, the control of public employment, the increase of direct taxation and the containment of tax invasion. At the same time, another package of measures aimed at encouraging industrial investments through the abolition of indirect taxes on goods, the exception of capital equipment from import duties and the reform of labour legislation. All measures were included in the famous « Grady Letter » addresed to the Greek government in March 195011. The continuation of US aid became conditional on the implementation of this programme and most importantly on the formation of a liberal coalition government along the lines favoured by the Americans, just after the spring elections of 1950.

39In terms of development strategy, it had already become evident that the Four-Year Plan had already been abandoned. Even by the end of 1949, the visit by Paul Hoffman, Marshall Plan Special Representative (Europe), to Greece, provided the chance to air the « new thinking ». Hoffman gave emphasis on issues of institutional reform and of a more gradualist approach to development. He characterized the Industrialization Scheme as overambitious and advized the Greek government to speed up its fiscal reforms, so as to attain a speedy and sustained stabilization, which could allow the developmental endeavour to proceed unhindered.

40Setting stabilization and development as two conflicting goals, constituted a departure from the policy thinking that the AMAG and ECA/G Missions had applied up to that point. For most of the period and despite the return by ECA/G to more conservative monetary and fiscal policies, a balance was kept between the need to contain inflationary pressures and the need to expand internal production. The dilemma of conflicting nature of the two objectives may be interpreted as the first sign of a new approach that was ready to sacrifice « development » in the pursue of a stable economic environment.

41On the other hand, the shift of emphasis towards institutional and economic reforms was in tune with the thinking of ECA/G from early 1949 onwards. Three issues need to be mentioned : (a) the debate developed among the Mission Departments and at a later stage among the Mission and the Government as to the need to introduce legislation on foreign capital ; the « Mexican Law » and the « Puerto Rican Law » were used as models, meeting, however, at this stage, the hesitation and objection by many members of the Mission and the Government, (b The fiscal reforms affecting industrial production, on which consencus was soon reached. At issue was the removal of indirect taxation on the production and transportation of goods, as the legislation inherited from the inter-war period provided for heavy indirect taxation of production, a high degree of tariff protection and a multiplicity of local systems of taxation, (c) The reform of foreign trade, subsequent to the entrance of Greece in the GATT negotiations and its participation to the final Agrrement.

42Although these developments may be considered as strong indications of the gradual formation of a new approach to the issues of stability and development, it was the outbreak of the Korean war that produced a sudden shift in policy thinking. A sense of « emergency » was transmitted to EGA Missions as far as the need to alter policies and objectives immediately was concerned. In a telegram sent by OSR to all Missions, the new policy was explicitly stated : « we must recognise that goal of placing Europe in picture of own immediate self-defence is an objective which overrides in immediate importance any one of the economic goals we and the European leaders have established in past two years ». And further down it concluded that « we must avoid a position of « business as usual ». There is no easy answer to our problem and we should avoid impression that even with large American aid we can continue with « recovery as usual12 ». The new directives required the shift of perspective from long- to short-term planning and of priorities from economic to military objectives.

43The immediate impact of these developments on the Greek case was the reversal of the « demilitarisation » policy and the imposition of the first cut on aid. In earlier recommendations on the procedure of the last two years of the Marshall Plan, Greece was considered as a « special » case and it was proposed to be excepted from the agreed cut of aid by twenty five percent in 1950-51 and by fifty percent in 1951-52 (the Snoy-Marjolin formula). The recomendation was to keep the size of aid to its 1949-50 levels. In the Paris meeting of the Chiefs of EGA Missions, held in September 1949, it was decided that this general rule would be applied to all countries. At the same time, the priority was set firmly on stabilization and institutional reforms. During the next three months, the Chief of ECA/G, in a number of letters to the Greek government, presented the specific reforms and policy measures that were to be implementated immediately. It is quite noticeable that in the second half pf 1950 most of the standby reforms of the previous years as well as a great number of new ones were finally institutionalized.

44Yet the major development occured in early 1951. A « stabilisation at any cost » policy was designed in Washington, and a number of people were sent to Greece to produce the details of the Stabilisation Programme. It was finalized in the form of a four-stage programme. In the first stage, the rationing system was conceived as the main policy measure that would keep the cost of basic goods constant and would allow the freezing of wages. In parallel, taxes on the use of foreign exchange would deter the increase of imports, while prices on all other products would be freely adjusted. In the second stage, the « gold policy » was to be abandoned. In the third stage, a devaluation of the drachma would be accompanied by the removal of the various restrictions on foreign trade. In the final stage, the rationing system would be abolished ; in parallel, the gradual elimination of the budget deficit and the imposition of restrictive measures on the money supply was expected to produce the required recession in the economy and to eliminate inflation. For that purpose, the monetary programme of each year which included a balance of inflationary and deflationary factors was to become the absolute guide to decisions taken on fiscal and monetary issues. The idea of eliminating the « inflationary gap », of such a monetary programme within a two-year period became a matter of top priority.

45During the next two years and more specifically until the Monetary Reform in the spring of 1953 (known as the Markezinis Reform), the stabilization programme was pursued in a most rigid way, generating enormous conflict between not only Washington and the Greek government but also between Washington and ECA/G. The economy entered a period of prolonged recession, during which the industrial production index remained constant for thirty one successive months, unemployment increased considerably and investments declined from sixteen percent of the GNP to less than eight persent. The Reconstruction Programme was revised downwards by almost fifty persent and the Counterpart Fund was frozen. In addition, the second cut of aid in 1951-52, exceeded the most pessimistic predictions and put enormous pressure on the balance of payments.

46On the development front, the thinking on the long-term prospects of Greece were best summarized by the Reports drawn in Washington at the time. In one of them it is characteristically stated : « In all the countries of Southern Europe, an important objective of US Policy should be to give appropriate long-term assistance to the solution of the age-old problems which have historically made of these countries the « soft underbelly » of the Atlantic defence system. These problems can be traced to a low endowment of both material and technical resources... They cannot be solved through the provision of large-sale external aid, such as was required for the spedy achievement of recovery... Henceforth, economic development must proceed pari passu with the development of skills and the improvement of institutions and, for this very reason, at a much slower rate than has been the case for economic recovery... The problems of Southern Europe are of course different from those of the rest of the Continent and therefore require, within the framework of such common institutions as NATO, OEEC and EPU, different techniques for their solution13. »

47The Markezinis Reform ought to be seen as the conclusion of the early postwar period on which reconstruction was completed. Yet this was done in a way that set the precondions for the integration of the economy in the broader postwar international arrangements. The most significant transformations concerned the institutional reforms, that removed the constraints on the integration of the internal market, the institutional build-up of the state, of primary importance being its new regulatory role particularly in finance and the new regime established on external trade. It seems that these transformations had a lasting impact on subsequent developments and influenced the accumulation patterns that prevailed in the 1950s and 1960s. In this light, the « Marshall Plan » should not be conceived as a simple transfer of recources and its character defined accordingly by the specific ways in which it was put to use. It should rather be conceived as a highly contradictory social process, in which historical continuities and discontinuities come to the forefront.