Foreign Relations of the United States, 1949, Council of Foreign Ministers; Germany and Austria, Volume III

862.5151/9–2349: Telegram

The Acting Secretary of State to the Embassy in France

top secret
priority

Washington, September 23, 1949—7 p.m.

3604.¹ For the Amb.

Question Ger rate is under consideration by Allied HICOM and we do not wish to deal with it directly at governmental level. For urinfo, we suggested yesterday to McCloy that he attempt informally to urge Gers to recommend level around the 23.8 figure which is approx 20 percent devaluation. In further conversation with McCloy today² he stated there will be no decision on conversion factor until Sat. He will try to persuade Gers to agree to 20 percent devaluation which he believes will be acceptable to Brit who are willing to accept 25 percent. If necessary, however, McCloy will override Ger proposal and insist rate be set at 23.8. McCloy unwilling to support Fr proposal re coal price.

Believe it wld be useful for you to see Queuille to clear up what we believe to be misunderstanding on his part re what has happened in Ger and to give him statement of our position on prices which we hope will be helpful.

You may tell him US is not insistent on any particular rate, and that it was prepared to accept 23.8 rate which Gers originally had in mind. Regarding 22.5 rate, we felt important consideration was that Allied HICOM shld not override Ger Govt in first matter coming before com on formation of govt.

We have also made it clear to Gers that there is no commitment to allow them to use counterpart funds for internal subsidies which they might consider necessary as a result of devaluation and in fact have indicated we would probably disapprove such use.

We cannot give Fr assurance we will require Gers to eliminate dual price system on coal without regard to action taken by other Eur countries re coal and other commodities. You may inform Queuille as follows on this point:

1. US is, as Fr know, opposed to dual price system and wishes to see it eliminated soon as practical.

2. US believes it is essential that entire problem of dual pricing by which exports of Eur countries are more costly than same goods are to internal consumers shld be studied and that coal and coke problem shld be dealt with with particular urgency. An attack on the entire problem shld, however, be made immediately, since it involves in addition to coal such important commodities as iron ore, steel and others.

3. US is prepared take fol steps if Fr govt will request an immediate meeting of appropriate organs of OEEC, to prepare recommendations to govts concerned on problem of dual prices:

a. To urge that action on coal and coke is most urgently required and shld be taken soon as agreement can be reached on required action.

b. To make clear to Ger Govt and other govts concerned that in view of US full cooperation in elimination of dual pricing of coal and other commodities is required for Eur recovery and is an appropriate action in pursuit of Eur recovery.

c. To make a public statement, independent of OEEC consideration (to avoid compromising OEEC procedure of discussing problems without publicity), to the effect that in US view dual price system in Eur shld be eliminated soon as practicable by appropriate combination of changes in internal and in export prices.

For urinfo above assurance is formulated as it is because US cannot promise to require Gers to take action independent of action which may be taken by principal competitor, Brit, especially since Brit have very strong hold on certain of their export markets by reason of tradition and special relationship of customers. This assurance makes certain that Gers will do all that Brit do and does not exclude Gers taking lead in effort to bring down export prices which will force Brit to follow. Gers are not only culprit by any means. Furthermore, it will be necessary make certain that internal price changes, which may be expected over a period of time to reduce spread between export and internal prices even without cut in export price, are orderly and do not lead to inflation in Ger. It seems to US that some increases in Ger internal prices can reasonably be expected to occur as result of devaluation.³

Webb

1. Repeated to London as 3472, Frankfurt as 1738, and New York as 494.
2. No record of this conversation has been found in Department of State files.
3. On September 25 Bruce, Bohlen and other representatives of the United States Embassy discussed the devaluation of the mark with Parodi, Petsche and Alphand and found that the French were uncompromising in linking devaluation with equalization of coal prices. The French were unwilling to await OEEC action, believing that the question had been exhaustively discussed at that level in the past without result. Petsche then stated that even if he were willing to agree to devaluation without coal price revision, the French Cabinet would not ratify the decision. (862.5151/9–2549)