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

FW 840.50 Recovery/10–1347

Memorandum by the Acting Secretary of State to President Truman

secret

[Washington,] October 13, 1947.

Subject: Emergency Financing of French and Italian Requirements.¹

1. Sixteen European countries have cooperated to produce a program for European recovery and have transmitted their report to the U.S. Government. This report is currently being reviewed for the purpose of formulating recommendations to Congress. Action by Congress on this program may not take place until March, 1948, or even later. In the meantime, the financial resources of some of the cooperating European countries have so far declined as to threaten economic and political collapse. A downward spiral in economic activity in these countries accompanied by serious deficiencies in food and coal for domestic consumption this winter would lead to explosive political instability. Communism is energetically exploiting and accentuating the present and prospective difficult situation.

2. There are many uncertain factors, both economic and political, which may affect the financial positions of the western European countries during the coming winter months. It is not possible now to forecast exactly what will develop. It is most likely, however, that, pending the appropriation of funds under a general recovery program, interim aid will be needed by some of those countries if their positions are not to deteriorate even more dangerously. Unless these crises are met as they arise, there is little hope that the economic and political foundation on which to build a recovery program will be preserved. In the case of both France and Italy a serious crisis already exists and its dimensions are discernible. The balance of this memorandum is directed to a consideration of the immediate requirements of those two countries.

3. Total minimum dollar requirements for France from October 1947 through March 1948 amount to about 800 million dollars (see attached Tables on France²). Current receipts plus other expected availabilities should provide about 450 million dollars leaving a deficit of about 350 millions. If all anticipated sources of revenues were promptly realized and expended, France’s needs could be met through December. If France is confined to such resources, however, the lack of any assurance of continued availability of funds would at once compel France to restrict procurement even of food and fuel in anticipation of the uncovered requirements for the first quarter of 1948. Expected current revenues in the first quarter of 1948 amount to less than 50 million dollars. Continuation of dollar deficiencies at the rate shown in the attached Tables would therefore require a further drain on French gold reserves, which at their current level of 440 million dollars are already below the minimum consistent with financial stability. The reserves have declined by 1.4 billion dollars in the last two years.

4. Total minimum dollar requirements for Italy in the same six months period will run about 500 million dollars (see attached Tables on Italy²). Available U.S. relief funds, receipts and other probable sources of dollars will provide about 250 millions leaving a deficit of approximately 250 million dollars. Due to the timing of availability of resources, however, the Italians have current funds available to meet less than half their dollar requirements of the present quarter. The basic gold reserve is about 80 million dollars, but this includes 20 millions needed to make initial payment to the International Monetary Fund.

5. Unless there is developed promptly a specific program of action designed to afford some hope that the funds may be available for the most essential items required, not only in the last quarter of 1947 but also in the 1st quarter of 1948, the French and Italian Governments will inevitably, starting almost immediately, further drastically cut essential imports even of food and fuel, and the pipeline will start to empty rapidly. Provision of funds, say in December, without some basis for hope now that they will be available then, would entail a serious risk, since by that time the continuous nature of necessary procurement might have been critically interrupted and irreparable damage done. A special session of the Congress might provide funds before the end of the year, but even if there were a clear indication that the special session would in fact be called, there would be urgently required some other assurance that funds for 1st quarter 1948 procurement would be available, and such assurance in this case could be given in this instance by the Export-Import Bank and the CCC. The financing of these imports is not appropriate for the International Bank or the International Monetary Fund.

6. Financing by the Export-Import Bank of coal and petroleum exports from the United States to France and Italy and by the Commodity Credit Corporation of wheat and cotton exports during the last quarter of 1947 and the 1st quarter of 1948 would involve credits on the order of the following in millions of dollars:

	CCC	EX-IM	TOTAL
To France approx.	150	140	290
To Italy ”	100	60	160
	250	200	450

Credits in these amounts, however, would leave uncovered deficits for the six months of about 50 million dollars for France and about 100 million dollars for Italy. Thus the whole problem would not be met and it would be necessary in addition to call upon Congress to provide for the balance of the requirements. It becomes a matter for political judgment as to whether the calling of a special session would be practicable if all but $150 million of the indicated requirements were taken care of by the Export-Import Bank and the CCC, especially in the light of the fact that the items to be covered by the Congressional appropriation would be miscellaneous commodities and other materials which might be considered less vital than food and fuel.

7. The difficulties foreseen in the course outlined above would be overcome if the Export-Import Bank and the CCC could finance the total French and Italian deficit for the period October 1947 through March 1948, or until the Congress could act on the long-range recovery program at the regular session. This would mean that in addition to the $450 million mentioned in paragraph 6 above, the Export-Import Bank would finance the approximately $150 million balance of the total deficit for the period October 1947 to March 1948, since most [of] the items in question would not be of a nature eligible for CCC financing. If assurances of such financing can be given now, this would make unnecessary the calling of a special session of Congress for the particular purpose of meeting the immediate problem in France and Italy. If Congressional action on the European recovery program were delayed appreciably beyond March 31, 1948, further large burdens would have to be carried by these agencies, since, in addition to continuing French and Italian requirements, other European countries would enter equally critical stages at that time.

8. If the program of total support by the Export-Import Bank and the CCC is impossible, there remains the following possibility, which, if successful, would be the one best designed to obtain maximum political advantages abroad. This program would be, in so far as France and Italy are concerned, as follows:

a. A special session of the Congress be called to meet in late November. This call should be made as soon as practicable and before the already called convening of certain committees of Congress in early November takes place.

b. A two point recommendation be made to the Congress. Firstly that appropriations be authorized to cover the food and fuel requirements of France and Italy through June 1948. Secondly that an appropriate government agency or agencies be authorized to grant credits to the two countries for procurement of other essential imports until the Congress takes action on the European recovery program.

c. The Export-Import Bank and the CCC be consulted as to whether, in the light of the critical situation, it would be possible for them to give assurances at once that they will provide credits in the near future to carry France and Italy until the special session appropriates interim aid funds under b above, presumably some time in December.

Robert A. Lovett

1. At the October 10 meeting of the Advisory Steering Committee, Col. Bonesteel stated that “Under Secretary Lovett is presenting the emergency problem to the Cabinet today. It is anticipated that Mr. Lovett will request the Cabinet members to survey the ability of their agencies to contribute and to assist in the development of a definitive plan of action.”
2. Tables not attached to file copy.
2. Tables not attached to file copy.