Debt Diplomacy and Trust: Lessons from the European Recovery Plan

Abstract This study examines the European Recovery Plan (ERP) through the lens of debt diplomacy, arguing that its success was rooted in a departure from ad hoc, transactional debt relief towards a structured, trust-based approach. The ERP, a $13 billion financing program spanning 1948–1951, is often viewed as a Cold War containment strategy or a neoliberal economic intervention by the United States. However, this paper situates it within a broader historical framework of debt diplomacy, analyzing it as a large-scale effort to stabilize transatlantic financial relations and prevent a post-war balance of payments crisis. We reassess the ERP as a model for international financial assistance, emphasizing the roles of encapsulated trust, intellectual generalism, shared responsibility, and transnational polylateralism. Through a historical review of pre-ERP aid (1945–1947), the study highlights how earlier, fragmented debt-relief efforts failed to address systemic financial instability in Europe. It further explores the unique conditions that enabled the ERP’s success, including high trust relations between the U.S. and Europe, geopolitical imperatives of Cold War containment, and deep economic interdependence. By revisiting the Marshall Plan through the lens of debt diplomacy, this paper not only offers new perspectives on the ERP, but also contributes to debates on debt diplomacy and efforts to achieve global debt sustainability.