Lot 122, Box 19B
The Chairman of the CEEC Washington Delegation (Franks) to the Under Secretary of State (Lovett)1
Unofficial Aide-Mémoire
When I arrived just over a week ago, you were good enough to say that we were engaged upon a common endeavour and that you counted on both of us approaching the problem in a spirit of frankness and in straightforward discussions. I hope therefore you will regard what I have to say today in that light.
I cannot too much stress that the programme which is before you now is important in its political as much as in its economic aspect. The Paris Conference, following so closely on Mr. Marshall’s speech, has created a new hope in men’s minds in Europe. They feel that the Marshall Plan offers a last chance to Western Europe to recover from the economic and political effects of the war and to lead a way of life which, in its reliance on free political institutions, freedom of speech, equality before the law and the value of the individual to the state, is broadly similar to the way of life followed and enjoyed by the people of the United States. They therefore feel that the initiative taken by Mr. Marshall is, perhaps, the most important single step that any government has taken since the war. For in it they see made manifest [Page 447] the interest which the United States has in the solution of their economic problems and in the consequent preservation of the way of life they wish to continue to lead. They therefore look forward with hope and confidence to working with the United States Government to achieve what they believe that Government considers is a common end.
The Paris Conference, furthermore, has made people in Western Europe feel that they have responded successfully and in full measure to the initiative of the United States Government and they are now looking to these discussions in Washington as the next step in the fulfilment of this common endeavour.
If this hope is to be preserved and the new spirit of a common purpose which was such a feature of our work in Paris is to be kept alive, it is essential not only that our present discussions should succeed, but that from them there should emerge a programme which the people of Western Europe believe is likely to lead to a full measure of recovery in a relatively short time. Hopes are fresh and it is vital they should not be disappointed or deferred.
The programme is a recovery programme and not a programme of temporary relief. It has therefore to be a large programme and the amounts available under it have to be sufficient to do the job. Otherwise it loses its character, becomes a further instalment of relief, and at its end the people of Western Europe will be on your doorstep again. By then, however, both they and you will be further disillusioned and, more importantly, Europe may have gone so far down the hill that full recovery may have become impossible and the social and political fabrics of Western Europe so altered and strained as to force other solutions than those for which we are both working and hoping. The forging of the recovery of Western Europe can only be done once and it has to be done now.
The programme which is now before you is not perfect and has faults and to remove these faults and to work to something better is certainly desirable: but I should be misleading you if I were not to say at this stage that I am a little disturbed at the way the discussions of the Technical Committees have been going. There seems to be a tendency in these discussions to “chip away” and the risk is that the cumulative effect of this process, if it is allowed to continue, would have the result that the amount the Administration might support before Congress might in aggregate be sufficient only to support a relief programme and not a full programme of recovery.
With few exceptions, your technical people have not questioned the reasonableness of the quantities of the things the programme asks for. The “chipping away” process therefore can only be on availability of supplies or on the assumptions we have made about their cost. In taking [Page 448] a four-year period, one has got to make assumptions on both these points and, in making assumptions, there is naturally plenty of room for difference of opinion. Therefore, what is really important is to decide whether the assumptions we have made are broadly reasonable.
As far as availability is concerned, the quantities in many critical items were cut in Paris below the full statement of requirements. To meet even these reduced requirements would in some commodities call for some physical sacrifice in the shape of exports from the United States. This may well create problems of real difficulty. But if, for example, the cereals programme has radically to be revised over the entire four years, the whole programme may be endangered and the date at which recovery in Western Europe will be complete will be seriously delayed. And no one knows how far that process can be pushed without destroying the programme. Even as it is the people of Europe must live to some extent on deferred hope.
As for prices, I think that we have if anything been too optimistic. For example, on foodstuffs, which account for 60% of the total, some of your experts have told us that we have been rash in assuming that food prices will not rise during the next twelve months and will fall during the last thirty-six months of the programme. Already many prices have gone up substantially above the level assumed in the Report. In July wheat was $2.60 a bushel. It is now $3. Fats prices in the United States are now 25 % above the level taken in the Report.
For all these reasons, therefore, I hope that the Administration will feel able to support a programme of the order of magnitude which will permit Europe to move forward to recovery within something like the period contemplated in the Report. I do not at all suggest that the Administration should accept the precise amounts mentioned in the Report, but I do venture to suggest that the size of what is recommended should not greatly differ from what the sixteen countries have stated they will need. A few billions of dollars (and I am not suggesting that a billion dollars is a small sum) may make all the difference between success and failure. I fully realise that the combination of political circumstances in this country which you mentioned to me at our first meeting puts the Administration in a position of real difficulty. But this chance will not occur again and I am convinced it is vital that the opportunity be seized and the work begun on a scale to give it the fullest chance of success.
In addition to this main point, there are three others which I would like to mention to you. We have discussed them among ourselves and I feel sure that you have also, but we have not yet had the occasion to talk about them together. I think it is important, however, that we should lest opinion should harden before we have had a chance to explore each other’s points of view.
[Page 449]My first point concerns the form which aid might take. I feel sure that you must have discussed whether aid should be given in the form of dollars or in the form of goods. The final decision on this point must, of course, lie with the Congress. But it may nonetheless be useful to give you our views. We would much prefer aid in the form of dollars than in the form of commodities. There are many arguments in support of this.
- (i)
- European recovery as planned in the Paris Report is not possible unless the whole of the deficit with the Americas is covered. If aid were to be limited to supplies from the United States, Europe would be forced to take all steps possible to obtain the supplies and services from the rest of the American Continent that are needed. These steps might well endanger the actual basis upon which the European recovery programme is based. For example, if the United Kingdom had no dollars with which to buy Argentine wheat, it might be forced to send such extra coal as it has available for export not to Europe as contemplated in the Paris Report, but to Argentina. If this happened, the whole fabric of the recovery programme would begin to crumble. In any case, whatever bargains were made with the rest of the American Continent the full supplies needed for the recovery programme would probably not be forthcoming.
- (ii)
- The deficit with the Americas is not made up entirely of commodities. There are many items which appear for the most part among invisibles for which Europe will want dollars, for example, payments for films, service of American obligations, shipping disbursements, etc.
- (iii)
- Although aid given in terms of commodities does not necessarily imply government procurement, it may tend towards this. Government procurement over the whole field of the commodities which the European countries wish to obtain from the United States would introduce rigidities where now there is the flexibility of private trade and we cannot believe that it is in the interests of either the United States or the European countries that this should be so. It must be borne in mind that after the period of the programme Europe will still wish to import from America and pay for considerable quantities of these goods and it is surely wise that so far as possible the normal trade channels should be left available.
My second point is this. It is natural that in an operation of the sort which we are now discussing people should tend to think in terms of the Lend Lease arrangements. I would like to suggest, however, that there are certain dangers in this way of thought. The purpose of Lend Lease was to provide the Allied countries with those foodstuffs, raw materials and equipment which were essential to the prosecution of the war and it was natural, therefore, to attach as conditions to the provision of such supplies restrictions on the use of these materials in the export trade. If, however, restrictions of this sort were to be imposed either on the supplies purchased with any dollars which might be made available or on the use of the supplies themselves, the [Page 450] purpose of the recovery programme would be frustrated for it is the intention of that programme, among other things, to bring about an equilibrium in Europe’s balance of payments by a greatly increased flow of European exports.
My final point is this. The organisation and individuals who physically receive the goods and services supplied to Europe from the United States and the rest of the American Continent will naturally pay for them in the local currency of their own country. The United States Government may wish to impose certain restrictions on the use of these funds. For example, it may wish to stipulate that they be not used for financing current expenditure. Such restrictions will tend to be different for each country. But the sums involved will necessarily be large; it is important that the restrictions imposed on their use should not interfere with or prejudice the economic and financial control of the whole economy that must be exercised by the government of each country. In particular, the vesting of these funds not in the government but in some independent organisation might gravely impair this necessary central control.
There are also serious political dangers in such restrictions. The interpretation of them in the future—and a long future—may be a potential source of irritation in the relations between the United States Government and the governments of the participating countries. If the United States decides to support the European recovery programme, it will in the nature of things have an inherent control over it which it will be in a position to exercise without resort to mechanical devices that might cause the irritation mentioned above.
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- A covering memorandum on the file copy indicates that the “aide-mémoire was left with Mr. Lovett by Sir Oliver Franks at their conversation on the evening of 22 October.”↩