David McWilliams: A successful, prosperous Gaza is possible. Here is a model

In the final months of the second World War, the various victorious powers sketched out their vision for the devastated Germany. What would a postwar German economy look like?

The British leaned towards what they called “pastoralisation”, meaning London wanted to turn industrial Germany into countryside. Whitehall’s thinking was straightforward: wars in 1870, 1914 and 1939 “proved” that the Germans were a “naturally” war-like people who couldn’t be trusted with industrial power again. The best way to keep Europe safe was the agriculturalisation of Germany, returning to a pre-industrial state. Moscow’s view was similarly unappetising: the Soviets wanted to smother Germany in Stalinism.

The Americans, in contrast, stood aloof. They aimed to do something that had never happened in any post-conflict resolution: rather than punish the Germans, they wanted to reward and incentivise them. In what was surely America’s finest diplomatic hour, Washington unveiled the Marshall Plan, which aimed to use American taxpayers’ money to enrich former enemies, the people who had killed more than 180,000 American soldiers. Imagine what their parents thought of paying taxes to pay for their sons’ killers? But they did it.

Marshall aid transformed Germany and Europe. Fearing the Soviets, the Americans, in an act of extraordinary far-sightedness, appreciated that countries can change. De-Nazification was a condition that accompanied aid, but the Americans also understood that the high levels of complicity with the German population implied lots of looking the other way.

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David McWilliams: A successful, prosperous Gaza is possible. Here is a model

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Aid wasn’t just money; there was mass technology transfer from America to Germany, plus American corporations were incentivised to trade with and buy machine parts from Germany, giving the Germans access to new markets. All this set the foundation for the Treaty of Rome in 1957, which was the origin document of the European Union. Had you predicted to a Frenchman in 1945 that, a dozen years after the war, France and Germany would be constructing a new relationship based on peace and a joint regional vision, you’d have been considered insane. But it happened – and money did it.

The Marshall Plan amounted to $13.3 billion (worth more than $150 billion in today’s money). Most of the money was used by Europeans to buy essential goods from the rest of the world. Remember, Europeans were starving and needed first to buy food, later machinery. Roads, power plants, housing projects and airports were built using half local and half US funding, which the Americans simply gave to the Europeans.

Some 6,000 people, mainly Germans, were invited to study US production methods, which enhanced productivity back home. And to make sure US companies invested in Europe, Washington offered exchange rate guarantees on US corporate profits transferred back to America. The money wasn’t insubstantial from an American perspective. In 1948, the $4 billion set aside for the Marshall Plan represented 13 per cent of the entire federal budget. It worked – the European economy took off in the 1950s.

Like Germany in 1945, Gaza has been flattened. Damage to critical infrastructure in Gaza is estimated at about $18.5 billion, equivalent to 97 per cent of the combined GDP of the West Bank and Gaza in 2022. The sectors with the highest estimated damage include housing, at approximately $13.29 billion; industry at $1.65 billion; agriculture at $629 million; health at $554 million; transport at $358 million; and education at $341 million. To date, 80 per cent of total damages have been concentrated in the regions of Gaza, north Gaza and Khan Younis.

Some 33,000 people have been killed in Gaza since October 2023, according to the Hamas-run health ministry. Of these, approximately 70 per cent are women and children. Some 1,200 Israelis died in the Hamas attack on Israel October 7th. Meanwhile, 1.7 million people have been displaced in that time. Palestinians in Gaza now make up 80 per cent of all people facing famine or severe hunger worldwide and are receiving less than half the daily water rations they need. More than one million people have lost their homes. Gaza’s GDP dropped by 86 per cent in the last quarter of 2023. Gaza still relies on obsolete 2G technology and has no mobile broadband coverage.

Despite the devastation, the cost of rebuilding Gaza would be a drop in the ocean for Europe. UN officials are quoted as suggesting a financial package in the range of “around $20 billion if [the conflict] stops now”. This may well be too low, but to put this figure into context, $20 billion is about 0.1 per cent of European GDP. Nothing to us.

[ The Irish Times view on the economic impact of the Gaza conflict: uncertainty continues ]

However, global politics means that Arab countries would be involved in any aid plan, Saudi in particular. Total government spending in Riyadh was about $340 billion last year – would they be willing to take 5 per cent of that figure and redirect it towards covering the entire Palestinian Marshall Plan? Probably not, but Saudi could cobble together a coalition of Gulf States.

The US would also want to be involved, and would represent the Israelis in negotiation with the world. That $20 billion represents just 0.07 per cent of American GDP, or 0.33 per cent of total federal spending.

Between the US, EU, Saudi Arabia and UAE, a Palestinian Marshall Aid plan would be peanuts financially, but morally and geopolitically it would be huge. It would require conditions from a new Palestinian leadership about the type of society and economy they are prepared to construct with this help.

Gaza has significant off-shore gas deposits, and could follow the low-tax model of the UAE or even the technology route of Ireland. And, distasteful as it sounds now, tourism could be a huge industry in a peaceful future. It might also adopt the euro, or at least link to it (as Bosnia did) at a competitive rate, with reserves and swap mechanisms provided by the ECB to distance itself from the Israeli shekel. This type of financial stability and certainty would reassure foreign, mainly Palestinian diaspora money.

Cities such as Berlin and more recently Hanoi were carpet-bombed and look at them now. It is possible, indeed imperative, to look beyond the terrible present. A successful, prosperous Gaza is possible with our help. Marshall aid is the model. Replacing despair with hope is feasible but only if we deliver the Gazans from the orbit of Israel by creating a low-tax, trading Mediterranean region, one that looks forward not backward. The Federal Republic of Germany did it. Why not the free municipality of Gaza?

Now we just have to put our money where our mouth is.