Foreign Relations of the United States, 1948, Western Europe, Volume III

AID Files, Mutual Security Agency,

The Chief of the ECA Mission in France (Bruce) to the Administrator for Economic Cooperation (Hoffman)

53A278, Box 9: Telegram

secret   niact
us urgent

Paris, September 14, 1948—1 p. m.

Toeca 358. Personal attention Hoffman. Re Toeca 354, 355, and 356.¹ Financial situation France heading for tragic climax unless immediate steps taken to cure present distemper. Prices still rising; uneasiness in rank non-Communist labor has made hold-the-line attitude of leaders nearly untenable in face of threatened strikes. Gold price climbing steadily. Demand for dollar and other hard currencies in black market depriving state of essential exchange. Retention of grain by peasants threatens collections. Unless checked soon, inflation will destroy gains painfully achieved during first six months 1948. Steady deterioration of confidence in currency constitutes menace not alone to French economy but to whole European recovery effort.

Political instability is root of failure to deal constructively with economic situation. Uneasy and almost unnatural party coalition commanding, even when united, a bare majority and dependent upon constitution unsuited to modern emergencies makes governmental authority object of derision and cynicism. Successive Cabinets, having proposed partial solutions to acute financial and wage-price problems, have fallen as result of irresponsibility of parliament representing strongly conflicting party interests or because measures proposed could not even command cabinet majority fierce internal debates. Present and past governments held together by dread of Gaullist replacement or fear spread Communism.

Prime Minister Queuille man of character and determination, skilled in political arts. Program suggested by him, in our opinion, is from fiscal viewpoint most courageous and satisfactory proposed to meet present difficulties. If program carries, state expenditures could be balanced by revenues plus counterpart for calendar year without recourse inflationary financing. Intentions long-range fiscal reforms seem sincere. Queuille insists he recognizes need for drastic export increases. Degree of program’s success obviously depends upon solution to wage-price problem and threatening labor unrest.

Under these conditions we recommend immediate assurance be given Queuille that if his program accepted by parliament substantially as outlined our Toeca 354, counterpart be released in successive amounts and with adequate safeguards to be left to our discretion. (Note that we will have no commitment for release unless program has been formally adopted). Otherwise he must at once request legislation to lift present ceiling on advances from Bank of France thereby admitting inability combat inflation and future bankruptcy of Fourth Republic. In these circumstances refusal to release counterpart might well prove boomerang against ERP ultimate goals (Paragraph Four Torep 701).² Realize this is calculated risk but only one possessing possibility averting even graver consequence.

Time schedule of great importance. On Wednesday Queuille will seek cabinet approval new measures. If accepted Commission des Finances will review program Thursday which would then be submitted Assembly Friday. If Government is to succeed must press without relaxation or interval whatever advantages it now has, founded on deep popular desire for strong remedies and settled policy. Once program announced, opposition will rapidly crystallize and speculation will be rampant. If counterpart is to be frozen Queuille must inform nation and demand inflationary financing as part of presentation. This is particularly grave risk if demand is tied to US refusal to accept program as satisfactory.

We realize unsatisfactory nature of demand sudden decision by ECA Washington and summary advice from NAC. However, political events beyond our control have left no choice but to request your determination not later than Wednesday.

If Queuille cabinet falls we entertain no hope that a successor can better his present proposition and have doubts that if this psychological opportunity is rejected any third force cabinet can operate. In such event impossible to predict degree of political, social and economic chaos which would result.

My specific recommendation is that if program is adopted and appropriate measures initiated eventual agreement with French Government would provide for following points:

1. Release for September should amount to 45 billion francs or if you consider it preferable, balance of interim aid counterpart of 41 billion may be adequate. Release for October would depend upon total of deposit notifications sent by US and French Treasury collections. Amount may be less than 45 billion requested by French.

2. Release would be paid into special account for separate administration and utilized for specific projects selected within development program keeping in mind both Queuille’s statement that development program would be oriented to those projects promising contribution by 1952 to balance of payments problem and policy enunciated paragraph (d) Torep 701.

3. Agreement would provide for mutual review between November 1 and November 15 of French economic and financial situation against background of information requested Torep 701. Review would serve as basis for orderly consideration of subsequent releases of counterpart as integral part of implementation of French four-year program which should be approaching final form at that time.

Above recommendation has been cleared and approved by Harriman and Caffery who join in urging your immediate action.³

Copy for Secretary of Treasury.

Bruce

1. None printed.
2. Not printed.
3. On September 27 the ECA Mission in France delivered to the Ministry of Foreign Affairs a letter stating the agreement of the United States Government to the financial measures proposed by M. Queuille (telegrams Toeca 375, September 20, and Toeca 393, September 27; AID Files, Mutual Security Agency, 53A278, Box 9).