841.00R/10–2450: Telegram

The Ambassador in the United Kingdom ( Douglas ) to the Secretary of State

top secret

2332. Eyes only Perkins or Nitze. On October 21 I discussed with Bissell1 the decision to make drastic cut in ECA allotment to UK reported Ecato 1347 October 17 (repeated Paris Torep 89062), and emphasized the following points:

I agreed completely that British economic situation is now at point where dollar aid can and should be scaled down and where excessive US assistance would make it easier for British Government to avoid taking steps, including budgetary non-defense retrenchment, which I consider fundamentally essential to long-range economic stability of UK. In fact I have before suggested UK has been receiving too many dollars from very beginning for her good and ultimately basic solvency.
I believe scaling down and termination ECA aid to UK should not be accomplished by abrupt unilateral action (which might seriously complicate US plans regarding British defense efforts, with adverse repercussions on collective defense program, and have other [Page 1685] unfortunate consequences) but only after adequate discussions with British who should be given opportunity make official announcement of reduction or cessation of ECA aid at proper time. Such statement could be interpreted as indicating strength of British position and confirming cooperative aspect of ERP. In this connection I emphasized obvious political implications of so important a move as ending ECA aid to its principal recipient.

Bissell expressed complete agreement with my views. He pointed out the necessity of US executive branch initiating curtailment ECA aid to UK before Congress could properly criticize ECA for unjustified prolongation of aid. He stressed growing sentiment in Congress and elsewhere against continuing aid which was building up British reserves. He indicated that his approach to Gaitskell would be along lines of sub-paragraph 2 above.

On question British reserves I recalled that during protracted testimony on ERP before Congress I had said that it was not contemplated that reserves would be augmented as result US dollar aid.

Bissell’s talk with Gaitskell is reported Toeca 1185 October 21 (repeated Paris Torep 10293). Gaitskell’s reaction is not surprising although informed British officials undoubtedly understood that sharp reduction ECA aid was inevitable. Gaitskell’s request that Bissell confirm understanding that “we had agreed to re-examine situation jointly looking toward formulation of an amicably agreed position” presumably not only indicated British willingness cooperate in making public announcement of termination ECA aid but implies that scheduled talks between British and ECA mission will also involve possible British eligibility for more ECA aid than $175 million now under allotment.

It is obvious that the situation will require most delicate handling to ensure that it will not develop into political liability. Judicious timing of announcement of termination ECA aid will be highly important and any leaks which would force premature announcement or create distorted public opinion in US or here would be most unfortunate.

Sent Department 2332, repeated Paris 681. Paris pass OSR (eyes only Katz or Wood4).

  1. Richard M. Bissell, Jr., ECA Deputy Administrator.
  2. Not printed; it reported that the ECA allotment for the United Kingdom was being cut by $37 million primarily because of the improvement in the British reserve position and the prospect that this favorable trend would continue (841.00R/10–1750).
  3. Not found in Department of State files.
  4. Milton Katz, U.S. Special Representative in Europe, and C. Tyler Wood. Deputy Special Representative in Europe.