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

Policy Planning Staff Files

Memorandum Prepared by the Policy Planning Staff

secret
PPS–6

[Washington,] August 14, 1947.

Summary

The Policy Planning Staff has examined in greater detail the time factor involved in the question of United States aid to a European recovery program.

The Staff concludes that if a program of U.S. aid is not acted upon by the Congress before the end of this year, there is little likelihood that such a program, as now conceived, could be successful. Moreover, there is danger that unless we are able to maintain among the Europeans a firm expectation of early U.S. assistance, not only must we expect unfavorable political and moral reactions in Europe, but measures taken by European governments may set off a train of restrictive actions in international affairs which would affect adversely our economic interests in areas outside Europe and would further complicate the question of European recovery.

The Staff recommends that these conclusions be borne in mind in any decisions affecting the timing of Executive and Congressional action with respect to United States aid.

It further recommends that in order to expedite to the utmost the handling within this Department of questions connected with a European aid program, a special center be established at once within the Department to act as a clearing house for Departmental action and to conduct detailed advance planning for such machinery as the Department may later require in connection with such a program.

1. The Policy Planning Staff has reviewed the economic situation of the individual countries which are participating in the Paris Economic Conference. The Staff wishes to point out that the position of certain of these countries is such that it is imperative not to leave the question of U.S. aid until the next regular session of Congress. If Congressional action on aid for Europe is not taken prior to the end of this year, there is serious danger of events in Europe taking such a course that the task of European recovery will be made much more difficult, and that much greater U.S. aid will be required in the long run. There is some danger that the whole purpose of the invitation to the European countries to cooperate in drawing up a European recovery program will be frustrated.

2. The situation in the United Kingdom is clearly critical and would alone warrant action prior to the next regular session of Congress. In addition, Italy will require additional assistance before the end of this year. France and Austria face serious difficulties early in 1948 and it is not certain that if the question of aid is left to the next session of Congress, action could be expected soon enough to ward off these difficulties. None of the other European countries appears to face economic difficulties as immediate as those mentioned above, but if the general European situation should deteriorate to a marked degree during the coming months, there is no guarantee that we might not be confronted with urgent requests for assistance from some of these countries. The margin of safety in Europe, both from an economic and political viewpoint, is extremely thin. Any sharp change in the economic picture for the worse might cause difficulties in areas which have not hitherto given occasion for concern.

3. The basic facts with regard to the four countries mentioned above, as they now appear, are as follows:

a. United Kingdom. If the dollar drain on Britain continues at its present rate, the loan will be exhausted and the British reduced to what they have considered their minimum reserve of gold and dollars by mid-October. The full facts of the British situation are not yet clear, but it is doubtful whether further analysis will disclose a radical difference in the basic situation. The measures which the British apparently propose to take to deal with the situation will not have important immediate effects, so that it is probable that the situation foreseen by them will arise some time during the fall. There are possibilities of financial assistance which would not require Congressional action, but these would merely postpone the day of final reckoning by a matter of a few weeks. A reduction in British gold and dollar reserves below what the British (and we ourselves) have regarded as a minimum figure also offers a way of dealing with the situation temporarily. The British will no doubt be strongly opposed to any such reduction unless they have greater assurance than we are now in a position to give, that they will obtain further U.S. aid at an early date.

b. France. The Embassy at Paris has reported that the French also will be reduced to their minimum reserves at some time during the remainder of this year and forecasts a French dollar deficit through March 1948 of $300,000,000 to $420,000,000. This picture appears in general to be accurate. The French situation can be dealt with in major part if the World Bank gives France another $250,000,000 loan during the latter part of this year. This would see the French through the present year and defer the problem of further assistance until the early part of next year.

c. Italy. Studies which have been made in the Department of the balance of payment for 1947 indicate a deficit during the remainder of the present year in the neighborhood of $75,000,000 to $100,000,000. No recent detailed estimates of the 1948 picture are available. However, it appears that unless further financial aid to Italy is forthcoming during the present year, there will have to be a significant adjustment in the scale of Italian imports with the probability of a serious deterioration in the Italian economic situation.

d. Austria. The Austrians will squeeze by during the present year, thanks to a variety of handouts of different kinds by the United States and the British. It is not easy to estimate when the funds will be exhausted; the probability is that this point will be reached perhaps by February or March 1948.

4. The fact that, at present rates of expenditure, a country will be confronted with a critical situation some weeks or months from now does not postpone the crisis until that time. As the facts become clear, steps will be taken to meet the situation. In this sense, the crisis is already upon us. The French, Italians, and Austrians will probably defer making adjustments in their import programs as long as possible, in the hope of receiving aid, although they will undoubtedly be required to take certain steps in the direction of cutting down their dollar expenditures. The British are already doing so.

5. One of the most serious aspects of the present situation is the danger that the steps taken by European countries, and particularly by Britain, to deal with the dollar shortage may set in motion a train of events with exactly the opposite effect of that intended in the Harvard speech. Restrictions on imports adopted by one country are likely to give rise to the imposition of new restrictions in other countries and to cut down the international flow of goods at a time when it is most important that the trend should be in the opposite direction. The effects are not likely to be confined to Europe, but would spread quite rapidly to Latin American countries and Canada. If this process should go on with any speed, we might find ourselves confronted with something far more serious than the present European situation.

6. In addition to the financial problems outlined above, there is growing evidence that there will be a serious food situation in Europe and possibly elsewhere during the coming winter. The French wheat crop has been described as the worst since 1815. The general crop picture is not as yet clear, but as further indications are received they will deserve careful study.

7. As is well known, a number of leading members of Congress on Committees which will have to do with foreign aid expect to go to Europe and other parts of the world during the late summer and fall. The presence of many of these leaders in the United States will be essential, either for a special session of Congress or if consideration of the European aid program is to be undertaken in the early fall by the appropriate committees of the House and Senate. If their presence in the United States will be required later, presumably they should be given some warning of this fact now. The entire subject of Congressional action on the European aid program seems to require early discussion with the leaders of Congress.

8. Carefully coordinated action on a broad scale will also be necessary as far as the Executive branch of the Government is concerned, if the question of aid to Europe is to be handled expeditiously and effectively.

a. The critical period in the formation of the European program is being reached now, as the answers to the questionnaires by the various subcommissions are being received and the subcommissions turn to the substance of the program. If time-consuming delays are to be avoided after the completion of the Paris Conference, and if the United States is to influence the general character of the program developed at Paris, our influence must be brought to bear now. Presumably this should be done by the “friendly aid” offered by the Secretary in the Harvard speech.

b. There will be a task of considerable magnitude in translating the European program into a U.S. legislative program for submission to the Congress. The European program must be reconciled with the reports of the committees appointed by the President to consider the domestic aspects of the problem.¹ Legislation must be prepared and the program will have to be fitted in with the Government’s general fiscal program. Numerous interdepartmental clearances will presumably have to be obtained. No organization now exists in the Department for undertaking this work. Indeed, no responsibility for seeing that it is done has been placed anywhere.

c. An administrative agency of some kind will be necessary to carry out the U.S. part of the European program. Such an agency cannot be organized over night. Much advance planning and the selection of some key personnel is called for. It would be most desirable if some of the people who will be responsible for the administration of the program from the U.S. end participated in its formative stages. This also calls for some action by the Department.

1. See President Truman’s press statement of June 22, p. 264.