Foreign Relations of the United States, 1947, The British Commonwealth; Europe, Volume III

Lot 54 D 394, Box 538

Summary of Discussion on Problems of Relief, Rehabilitation and Reconstruction of Europe¹

[Washington,] May 29, 1947.

The following is a summary of Mr. Clayton’s observations which opened the discussion. The nations of Europe are now running a $5 billion deficit this year in their dollar exchange in seeking to maintain an absolute minimum standard of living. The prospects for 1948 are little better and the ability of the nations to meet this situation is fast running out. Three major items in the balance of payments problem are:

1. 30 million tons of U.S. coal at $20 a delivered ton;

2. 12 million tons of bread grains at over $100 a delivered ton;

3. Transportation costs which for all items average 22 to 23 percent of the total cost.

A basic element in the problem, in addition to nature-made shortages, is a breakdown in the modern system of division of labor in European economy between peasants and city workers. Furthermore, existing trade barriers (a) clog the flow of Europe’s trade and (b) will set an uneconomic pattern for any reconstruction efforts. The constantly recurring political crises in Europe are only reflections of the economic distress.

The situation must be faced immediately. If it is not remedied, Europe will in early 1948 suffer increasingly severe economic, political, and social disintegration, the impact of which on the U.S. will be a falling-off of exports and a piling up of surpluses, leading to depression. The following action is necessary:

1. To help relieve the immediate coal crisis, the U.S. should consider taking over the Ruhr coal production, at which the U.K. has failed.

2. A $6–7 billion annual expenditure by the U.S. should be made for the next three years for rehabilitation purposes to provide more consumer’s goods, to restore confidence in European currencies, and thus to help remedy the breakdown of the division of labor.

3. A total of no more than $2 or $3 billion annually in loans from the Bank, the Fund, and other sources will be necessary in addition for reconstruction purposes.

4. Some system for closer European economic cooperation must be devised to break down existing economic barriers.

The last point which parallels the recommendation in the Policy Planning Staff paper was elaborated in the ensuing discussion. Three major problems presented themselves:

1. The inclusion or exclusion of Soviet-dominated Eastern Europe.

2. U.S. vs. European responsibility and initiative.

3. The timing and machinery to be utilized in developing the plan.

As to point 1, Mr. Clayton expressed the strong view that, while Western Europe is essential to Eastern Europe, the reverse is not true. Coal and grains from Eastern Europe are important to Western Europe, but these products will be exported westward in any event because the necessity of obtaining vital foreign exchange for necessary products from the west creates a suction which the U.S.S.R. is incapable of counteracting, and there can only be absolute and final Soviet domination of Eastern Europe by force of arms. It was concluded, therefore, that a European economic federation is feasible even without the participation of Eastern European countries. There was general agreement, however, that the plan should be drawn with such conditions that Eastern Europe could participate, provided the countries would abandon near-exclusive Soviet orientation of their economies.

Regarding the problem of European vs. U.S. initiative in the plan, Mr. Kennan pointed out the necessity of European acknowledgment of responsibility and parentage in the plan to prevent the certain attempts of powerful elements to place the entire burden on the U.S. and to discredit it and us by blaming the U.S. for all failures.

Messrs. Cohen and Thorp emphasized the importance of substantial U.S. responsibility and initiative because (a) experience has demonstrated the lack of ability of European nations to agree on such matters, (b) if agreement is reached, the scheme may not be a sound one and (c) the problem is so complex that no one can plot a definite, final plan now. It should, therefore, be approached functionally rather than by country, concentrating on the essentials, and this is an approach which the U.S. is in a better position than Europe to take.

Balancing the dangers of appearing to force “the American way” on Europe and the danger of failure if the major responsibility is left to Europe, Mr. Bohlen suggested that the alternative is to place strong pressure on the European nations to plan by underscoring their situation and making clear that the only politically feasible basis on which the U.S. would be willing to make the aid available is substantial evidence of a developing overall plan for economic cooperation by the Europeans themselves, perhaps an economic federation to be worked out over 3 or 4 years.

The third major problem discussed was the timing and machinery for developing the program. Mr. Acheson pointed out the practical impossibility of developing a program and obtaining congressional action between now and July 1. He suggested that the ensuing 4 to 6 months be employed in (a) working out agreement within the U.S. Government, (b) carrying on discussions with other governments, and (c) educating the public so that Congressional action would be sought either at a special Fall session or on January 3, 1948. The problem of introducing new elements and a definite time limit in order to obtain Congressional and public support was recognized.

As to the international machinery, Mr. Clayton stated his conviction that the Economic Commission for Europe is completely unusable as a forum, even to make a beginning, since the paralyzing fear of the U.S.S.R. by the small countries would permit her to carry out her undoubted intention to block all constructive action. He suggested that preliminary talks be held with key leaders in the U.K., France, and Italy with the Netherlands, Belgium, and Luxembourg also included. Mr. Cohen put forward the possibility of a high-grade technical-study commission in Europe this Summer, headed by a person commanding strength and respect.

Mr. Rusk urged that we should not decide now not to use the ECE for, unless we can demonstrate conclusively that it cannot be used for this, the purpose of its creation, the ground swell of public opinion against again by-passing the U.N. might wreck and would certainly jeopardize any program. Mr. Acheson was quite responsive to this danger. Although it was suggested that we might begin in the ECE with the understanding that the matter would be withdrawn from it if progress were blocked, Mr. Bohlen pointed out difficulties of withdrawing once the organization has been given jurisdiction.

In response to Mr. Acheson’s question, Messrs. Vincent and Henderson expressed the opinion that there would be no untoward repercussions in the Near or Far East if the plan were concentrated on Europe.

1. The discussion took place in a meeting with Heads of Offices in the Department of State on May 28; the summary was prepared by Mr. Ward P. Allen of the Executive Secretariat.