841.51/11–1947
Memorandum from the Acting Director of the Office
of European Affairs (Reber) to
the Under Secretary of State (Lovett)
[Washington,] November 19,
1947.
You are scheduled to appear soon before Congressional Committees with
Secretary Snyder and Secretary Forrestal to discuss the release of
the $400,000,000 balance of the line of credit to the United Kingdom
established under the Financial Agreement. The basic approach to the
Congressional Committees was outlined in a memorandum to you, dated
November 7, 1947, from Mr. Gross1 and
Mr. Ness (copy attached). In your exposition of the foreign policy
aspects of the availability of the undrawn balance to the British,
you may wish to make the following points:
- 1.
- Our basic objectives in the Financial Agreement have been
twofold. First, we desire British recovery, in our own
economic interest, in order to make possible a high level of
world trade, and to enable Britain to participate ultimately
in multilateral and non-discriminatory trade. Secondly, a
strong and healthy Britain is essential to our basic foreign
political objectives. She is our most important friend in
supporting the United Nations, in dealing with the Soviet
Union, and in preserving peace.
- 2.
- Britain is now drawing on her basic gold and dollar
reserves (which serve the entire Sterling area) to meet her
balance of payments deficit. The $400,000,000 balance of the
loan, given British dollar losses during the financial
crisis, is an important bridge to carry
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Britain through the difficult
interim period before the Congress takes action on the
European Recovery Program. (Secretary Snyder will take the
lead in developing this line.)
- 3.
- If the balance of the loan were not available to alleviate
Britain’s present dollar shortage, it would be more
difficult for the United Kingdom to implement the
undertakings it has accepted in the ITO Charter and would delay the United
Kingdom’s return to a multilateral and freer trading
system.
- 4.
- The political results within Britain of withholding the
balance of the loan cannot be gauged with precision.
However, some political consequences which we wish to avoid
would undoubtedly follow, even though these would not
include changes in fundamental British foreign
policies.
The British regard our present attitude with respect to the
convertibility and non-discrimination clauses of the Financial
Agreement as demonstrations of sympathy for their economic
situation. A freezing of the balance would offset this favorable
British reaction. It would give ammunition to the Left Wing critics
of Bevin who have charged him with “subservience” to, and
“dependence” upon, the United States. The anti-Americanism of these
critics within the Labor Party has been their principal common
denominator and Bevin has at times had to be responsive to their
views.
Withholding the balance of the loan might also have some political
consequences in our general relations with Britain and Russia,
although they would not be of major significance. The Russians and
the Communists would say that our action is additional proof that
the United States is in fact not interested in British recovery, and
that the freezing of the balance is simply another example of
Anglo-American economic rivalry which will eventually destroy the
friendship between the two countries. On the other hand, making the
$400,000,000 available would be a demonstration of the continuing
solidarity of the United States and the United Kingdom, and of our
vital interest in British recovery and welfare.
[Enclosure]
Memorandum from the Legal Adviser
(Gross) and the Director
of the Office of Financial Development Policy
(Ness)
to the Under Secretary of State
(Lovett)2
The basic approach to the Congressional committees with respect
to the release of the balance of the line of credit established
under the Loan Agreement should be substantially as follows:
- 1.
- As an introductory statement, the Secretary of the
Treasury would comment briefly on the action taken on
August 20. This would
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involve a brief statement to the
effect that the situation in Great Britain became so
serious that it was necessary for the British Government
to suspend convertibility.
- In this connection the British voluntarily proposed
that no further withdrawals be made against the line of
credit. Accordingly, withdrawals were discontinued by
mutual consent of both Governments.
- 2.
- A brief statement should be made dealing with the
results of the efforts made by the British Government to
reach bilateral agreements with respect to
convertibility. It should be indicated further that
continuing balance of payments pressure upon the British
has compelled them to resort to rigid measures to
restrict imports from dollar areas.
- 3.
- An explanation should be made concerning the situation
existing at the present time. The elements which should
be stressed include the continued rate of decline of the
gold and dollar resources left to the U.K., the
importance of the unnotified 400,000,000 dollars for the
British to enable them to continue with the policies of
multilateralism and convertibility which constituted the
basic purposes of the Anglo-American Financial Agreement
from the viewpoint of the United States. In this
exposition Under Secretary Lovett would emphasize the
important foreign policy aspects of making available the
undrawn balance to the British. Secretary Forrestal
would outline the security aspects of the
problem.
- 4.
- The next step in the presentation of the problem to
Congressional committees should be with reference to
Section 12. This discussion should center on the fact
that in the opinion of the Executive Branch of the
Government it is impossible at this time for the U.S.
and U.K Governments jointly to reconsider the Agreement
with a view to presenting to their respective
legislatures specific recommendations for modification.
In outlining the reasons why such consultations are not
feasible at the present time, particular attention
should be given to the facts that world conditions are
at the moment so uncertain as to make it impossible for
the U.K. accurately to determine in what degree she can
safely undertake to abide by the commitments to which
she dedicated herself in the Loan Agreement and to which
she continues to wish to abide as fully as possible.
Particularly is this true because of the uncertainty
both of the British and U.S. Governments of the extent
to which the implementation of the Marshall Plan will
enable the British to continue multilateralism and
convertibility. If an attempt were made now to specify
modifications, it is almost certain that the extent of
modification would be greater than would subsequently
prove necessary.
- 5.
- Having demonstrated that action under Section 12 is
neither practical nor in the best interests of U.S.
long-range policy favoring multilateralism and
convertibility, it should next be pointed out to the
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Congressional
committees that the unblocking of the balance of the
loan is an act which in itself would be in furtherance
of our basic objectives. The distinction should be drawn
between substantive modifications of the Agreement
pursuant to Section 12 based upon reconsideration
designed to take account of prevailing conditions of
international exchange, and the effects of refusing to
permit further withdrawals. It should be made clear that
in the view of the Executive Branch of the Government,
the continued freezing of the balance would intensify
the difficulties which have compelled the U.K.
Government to take the steps which have been described.
The Executive Branch considers it appropriate to discuss
informally with Congressional representatives the
effects which continued freezing of the balance of the
loan would have upon our national interest in order that
Congressional representatives will have been informed
concerning the basis of future action by the Executive
Branch.
- 6.
- The definitive action by the Executive Branch should
be taken in the light of Congressional reaction to the
foregoing exposition.
