Sir John Balfour called this morning at his request and left with me
the attached aide-mémoire2 and annexes
concerning the British financial position. He emphasized the
importance which his Government attaches to the subject and
proceeded to read aloud most of the aide-mémoire.
He then said that he had been instructed to tell me orally that his
Government considered this as an informal approach and not the
formal notification envisaged in Article 12 of the Anglo-American
Financial Agreement. Under that article either the British or
American Government reserves the right to initiate formal
consultation if it finds itself unable to comply with the provisions
of the Agreement. He had also been instructed to say that should
this Government consider such an approach desirable the British
Government would consider taking the formal step called for by
Article 12. Sir John Magowan then read the text of Article 12.
Mr. Balfour asked if there was any word which I would like him to
communicate to Mr. Bevin. I said that I would wish to study his aide-mémoire first and that there was nothing
which I wished to say at this time.
[Enclosure]
The British Embassy
to the Department of State
Aide-Mémoire3
British Ministers have recently had a valuable exchange of views
with Mr. Clayton on the United Kingdom financial position, on
some of the implications of Mr. Marshall’s Harvard speech,4 and other
matters.5 After preliminary
discussion with the United States Ambassador and Mr. Clayton, a
memorandum was drawn up on the subject of action to implement
Mr. Marshall’s speech. A copy of this memorandum, which was
accepted by Mr. Clayton is attached at Annexe A.6
The United Kingdom Government has also drawn up a note on the
results of the second Paris Conference which shows the extent to
which they have been able to carry out Mr. Clayton’s informal
advice. A copy of this note is attached at Annexe B.6
His Majesty’s Chargé d’Affaires has been instructed to assure the
United States Government that the United Kingdom Government will
[Page 46]
do their utmost to
see that a European scheme is produced by the beginning of
September which, they hope, will afford the basis of further
governmental action by the United States. It is, however, a
matter of doubt to the United Kingdom Government whether any
assistance to Europe which may flow from Mr. Marshall’s
proposals will come early enough or be large enough to meet the
special difficulties and position of the United Kingdom as a
world-wide trading nation.
The United Kingdom Government have gone ahead unhesitatingly in
an attempt to fulfil by July 15th their obligations under the
Anglo-American Financial Agreement. They assumed this heavy
burden in the hope that by doing so they were taking the first
steps in the construction of a healthy world economy and in the
faith that by measures taken on a large scale to assist Europe
on the one hand and to relieve the world dollar shortage on the
other, the United States would ensure that these first steps
were not taken in vain. It has been common knowledge between the
United States and United Kingdom Governments that, without
further measures either through the International Monetary Fund
and the International Bank for Reconstruction and Development or
by direct United States Government action, these first steps
were doomed to failure.
Mr. Marshall has had the figure of drawings on the United States
credit and a full statement of the position by the United
Kingdom Government.6 At the
present rate of drawings, and there is no reason to expect any
significant change in them in the immediate future, they will by
the fall have exhausted the credit and shall be left only with
their final reserves. These comprise not only their own working
reserves but those of other sterling countries. With all the
uncertainties before them they could not contemplate serious
depletion of these already inadequate reserves.
In the face of this situation the United Kingdom Government will
be compelled in any case early in the fall to take corrective
measures affecting not only their own internal economy, but
their trading relations with other countries. They are urgently
studying these measures already. They will have to cut their
imports from the Western Hemisphere to a point where their
productive capacity is damaged because of deficiency of food and
also of raw materials. This means at once that any contribution
from the United Kingdom to restore European economy will be
drastically lessened. They will have to explore all possible
alternative sources of supply. They will have to curtail the
supply of dollars for India, for the Middle East and for other
countries,
[Page 47]
and will not
be able to find the dollars necessary to finance the Canadian
deficit with the United States. They will be able to provide no
further dollars for Germany. Their difficulties will spread to
other countries and they will no longer be able to act as the
differential gear between the United States economy and much of
the rest of the world. Mr. Marshall will realize also that their
dollar shortage is bound to react on their military commitments
abroad.
Moreover, unless assistance is forthcoming, the United Kingdom
Government will be forced by circumstances beyond their control
to retreat from one position to another, and further and further
from the concept of a multilateral world economy. They will not
be able to progress towards multilateral trade and
non-discrimination over a large part of the world. Instead they
will have to manage their affairs on the basis of a series of
bargains by which they can get what they can, where they can and
on the best terms they can arrange.
The United Kingdom Government wish to make it clear to Mr.
Marshall that these are not groundless fears. They are the stark
facts of the situation. It is because they are aware of these
facts that they are bending every effort to secure an early and
satisfactory response to Mr. Marshall’s Harvard speech. But at
the same time they feel they must leave Mr. Marshall in no doubt
of what kind of policy, both at home and abroad, will be forced
upon them when they have no dollar resources available. They
recognise that the first result of this policy will be a general
restriction of international trade. They will suffer from that
and they are aware of this fact. But they see no alternative
line of policy open to them.
As regards Germany, the United Kingdom Government, on the facts
given above, could not possibly go to Parliament for a
supplementary estimate above their existing appropriation
knowing that much of any appropriation for Germany means
dollars. Indeed, they are very doubtful whether they can afford
to provide the dollars due under their existing appropriation.
This will certainly be the case if there is a crisis in the
autumn. Further, they cannot ask Parliament for an appropriation
largely in dollars for next year unless there is a radical
transformation of the whole situation. While they believe, as
the United States Government do, that it is vitally necessary to
raise and maintain at a higher level the present low standard of
German economy, they themselves shall be unable to play any part
in providing the dollar funds which will be required for this
purpose.
The United Kingdom Government are most anxious that Mr. Marshall
should be left in no doubt of the urgency and gravity of the
situation as they see it and as they have explained it to Mr.
Clayton. They think it necessary to place on record the full
implications of the situation with which the United Kingdom
Government are now faced.
[Page 48]
It is their intention to keep in very close touch with the United
States Government on the development of the situation.
Washington
, 28th July, 1947.
