Fifty Years Later: A New Marshall Plan for Eastern Europe?

Against the background of the 50th anniversary of the Marshall Plan, this paper addresses the issue of Western aid for Central and East European countries in transition. Based on a critical review of the principal arguments for foreign aid, emphasizing a distinction between humanitarian and efficiency arguments and drawing on recent research on the economic effects of the Marshall Plan, I argue that, despite Eastern progress, conditional Western European aid may still be a sensible policy option. I then identify differences between post-war Western Europe and Eastern Europe in the 1990s and explore their implications for "New Marshall Plan" proposals for the East. The paper then investigates whether an Eastern Enlargement of the EU constitutes a reasonable aid package. It describes the relevant elements of this package, including estimates of the amount of transfer payments involved. Finally, drawing on an applied general equilibrium model for Austria, the paper presents evidence that, contrary to widespread concern, an Eastern Enlargement may be advantageous also for incumbent EU countries, thus substantiating the efficiency argument, outlined in the beginning, which holds that conditional aid may benefit both the recipient and the donor country.