Prime Minister Churchill to
My Dear Mr. President, I thank you for your memorandum of 17th July.2 I am pleased that you say the Agreement made in Washington last autumn stands. We have never, of course, regarded the munitions schedules as absolutely rigid. Indeed I am told that our munitions requirements have already been scaled down from the 2.8 billion dollars agreed last autumn for the first year of Stage II to 1.8 billion, and that all these items are within the terms then arranged. Unfortunately the Departments in Washington have recently been insisting that nothing can be delivered save what is needed for direct use against Japan, and interpreting this in the narrowest possible sense; this has reduced munitions supplies almost to [the] vanishing point, and has put us in a very difficult position.
Much as I dislike troubling you with technical questions of this kind at the present time, it is urgently necessary for us to find a solution. I attach a note on the position by the Chiefs of Staff, and very much hope that you will find it possible to let me know whether their reading of your intentions, as expressed in paragraph 1 of the note, is correct. If so, I earnestly hope you will be able to see your way to issue the necessary directive to your agencies.
The important financial questions mentioned in your last paragraph are, of course, of a somewhat technical character, and I should hesitate to enter into them deeply at this stage. But I am told that our present gold and dollar balances (1.8 billion dollars) do not exceed what was agreed as reasonable last autumn in Washington by the United States Administration; on the other hand our external liabilities, owing to the prolongation of the war, have increased to 13 billion dollars.
The Chancellor [of the Exchequer]3 asks me to add that, both in the matter of sales of surplus in the Middle East and elsewhere and in the [Page 1181] matter of relief to Europe, he has, in an earnest endeavor to meet your wishes, already authorised proposals to the State Department which go a long way beyond what he could have justified on any other ground. In particular we have told the State Department that we are willing to continue relief during the military period in Italy until UNRRA takes over relief there in the early autumn, and to make a further contribution to the general work of UNRRA for the next year. Both of these proposals are at present under discussion with the State Department, though the Chancellor has not yet any Parliamentary authority for this further relief expenditure.
All these questions, of course, are linked up closely with the general post-war economic arrangements which will have to be worked out before the War ends. For this purpose, I should be very glad if you would agree to our sending a special delegation to Washington as soon as convenient—say in September. It will, I am sure, be in our common interest to achieve as soon as possible agreement on these vital post-war issues, so that we can view the economic picture as a whole.
Yours very sincerely,