TNTIL very recently American aid programs to European countries consisted mainly of shipments of goods and services for immediate consumption or for building up productive capacity. At the present time, however, a new kind of aid, the Mutual Defense Assistance Program, consisting of military equipment, is also flowing to most of the ERP countries to refit underequipped defense forces and to arm new units. The London Conference of Foreign Ministers which ended May I9, I950, distributed the total burden of European rearmament among the Atlantic Pact member countries without, however, publishing any military or cost statistics. But it is clear that the new additional military responsibilities will require increases in present European military budgets. In the full employment economies of ERP Europe, where total output can rise only slowly, these new military responsibilities are so much greater than present levels of American arms aid under the Mutual Defense Assistance Program that a shift of productive factors away from civilian production will be required. To that extent, the purposes of ERP and the European rearmament program would seem contradictory. This paper will attempt to estimate the new economic and fiscal efforts required of these countries as a result of superimposing the new rearmament program on their recovering economies, as well as the amount of addib tional American aid that would be needed to fulfill both recovery and rearmament goals. Under the provisions of the Mutual Defense Assistance Act of I949, the United States is sending Western Europe approximately $i billion worth of arms during the present fiscal year. One hundred million dollars of this total is to be used to defray the transportation costs of American surplus equipment (originally worth $450 million), while the other $900 million is to pay for weapons which come from the United States reserve stocks, which must be replenished by current production. The procurement phase of the first year of MDAP ended on June 30, I950, and on June 30, I950, the Senate authorized the expenditure of an additional $1,223 million for the second year of MDAP. The recipients of this aid are the Benelux countries, France,2 the United Kingdom, Norway, Denmark and Italy. At this time, these countries are spending a total of $4,28o million per year on defense. Of this amount, France and the United Kingdom are spending $3,380 million, or more than 75 per cent of the total. The major responsibility for expanding the defense establishment of the Atlantic powers will thus fall on them.