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

840.50 Recovery/11–1547: Telegram

The Acting Secretary of State to the Embassy in France

secret

Washington, November 24, 1947—5 p.m.

4319. Reur 4905 and 4927 and Depts. 4206.¹ French presentation of interim aid requirements was based on plan for Oct 1947–March 1948 period which, if completely implemented, would have had triple effect of eliminating Bank of France’s “short” position of $260 million, operating all new purchases for period on cash basis, and of enabling France to reduce some of her obligations to neighboring countries.

Although this program had much merit from the standpoint of improving France’s international financial position, it was clearly impossible for Dept to request an emergency grant-in-aid from Cong on such basis. This approach would have required thorough exploration of France’s overall balance of payments situation, and of basic policies related thereto. Importance of time element, for both France and Italy, dictated approach based on assistance in alleviating conditions of “intolerable hunger and cold and to prevent serious economic retrogression …”

Dept has noted French experts are in substantial agreement with estimates commodity import requirements as submitted to Cong. Broader framework of France’s balance of payments will, of course, be considered in detail in connection with Congressional examination in coming months of European Recovery Program.

Dept does not believe interim aid estimates presented to Cong are properly subject for diplomatic negotiation. You may, however, in your discretion, use foregoing background material in informal discussions with French Govt at Cabinet levels concerning this matter. Following specific observations may also be of use as background for such observations as you may wish to make concerning the necessity for French authorities to deal with any deficit which they feel may remain.

1. Action by Cong on Interim Aid Bill will not constitute commitment to supply quantities listed in program presented to Cong. Actual supplies wld depend on total funds appropriated by Cong, relative needs of countries included and actual availabilities as determined by US supply authorities from time to time. Dept has assured Congressional committees financial request does not constitute supply commitment. This point being made with other countries concerned.

2. Departmental presentation to Cong was based on assumption obligations already due and payable to Belgium, Brazil and Eximbank should be met. On other hand, future commitments should either be avoided for emergency period or friendly countries should be willing under principle of mutual aid to defer liquidation of such dollar commitments. Latter assumption regarded as applicable to UK war contract problem, particularly in view large French sterling holdings, (Opinion in this country strongly opposed to US assuming entire burden of Western Europe’s balance of payments problem.)

3. Any potential deficit remaining after two above could be further reduced or eliminated for the period if France adopts trade policy designed to meet its CEEC target to export from French Union in 1948 $1.56 billion in goods, $325 million of which are projected for dollar areas. If exports in first quarter 1948 only reached 80 percent of this level, extra receipts beyond those anticipated in France’s interim aid request would go long way toward meeting any remaining deficit. Methods to be adopted to meet or approach these targets are primarily French internal matter.

4. Finally, Bank of France’s forward exchange contracts (uncovered by dollars in Stabilization Fund) are being reduced from $260 million on Oct 1 to estimated $35 million at end of this year. This substantial strengthening of Bank’s position would appear give it flexibility needed to deal with any remaining dollar problem for interim period, pending full Congressional consideration of longer-term recovery program.²

Lovett

1. None printed. Telegram 4206 to Paris, November 10, informed Ambassador Caffery that the Department of State had found helpful his recent telegrams on France’s requirements for interim aid and that $328 million was the amount proposed for France; Caffery was instructed to review the detailed allocations with French officials. Their reaction at a meeting on November 13 was described in telegram 4905 from Paris, November 15, as follows: “In general French merely reiterated requirements previously submitted by them.…” Then in telegram 4927, November 17, the Embassy transmitted the text of a note from the French Foreign Ministry confirming statements made at the meeting of November 13, including the necessity of solving the problem of an uncovered deficit of $140–$150 million beyond the $328 million, for “any half-measure … would run the risk of compromising the success of the Marshall Plan by creating unfavorable economic conditions in France before the general plan for aid to Europe gets under way.” (840.50 Recovery/11–1047, –1547, –1747)
2. On November 28 Ambassador Caffery reported in telegram 5119 that he had handed to Robert Schuman, the new Premier, an informal memorandum embodying pertinent portions of telegram 4319.