Saving the Eurozone: Is a Real Marshall Plan the Answer?

Key points in this Briefing Paper:

•Renewed support for the view that austerity measures are not sufficient and that more robust policies to stimulate growth are required to help the eurozone, and especially southern Europe, survive its current crisis has triggered a debate about the merits of a 'Marshall Plan for Europe'.

•Faster productivity growth in the euro periphery could help improve competitiveness, fiscal arithmetic and living standards; the main role of a real Marshall Plan would be to promote supply-side reforms that raise productivity growth. This would repeat the main achievement of the original Marshall Plan of 1948.

•A real Marshall Plan would have to work as a 'structural adjustment programme', in much the same way as its famous predecessor, namely by achieving reforms through strong conditionality in return for serious money. To be credible the funds would have to be committed, but only released when reforms had been implemented satisfactorily – similar to the deal that worked in the context of EU enlargement in 2004.

•The experience of the Gold Standard's collapse in the 1930s suggests that seeking to keep the eurozone intact by imposing a 'golden straitjacket' on the policy choices of independent nation-states is not a viable option. This points to fiscal federalism with genuine democracy at the EU level as the long-run solution; a new Marshall Plan may not be a substitute for reforms of this kind, but it can certainly serve as a valuable complement.

This is the first in a series of policy papers published by Chatham House in partnership with the Centre for Competitive Advantage in the Global Economy (CAGE) at the University of Warwick.

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