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

840.50 Recovery/8–2647: Telegram

The Ambassador in France (Caffery) to the Secretary of State

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us urgent
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Paris, August 26, 1947—7:41 p. m.

3451. Lovett from Caffery. I submit the following comments in regard to Department’s 3120, August 20; 3158, August 24; Geneva’s 909, August 25 and my 3431, August 25.

From day by day talks with members of various delegations and from an examination of CEEC documents I conclude that the following three basic questions confront us:

1. Why does the preliminary summation show such astronomical deficits and lack of adequate progress towards a viable western European economy?

2. Why is it unlikely that a satisfactory program will result from present conference procedures and attitudes?

3. What can be done about it?

I. The summary of the balance of payments work points to five conclusions:

a. Western Europe before the war was consuming annually two billion dollars in goods and service more than it was producing at that time. The resources for financing this deficit have now disappeared.

b. The commercial isolation of eastern Europe under Soviet controls has greatly reduced an important source for foodstuffs, timber and other materials which western Europe previously financed by the sale of its manufactured products to the same area. This has contributed to the shift in requirements to the western hemisphere with no correllative expansion in anticipated export shipments to dollar areas. (The anticipated 1948 ratio of exports to imports with the American continent is 1 to 4 and in the case of transactions with the United States alone the ratio is 1 to 7.2.)

c. Conference planning to date has been largely an assembly job of country estimates which in the words of one delegate “were aimed at prewar standard of living, western Germany excluded.”

d. These estimates pre-suppose a continuation of the basic economic pattern of the European economy with all the implications regarding low labor productivity and maldistribution of effort which derive from segregating 270,000,000 people into 17 uneconomic principalities.

e. There is no indication of a determined effort to utilize Europe’s own resources where they could be substituted for dollar items. (As an example the planning calls for 43,000,000 tons coal imports from the United States in 1948 and as reported my August 23, major conversion to fuel oil, all of which must be imported, in substitution for coal.)

II. As Sir Oliver Franks indicated to Clayton, as much as $5,000,000,000 might be taken off the preliminary estimates through elimination capital equipment items, downward adjustments to meet available supplies and redirection to American continent of certain export items. In the absence of a fundamental change in the conference’s approach, it is unlikely that reductions will go further unless it is done through a “tinkering with figures” for purposes of improving presentation. The reasons for my pessimism are:

a. Some participants, such as the Scandinavian countries for political reasons, and Switzerland, because it does not need direct assistance, favor a program restricted to listings of net requirements. This attitude tends seriously to reduce the conference’s policy-making function.

b. The conference’s terms of reference and general procedures are such that the majority of the participants on any specific issue do not feel that they can require any single participant to adjust its national program to meet the needs of the group.

c. Home governments tend to act as a brake on the enthusiasms of some individual delegates who would be disposed to push through a bold constructive program. (The Italian Ambassador called on me today to say that one of the difficulties was that none of the delegates here had any real authority and that most of them lacked influence with their governments.)

d. The United Kingdom has been reluctant to permit the question of living standards to come to the floor on the conference, a procedure which would be essential if requirement were to be geared to possible production plus outside assistance.

III. I thoroughly agree with Under Secretary Clayton’s observation that it has become necessary to impose certain necessary conditions. Although I recognize that the course of action contains an element of risk, I believe that the danger would be much greater if the conference were permitted to continue its present course. It seems to me that in the light of the foregoing it is desirable:

a. To make a presentation of our views to the home governments through our respective missions at the same time the presentation is made to the conference here and,

b. That the presentations should be based on the points outlined in Section Three of Department’s 3029, August 14, modified to eliminate any possible loophole which might permit a participating country to avoid its share of responsibility.

I have reviewed with Spiegel, Longstreet, Terrill, Bray and Moore¹ the six basic objectives outlined in Section Three urtel 3029, August 14, and we believe that they constitute a basis for a series of conditions on which the conference report must be based, modified along the following lines to take care of recent developments in the conference.

Point One. We suggest that the term “production of food and materials needed to fill their basic requirements” be changed to specify production of [garbled], coal, coke and major items essential to their production. The reason we suggest this change is that individual European countries regard a multitude of articles as necessary to fill their basic requirements and tend to disperse their labor and other means of production. We believe that the vital need is to concentrate their emergency productive effort on a few items which will mean direct dollar savings. We suggest the inclusion under this point of the following condition:

“Failure to achieve a satisfactory level of production will be ground for discontinuance of aid”. Reference Embassy’s Telegram 3122, August 6.

Point Two. We agree.

Point Three. Our only suggestion is that the word “must” be substituted for the word “should”.

We believe that the retention of the term “as soon as practicable” leaves the necessary flexibility for situations such as Communist-inspired strikes which might prevent effective stabilization at any given moment.

Point Four will be discussed with Clayton on Thursday and our views telegraphed thereafter.

Point Five. In order to eliminate any reason for noncompliance by participating countries we recommend that this provision be reworded to read as follows: “The participating countries shall take steps to facilitate the greatest practicable interchange of foods and services among themselves, adopting definite measures directed towards the eventual elimination of trade and other barriers among the participating countries”.

Point Six. We agree.

We believe that the presentation of the foregoing should emphasize:

(a) That our views were being presented at this time because the conference had requested our friendly assistance in drafting its program and

(b) That final determination of what assistance, if any, will be forthcoming resides with the Congress and with the American people.

Finally the Department may wish to consider adding a statement to the effect that if the participating countries are willing to proceed with their work on the foregoing bases, the Department of State is prepared to recommend, through appropriate channels, to the occupation authorities that they assume an additional and final part [sic] behalf of western Germany, an active part in the formulation of the European program and that they undertake the same responsibility as the participating countries towards the principles outlined above.

Copies held for Clayton and Kennan, repeated London as 675.

Caffery

1. Victor Longstreet, Associate Chief, Division of Investment and Economic Development; William H. Bray, Jr., Foodstuffs Branch, International Resources Division; Ben T. Moore, Assistant Chief, Division of Commercial Policy.