840.50 Recovery/9–547: Telegram
The Ambassador in France (Caffery) to the Secretary of State
us urgent
3610. For Lovett, Thorp, Ness and Nitze from Department Economic Advisers. 1. Present information re conclusion of Conference of European Economic Cooperation work in Paris indicates that technical committee reports will be considered by Executive Committee and approved early next week and general report by end next week. CEEC will probably be convened about September 15 for final action on reports. Some CEEC delegates may not have necessary authorization to approve reports on behalf their governments and transmit to Secretary Marshall. Accordingly, it might be expected that reports will be transmitted to participating governments for consideration and action.
[Page 406]However, present working of general report indicates it is intended for Secretary Marshall. Moreover, Franks and Marris1 have expressed their hope and expectation that reports will be approved promptly by participating governments in substantially present form and formally transmitted to Secretary. Therefore, Department should not overlook possibility of this outcome and should, in our opinion, consider appropriate course of action. Several possible courses discussed below.
2. Publicity now being given to technical subcommittee reports. Press conferences have been held regarding reports on fuel and energy, and maritime transport. It is apparently intended to hold press conferences on other reports in near future. Franks and Marris have expressed opinion that publication of reports, presumably upon transmission to participating governments or to Secretary, would be desirable. It appears reasonably certain that key CEEC individuals in Paris intend to give widespread publicity to reports.
3. Our present information is that figure for total deficit for entire period is being revised downward from $29.2 billion figure previously reached and mentioned in newspapers. Franks has already indicated aggregate deficit could be reduced by about $5 billion through elimination of capital expansion items. Information is not yet available as to extent of ultimate reduction in aggregate deficit figure or basis on which this reduction will be calculated. We are fairly certain reductions made to date have not thus far been reflected in substantial revision of technical subcommittee reports on net commodity requirements.
We are informed that reductions are being made in aggregate net requirements for food, coal and timber without regard to revision of each country’s annual net requirements for those commodities. Adjustments are also being made in dollar price co-efficients for some of these commodities in order to reduce aggregate estimated deficit.
According to present information, balance of payments summary will be for sixteen countries in aggregate without individual country breakdown although it is inconceivable that net deficits by individual countries will not be presented at some point.
4. It is belief of Department Economic Advisers that reports in their present form, and as they will probably be approved by Executive Committee, do not constitute acceptable basis for recommendation to Congress and do not meet US conditions as presented by Clayton August 30 (Embtel 3543, August 31). Reports of technical committees are merely compilations of individual country statements of commodity requirements from outside sources. (These committee reports are now largely unrelated to latest adjusted estimates of aggregate [Page 407] dollars deficit and of aggregate net commodity requirements.) These reports reflect little or no mutual criticism and screening. They contain no signs of cooperation by sixteen participants to provide maximum assistance to each other. They evidence insufficient attempt to provide for most effective use of critically scarce resources particularly coal, coke, timber and transport facilities. They indicate no acknowledgement of probable necessity of adjusting standards of living to realities of European situation including capability to produce and possible aid from abroad. Reports fail to distinguish between capital requirements for reactivation of basic industries from capital requirements for longrun projects which should be financed outside of program.
Financial report contains no assurance that effective steps toward internal financial stabilization will in fact be taken.
5. Some CEEC technical experts have acknowledged to us that reports are generally unsatisfactory and also fail to meet US conditions. It is evident that CEEC delegations do not feel their terms of reference permit them to prepare reports along lines which meet US conditions. This situation can be remedied only by new instructions from sixteen governments to their delegations in Paris. Such new instructions will come only, if at all, as a result of vigorous and direct representations by US Govt to other govts concerned.
6. Immediate problem is action, if any, to be taken by US Govt with respect to: (a) formal submission of CEEC reports to US Govt and (b) formal publication thereof. If US Government takes no action, prospects are that reports in substantially present form will soon be submitted to Secretary as final program of sixteen participating governments in response to his Harvard address. This might conceivably jeopardize acceptance in US of aid program for Europe because it could lead to impression in US of inability of sixteen govts to formulate realistic and defensible program. Consequences of US rejection or prolonged debate might be to embitter European peoples with resulting unfavorable political and economic repercussions. If for these reasons Department determines that positive action respecting (a) or (b) above is required, immediate approaches to top officials of UK, French, Belgium, Netherlands, and Italian Governments would seem to be necessary in order to assure desired results by tentative September 15 deadline.
7. Most effective way of avoiding consequences outlined paragraph six above would be to take action designed to prevent formal transmission of present reports to US Government and possibly also their publication. Department may accordingly wish to suggest to key governments that reports of CEEC should be submitted to participating governments for consideration rather than directly and formally [Page 408] to US Government. If steps to assure this result are taken, participating governments should also be urged to issue new instructions to their delegations in Paris enabling them to prepare reports consistent with US conditions. This would have to be done immediately to permit delegations to prepare new reports, preferably by November 1, so as to leave time for examination of reports in Washington prior to submission to Congress. If such developments were assured, present reports could be published as preliminary documents to serve as working papers for second phase of CEEC work. It is believed by Department Economic Advisers that publication under these circumstances would be much less damaging than otherwise. Course of action outlined above would involve vigorous confidential representations to participating governments at this time but would avoid subsequent public rejection by executive branches US Government of unsatisfactory, but European approved program. If completion of program consistent with US conditions extends beyond November 1, or if prolonged Congressional consideration after January is required, Department must of course give immediate attention to question of interim aid.
8. Department may not wish to make representations to participating governments along lines suggested in paragraph seven above since this might appear to violate principle of Marshall address that program should be prepared on European initiative. In that event, US Government should strongly urge participating countries to label reports as tentative and as basis for further exploration of problem by participating countries themselves. This action would at least make subsequent reconsideration easier than if faulty reports are published as final program but would not avoid danger that their formal submission and publication might conceivably prejudice success of entire project.
9. In urging participating governments to adopt new approach and issue new instructions adequate to meet US conditions, US Government should state to them that it is prepared to instruct US military authorities in Germany to cooperate with CEEC countries on same basis and to same extent as participating governments. This would greatly strengthen US position in urging new approach. US control over final distribution of aid (as outlined in Deptel 3195, August 27, 19472) will enable us to protect position of bizonal area.
Sent Dept 3610, repeated Geneva for Clayton 165, London for Douglas 707.