In the first years after the war, economic conditions in western Europe were terrible. Infrastructure of all kinds barely functioned, and runaway inflation and a thriving black market testified to severe shortages and hardships. In 1948, as Marshall Plan dollars poured in, the battered economies of western Europe began to improve. The outbreak of the Korean War in 1950 further stimulated economic activity, and Europe entered a period of rapid economic progress that lasted into the late 1960s. Never before had the European economy grown so fast. By the late 1950s, contemporaries were talking about an economic miracle that had brought robust growth to most western European countries.

There were many reasons for this stunning economic performance. American aid got the process off to a fast start. Moreover, economic growth became a basic objective of all western European governments.

The postwar governments in western Europe thus embraced new political and economic policies that led to a remarkably lasting social consensus. They turned to liberal democracy and generally adopted Keynesian economics (see "Germany and the Western Powers" in Chapter 26) in successful attempts to stimulate their economies. In addition, national leaders in the core European states applied a mixture of government planning and free-market capitalism to promote economic growth. They nationalized (or established government ownership of) significant sectors of the economy; used economic regulation to encourage growth; and established generous welfare provisions, paid for with high taxes, for all citizens. This consensual framework for good government lasted until the middle of the 1970s.

Across the West, newly formed Christian Democratic parties became important power brokers. Rooted in the Catholic parties of the prewar decades (see "The German Empire" in Chapter 23), the Christian Democrats offered voters tired of radical politics a center-right vision of reconciliation and recovery. Socialists and Communists, active in the resistance against Hitler, also increased their power and prestige, especially in France and Italy.

Across much of continental Europe, the centrist Christian Democrats defeated their left-wing competition. As they provided effective leadership for their respective countries, Christian Democrats drew inspiration from a common Christian and European heritage. They steadfastly rejected authoritarianism and narrow nationalism and placed their faith in democracy and liberalism. Steadfast cold warriors, their anticommunist rhetoric was unrelenting. Rejecting the class politics of the left, they championed a return to traditional family values, a vision with great appeal after a war that left many broken families and destitute households; the Christian Democrats often received a majority of women’s votes.

Following their U.S. allies, Christian Democrats advocated free-market economics and promised voters prosperity. At the same time, they established education subsidies, family and housing allowances, public transportation, and public health insurance throughout continental Europe. When necessary, Christian Democratic leaders accepted the need for limited government planning.

Though Portugal, Spain, and Greece generally supported NATO and the United States in the Cold War, they proved exceptions to the rule of democratic transformation outside the Soviet bloc. In Portugal and Spain, nationalist authoritarian regimes had taken power in the 1930s. Portugal’s authoritarian state was overthrown in a left-wing military coup only in 1974, while Spain’s dictator Francisco Franco remained in power until his death in 1975. The authoritarian monarchy established in Greece when the civil war ended in 1949, bolstered by military support and kept in power in a series of army coups, was likewise replaced by democratic government only in 1975.

By contrast, the Scandinavian countries and Great Britain took decisive turns to the left. Norway, Denmark, and especially Sweden earned a global reputation for long-term Social Democratic governance, generous state-sponsored welfare benefits, tolerant lifestyles, and independent attitudes toward Cold War conflicts. In Britain, the social-democratic Labour Party took power after the war and ambitiously established a “cradle-to-grave” welfare state. Many British industries were nationalized, including banks, iron and steel industries, and utilities and public transportation networks. The British government gave its citizens free medical services and hospital care, generous retirement pensions, and unemployment benefits, all subsidized by progressive taxation, with the wealthy paying significantly more than those earning much less.