Foreign Relations of the United States, 1950, Western Europe, Volume III

396.1 LO/4–2550

Paper Prepared in the Bureau of European Affairs as Background for the May Foreign Ministers and North Atlantic Council Meetings¹

secret

[Washington,] April 25, 1950.

Development of Article 2 of NAT in the Economic Field

The following are suggested as appropriate subjects for consideration by a new central organization under NAT, in connection with the economic provisions of Article 2 of the Pact. German participation would be desirable in every case except items 1 and 2.

(1) Economic measures directly related to the implementation of military plans in which broader governmental responsibility is required than can be secured in the DFEC, or in which coordination is required between the work of the DFEC and the Defense Committee, or their subordinate bodies. For example, the transfer problem, adjustment of national budgets to larger defense expenditures, spending more of the defense dollars for capital equipment, etc.

(2) Consideration of joint planning for economic mobilization and economic warfare in the event of actual hostilities or of intensified economic pressures as a result of the continuation of the cold war. (This function, in part, is now assigned to the DFEC in the absence of any other civilian body under the Council. A new body which can carry out this activity is desirable.)

(3) Consideration of basic policy factors in economic relations between the West and the Soviet bloc. This would include periodic consideration of the principles upon which the present multi-lateral security trade controls are based. The objective would be to strengthen, rather than divert energies from, the present Consultative Group now operating in Paris, which is not organizationally connected with the NATO. Other matters to be considered would include possible coordinated action to be taken in the event the Soviets stop or sharply decrease East-West trade and coordinated economic action directed toward the detachment of Soviet satellites, e.g., economic assistance to Yugoslavia, satellite aviation policy, etc.

(4) In connection with the development of coordinated measures to be taken to combat an economic recession which, makes a major depression a possible prospect, consideration of measures to meet possible Soviet exploitation of this problem and of the use of compensatory public expenditures on programs to strengthen defense.

(5) Consideration of the economic implications to the North Atlantic countries of major Soviet moves in the cold war, such as the threat to Southeastern Asia, and of the economic adjustments which must be made to meet them.

(6) Consideration of measures arising out of the Dollar-Gap program which can be handled best within the North American-European framework and which do not fit in with OEEC functions or with those of any other existing agency. (There may not be any activities which qualify, although it seems possible that European dollar saving programs and related U.S. actions in fields with important security implications, such as shipping or petroleum, might usefully be considered in the North Atlantic framework.)

(7) Consideration of measures required to expand the production and income of the North Atlantic area to strengthen the area generally and support a larger defense effort which can not be better handled in OEEC, UN agencies or other existing forums.

(8) Consideration of the character of the arrangements in the broadest sense to be adopted after the end of ERP in 1952 which will best meet our objectives in 6 and 7 and objectives now being carried out primarily by the OEEC, such as European self-support and creating an integrated European market. This consideration should not foreclose continuation of OEEC but should recognize that its objectives represent essentially a North Atlantic problem and that the organizational arrangements to carry them out should take account of this fact.

1. This paper was identified as FM D B–31.