840.00R/8–1150: Telegram
The Acting Administrator of the Economic Cooperation Administration (Wood) to the Acting United States Special Representative in Europe (Bonsal), at Paris
priority
Torep 6880. Re Repto 4076 rptd London Repto 565 and Torep 64701 not rptd London. This cable contains views of Dept and ECA on general role of OEEC in Eur rearmament. Next stage is to reduce these broad statements to specific programs on which we are developing our views. Meanwhile would appreciate your comments.
2. Altho Korean situation has resulted in acceleration of rearmament both in western Eur and in US objective of creating dynamic self-supporting economy in western Eur continues to be no less important than it has always been. Required defense effort will not be possible unless there is continuous improvement in basic econ position of countries concerned. Furthermore although necessity to revive WE milit strength will in all probability slow down rate of improvement in standards of living, popular morale on which democratic military [Page 666] strength must rely requires that maximum possible progress continue to be made toward econ goals set out in OEEC convention.
3. However as increasingly larger resources are devoted to rearmament it is obvious that OEEC cannot discharge its responsibilities without regard to impact of milit program on civilian economy or to possible competition for resources between military and civilian end uses. Furthermore large and efficient rearmament effort in Eur depends upon rapid mobilization of those resources in civilian economy which can and must be devoted to military production and expenditure. Three tasks of fostering econ progress facilitating mobilization of econ resources for rearmament and assessing and minimizing impact of rearmament on civilian economy are obviously closely interrelated and OEEC must be in position to be a primary responsibility at internatl level for first and to play major role in second and third.
4. Additional but very important reason for view that OEEC should assume added responsibilities at internatl level is that mobilization of econ resources must, and minimizing impact of rearmament will, involve Germany and neutrals as well as NAT countries. Habits of cooperation already established in OEEC and lack of adequate alternative organism in which Germany participates make OEEC logical channel for drawing these important non-NAT countries particularly Western Germany into task of facilitating increase in production and mobilization of resources required for rearmament of NAT countries and minimizing impact of NAT defense effort on ERP area as whole. If neutrals are sensitive about active participation in OEEC assessment of impact of milit program some form of “occasional” membership can be worked out for them in comites primarily concerned in consideration this type of problem though every effort should be made to avoid such situations arising as great asset of OEEC is its wide membership.
5. More specifically our views on expanded functions OEEC areas fol:
- a.
- Decisions on magnitude of defense effort development of milit plans and of material and manpower requirements and their translation into desired production targets and schedule clearly not business of OEEC but of NATO.
- b.
- General concern of OEEC should be to appraise positions of member countries after taking account among other factors of econ impact of required milit production and manpower requirements on consumption civilian investment and balances of payments; to evolve and encourage adoption of policies which will facilitate accomplishment of joint goals of econ recovery and accelerated milit production; and to minimize and equalize burden of defense impact.
- c.
- As rearmament effort increases OEEC may also have to concern itself more specifically with needs of civilian economies. Difficult decisions [Page 667] concerning allocation of resources between competing milit and civilian demands may eventually have to be made by individual national govts. This task might be easier and consequences less injurious to continued econ progress if there is functioning intra-European forum to which individual govts can bring their civilian economy problems and coordinate their solutions with those of other members. OEEC can perform invaluable service by assessing impact of milit production and manpower requirements on civilian economies and conversely bringing to attention of national govts those areas of civilian economies where unutilized or under utilized resources can be diverted to increase rearmament effort or to offset (both nationally and on European wide basis) its consequences for civilian population.
- d.
- Specific fields of policy in which OEEC should attempt to work out solutions that take account of rearmament program are domestic financial and fiscal policies with special ref to econ means of securing full use of unemployed resources in Italy, Germany, Belgium and elsewhere (DFEC has of course related function of recommending action in this field to facilitate rearmament program) financing of intra European trade as affected by milit production and procurement; and above all increase in productivity and expansion of production which will accelerate rearmament and make it less painful.
6. While therefore we see no alternative at this time but for OEEC to accept defense production and expenditure programs as prepared and agreed in NATO we believe actual role of OEEC in their development much more important than may at first appear. Development of defense programs is obviously not “one shot” operation but continuing process. OEEC through its analysis of impact on western European economies of any given program will undoubtedly directly affect finance and production ministers appraisal of level and types of expenditures and output which are feasible in later stages and nature of effort which each country can most economically make.
7. In this connection it is apparent that much of work of OEEC would be meaningless unless adequate info on anticipated defense expenditures is made available to it and in such form that it can evaluate in overall setting impact of defense programs on financial stability investment import requirements etc. We recognize that security considerations raise important problem but if production schedules of finished milit items and allocation of output of these items were considered in NATO comites believe security problem in OEEC would be manageable.
8. Direct or indirect impact of increased defense effort should at once be reflected in nearly all activities of OEEC but at least initially as introducing changes in figures or in emphasis rather than changing nature or purpose of work of OEEC. This projection under EPU programs for expanding output of raw materials in DOT’s investment [Page 668] programs in Eur OEEC’s third report and other current activities must be based on new facts of defense effort as these are known.
9. Our main doubt about usefulness of OEEC in new situation is whether an organization with so many members which can act only by unanimous agreement is capable of efficient and meaningful performance. As you know we believe org could function more expeditiously if size of Exec Comite were cut down and if Secretariat were granted considerably more initiative than in past. Eventually as size of defense effort grows and if serious competition for materials, facilities and finished products develops between civilian and milit end uses more authoritative agency probably dealing with wider area than Eur will in all probability be needed. State and ECA/W considering this eventuality. Believe however that OEEC can be made effective during transition period.
Sent prity Paris Torep 6880; rptd info ECA London Ecato 1021 for Douglas and Kenney.
- Telegram Torep 6470 to Paris, not printed, gave OSR the preliminary views of ECA on Repto 4076, prior to discussing the matter with the State Department (840.00R/7–2950).↩