Foreign Relations of the United States, 1949, Western Europe, Volume IV

ECA Telegram Files, FRC Acc. No. 53A278, Paris Toeca: Telegram

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

secret
priority

Paris, May 23, 1949—2 p. m.

Toeca 949. Immedate attention Bissell.¹ Counterpart Series No. 26. Reference previous messages this series.

1. ECA mission requests authority before May 25, to agree to release of 25 billion francs to meet June expenditures on selected development projects.²

2. Trend of improvement since Communist-directed strike in November 1948 continues. Industrial production only four years after war has exceeded record level of 1929. Country still benefits from last year’s good harvest, and prospects this year’s crop after initial disappointment are becoming more encouraging. Decline in food prices continues. Lag in fall of industrial and retail prices is disappointing, but lower world prices and continuing improvement supply position should soon bring some break in resistance and price fixing of industrialists and merchants assuming general trends continue. Black markets are largely non-existent. Consumers have much greater selection. All these factors add up to higher real wages for workers. Monnet claims pre-war level of productivity has been reached through increased production and without appreciable drop in employment or hours of work. Increase in money supply has been curbed. Bankruptcies and liquidations show slight increase with emphasis on elimination of distributive firms which profited in inflation at expense of consumer. Despite “crisis” atmosphere engendered at opening of Parliament, black market rate for dollar has been held around 370 which should capture large volume tourist receipts. Exports are increasing and payments position is improving.

3. It is unfortunate that Queuille and Petsche did not find it possible to consolidate this improvement by more decisive action on public finances. Nevertheless we must admire their firmness in insisting that unforeseen expenditures arising from Indo-China military operations and from railroad deficit be handled immediately. They are also fully aware of remaining major obstacles to Treasury equilibrium, namely, deficit electricity and gas, deficit old age pensions, and losses foreign exchange operations. Even now, administration is engaged in determination of procedures to meet these problems. Certainly Cabinet and Parliament will have to deal again with Treasury difficulties before year is out, but goal of non-inflationary financing is so near achievement that favorable trend in savings available to Treasury, plus additional administrative measures, may be adequate to enable Petsche to keep undertaking to the letter. It is to his credit that he carries the burden of asking for sacrifices and cooperation from those groups in French society from which he derives his political support. In any case, economic and financial situation remains so fluid that it is advisable to continue monthly review of developments before committing ourselves to release of counterpart beyond recommended June release.

4. While Queuille and Petsche will not be able to relax efforts to re-establish balance in public finance, more serious problem is possibility that present equilibrium between prices and wages will again become subject of controversy. If Petsche can obtain Cabinet agreement to keep wheat price at present level, government should be in strong position to oppose demands for increase in money wages and thus demonstrating to labor groups that it will not permit individual interests to threaten improvement in their real wages. If wage-price equilibrium is not maintained, efforts in public finance will surely prove inadequate.

5. On the whole, piece-meal measures of Queuille and Petsche are developing into a body of consistent and sustained economic and financial policies—continuing pressure for limitation of public expenditures, effort for sound increase in fiscal receipts, insistence on maintenance restriction of bank credit, steps to stabilize prices and eliminate price distortions, and provision for high level investment and reconstruction. It is claimed by some sources these policies are leading to serious slump. In fact, however, problems of deflation, recognizing that some adjustments are both necessary and desirable, are unlikely arise in France in near future. Conditions remain essentially inflationary. Employment is at high level and labor is still a bottleneck. Drain of military operations in Indochina is added to large current and prospective demands for investment and reconstruction expenditures. French administration is now intensively discussing program for liberalization of trade and payments in international field. Assuming efforts to obtain well-balanced internal policies are not relaxed, French Government should be able to take lead in re-establishing expansionist policy in foreign trade relations which ECA is now pressing upon OEEC.

6. Again we can state that Queuille and Petsche are endeavouring to deal constructively with their economic problems. It is not possible to predict the success they will have before Parliament, but they clearly deserve at this time as much assistance as we can give them.

7. Ambassador Bruce and Ambassador Harriman fully concur in mission’s recommendation.

Pass to State and Treasury.

Reed

1. Richard M. Bissell, Jr., Assistant Deputy Administrator for Program, Economic Cooperation Administration.
2. Approval by the ECA for release of “25 billion counterpart French francs for investment expenditures and loans to private industry” was confirmed in telegram Ecato 689 to Paris, May 24, 10 p. m. (ECA Telegram Files, FRC Acc. No. 53A278, Paris Ecato)