6 - Two worlds or three: the sterling crisis, the dollar gap, and the integration of Western Europe

Summary

In the second half of 1949, the specter of the dollar gap hung over the Marshall Plan like Banquo's ghost over the feast. Unless corrected, the dollar gap would foreclose the American plan for a multilateral world based on nondiscrimination and full convertibility. The termination of Marshall aid in 1952 would drive participating countries deeper into the arms of an economic autarky. Gains in production and financial stability would be reversed, living standards would decline, and redistributive battles would resume. Once again the door would be thrown open to Communist parties in France and Italy. It would be more difficult to solve the German problem and forge a balance of power in the West sufficient to contain the Soviet bloc in the East. Progress in these directions had already been complicated by the resurgence of German nationalism and the successful Soviet test of an atomic device. Nor were these the only complications. The collapse of the Nationalist government in China and the spread of Communist insurgencies in Southeast Asia added a global dimension to the dollar famine. They pointed up the need for remedies that would bring economic progress and political stability not only to Europe but also to the sterling area and the overseas territories of other participating countries.

As in the past, American and British leaders disagreed regarding the best remedies to be applied. The Americans continued to prescribe the realignment of currencies, the elimination of trade barriers, and the coordination of national policies.