Domestic Growth and External Equilibrium: The Early Years of Transatlantic Economic Integration

This contribution explores the category of international economic interdependence
through the case study of the economic mobilisation within each of the infant
Atlantic Alliance’s member state economy, as well as the industrial and trade
integration that NATO’s multilateral rearmament programs stimulated in the
early 1950s. Assuming a definition of economic interdependence as the ratio of
transnational flows in capital and consumer goods to domestic growth, this
article focuses on the transition from U.S. bilateral assistance programs to the
inception of multilateral off-shore procurement programs (OSP) launched by
NATO to provide European partners with both military assistance, and balance
of payments support as well as continued economic assistance to industrial
production and employment after the termination of Marshall Plan economic
aid. Some references are made to the case study of Italy to explore this
multifaceted nature of NATO collective rearmament as then Italy both suffered
from balance of payments disequilibria, and came with a real economy that,
unlike many other European economies, featured both unutilised industrial
capacity and a painful rate of unemployment. The allotment of military production
contracts to the Italian aircraft and mechanical industry aimed at providing the Italian
and other NATO partners with military end items and products, combined with
a call by Washington on the West European governments to raise defense
spending, was intended to target the U.S. objective of making the Atlantic
Alliance the engine to attain at the same time industrial integration, trade
partnership and balance of payments equilibrium among its member nations, as
well as sustained aggregate demand within each of them. Therefore, the off-shore
procurements programs were a combination of these elements and became the
fly-wheel to combine domestic growth and high level of transnational flows in
capital and consumer goods germane to the process of economic interdependence.
A set of data aimed at comparing key macroeconomic conditions affected by
bilateral and multilateral aid as employment rates, balance of payments
equilibrium, foreign exchange reserves, and particularly the inflow of dollar-denominated assets, as well as the terms of trade of OEEC countries with the United States and the dollar area from prior to the inception of multilateral military assistance to the full implementation of the OSP programs are offered. In so doing the objective is to provide a quantitative assessment of the impact that multilateralisation of rearmament had on the European economies of NATO in a matter of a few years.