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

740.5/7–2850: Telegram

The Ambassador in France (Bruce) to the Secretary of State

top secret
priority

Paris, July 28, 1950—8 p. m.

523. Distribution as directed by Secretary’s office. Pass copy to Secretary Snyder.¹ I have hesitated before deciding to send such long cable, but since contents give background on Alphand’s position in London and represent views in many respects at variance with our own policies think it important our officials be advised of them soonest.

Pleven proposal for common fund under NATO to be made up of national contributions based on national income is reflection of wide acceptance within French Government that NATO should be expanded into real collective defense effort with real central direction adequate for action rather than merely program to step up national efforts with coordinated planning. We understand that the particular Idea of a “common fund” is his own which he has held for some time, and which he more or less imposed on his colleagues when he became Prime Minister. No one in French administration seems to have clear conception of how proposal might work in practice. However, there seems to be an astonishing unanimity in the views of French Government officials on the need and reasons for a “collective” approach. This cable attempts to summarize the general attitude on various points as expressed by Minister Finance² and other officials in personal conversations. We wish to stress that these views are tentative and personal, and that the French administration is still in the early stages of formulating its specific views and policies.

Disappointment with NAT and MDAP.

Generally French administration is very dissatisfied with the results of the NAT and MDAP. In their opinion, the present combined organizations have given little, if any, guidance on what military production each country should undertake, the amount and kind of rearmament for the existing and additional forces of each country, or on the general concept of interdependent, effective, modern striking forces. The officials interviewed certainly would not admit that “there is sufficient information in the NATO military planning to permit firm governmental steps to be taken now to increase military forces—which would be in line with refined final requirements for 1954.” They also seem unanimously convinced that, if NATO continues the policy of asking each nation individually to list its “needs” or to list the nature and extent of the armed forces or military production it has in mind, little progress will be made. They even see real dangers in continuing this “national approach” and wish a really “collective defense” and not just an addition of national efforts. This would involve in their view going much further towards establishing a “common defense” than any approach yet considered within the NATO. One suggestion is that single American civilian, or a small civilian committee headed by an American, be given practically dictatorial powers on rearmament and military production. Another suggestion is that NAT nations should contribute all of present military budgets except for “police forces” to a common budget and that a central NAT committee should direct all expenditures from these common funds. Some of the arguments these officials make for such immediate and drastic changes in procedures are set out below.

The “national” approach.

Limitations in funds and in time are common to all the NATO nations. It is all-important that no additional effort be wasted. Yet in their view it will be a miracle if the nations produce the most effective weapons and arm in the most effective manner under a system whereby each nation is more or less left to itself in making decisions on the exact nature of its contributions. The French want a real and equitable pooling of defense based on a percentage of national income or some other yardstick. Merely pooling “marginal” or “supplementary” programs will not be enough. Means must be found for every defense expenditure to be consistent in every way with the agreed common defense. In their view a basically “national” approach can only mean waste, duplication, confusion and in a way be self-defeating because of the false sense of security the wasted effort creates.

When pressed, these officials will acknowledge that urgency requires individual national efforts which cannot wait for a common plan, but they do not admit that this fact is an excuse to delay or to avoid action on the French proposals for a “real common defense”. On the contrary, they argue convincingly that for each nation to rush suddenly into enlarged expenditures is the way “to lose time, to lose resources, and perhaps even to lose the war.” They use their own country as an example. The French generals would welcome the vote of an additional 200 billion francs in defense appropriations. The generals do not want a “common army.” They want the prestige of a “French army armed by French production.” Unhappily, the generals would go along the same old way with “war as usual.” The additional funds would be used to call up additional men and to arm them as if the purpose were to defend the French Union in isolation from the central need of a common defense against Russia throughout the globe. The end results would not be known for eighteen months or two years; at that time additional divisions, the additional weapons might or might not prove to be the kind of military strength needed. The Western nations cannot build up enough strength in Europe against Russia before the end of two years anyway. It would be far better to avoid this waste and to take time when necessary to be certain that each national effort is useful and mutually supporting. The present French military expenditures already include very questionable if not wasteful items. There is little likelihood that this situation will change unless it is forced by a common defense organization.

The fear of inflation.

France has a special problem which necessitates a “common” approach. The defense effort necessary in France and in Indochina is far greater than the effort French national resources or the government budget can carry. Even the additional 80 billion francs asked by Pleven may lead to inflation. A real deterioration or a “galloping inflation” is something France should not risk. It could only lead to resurgence of Communist strength which could go so far as to render France useless and powerless or, even worse, a liability, in a war with Russia. It will be difficult enough to deal with the “Communist fifth column” in France but, if that “fifth column” regains its power through the new grievances which inflation would bring to French workers, it will be impossible to provide this security which the NAT forces will need in the strategic area of France. France and the other NAT nations cannot risk this development in France if Europe is to be defended as excessive financial effort would not in the last analysis enable France to increase her power to combat Communism externally, and would reduce her ability to combat Communism internally. This is the “game of the USSR.” The NAT nations must also recognize that financial stability and a minimum standard of life should be an integral part of the rearmament program.

Pleven’s common fund.

The Pleven statement summarized Embtel 458³ concerning the financing of additional military charges was a reflection of this view. Essentially, it is an idea to spread the inflationary impact of the total military effort on an equitable basis. Pleven proposed that the common defense be financed by the institution of a common fund. This would involve drawing up a common budget for the defense of the Atlantic community. Each country would carry an equitable burden, and each country would make a contribution in line with its economic and financial resources, using its national income or national product as a guide.

The reason for this common financing is that certain countries, because of their geographic or strategic location, or because of the nature of their natural resources and manpower, must, if Western defense is to be carried out in the most efficient way, finance expenditures within their national borders far in excess of what their share would be under national income approach and even in excess of their maximum physical possibilities.

Accordingly, each, country should contribute in its own currency all, or the greater part, of its military budget to a common military budget. This budget, or common fund, should be used to finance the common armaments or military production wherever considerations of strategy or efficiency might dictate. The net recipient countries could then use the foreign exchange received to pay for the imports from the other countries which directly or indirectly would result from the indispensable but excessive military effort that they had undertaken.

France is probably one of the nations where strategic considerations require expenditures greater than her share and greater than she should undertake alone. Pleven’s suggestion is designed to make such expenditures possible. A concrete example of this approach already used by the French is the argument that the emergency line of communication to be built through France should not be financed by the US and France alone but by all NAT countries. It may sometimes be difficult to decide which expenditures are for defense and which are not, but equity and efficiency compel that the decisions be made. Inasmuch as the common tasks will be common burdens, it is also necessary that there be an agreed framework within which the decisions can be undertaken in common.

Petsche’s views.

Petsche would personally favor a procedure different from that proposed by Pleven, although he is motivated by the same reasoning and would be trying to achieve the same objective. Under Petsche’s approach, even though trade controls would presumably limit transactions there would be enough addition freedom in imports to offset the inflationary impact of additional expenditures or at least to spread any inflation that must result. A formula would have to be found to require each nation to make an additional effort to keep inflation under control and thereby prevent abuse. Under such a formula the additional US contribution would be equal to the loss in dollar tourist receipts plus the reduction in dollar exports plus the additional dollar imports needed directly or indirectly to finance the additional military effort. The Finance Minister’s advisers do not fully support Petsche’s views. First, they do not think that the American Congress would underwrite any balance of payments deficit that might emerge. Second, if the urgent necessity of mutual support did force such a plan through the US, then the US would certainly insist on a strong voice in the internal affairs of the countries concerned. Third, import controls would be maintained just as they are with EPU, and as a result there would be no certainty that inflation would be spread equally.

Pleven’s approach could, of course, amount to substantially the same result as the Petsche objective, although it would not be automatic. The French officials are in fact uneasy about our reaction to the Pleven proposal because the latter implies that any additional and supplementary military effort will, in effect, have to be borne by the US. They would have preferred to have Pleven list at the same time a program of the measures which the French Government itself would take to divert “life as usual” to additional military effort. The explanation for not doing this is that, first, no one can decide what France should do in addition until some common decisions in NAT are made, and that second, whatever program is required, it should be introduced only over a period of time. Premature announcements in France that cuts are coming will help the Communists and might lead to a panic, with all the damage to the present financial stability that implies.

European contribution in financing.

The French officials argue that the “national” approach tends to result in the lowest common denominator as far as additional military effort is concerned. Each time that a European nation tries to decide individually how much additional military effort it can safely undertake, it quickly runs into a nearly insurmountable problem of government finance or into an excessive risk of jeopardizing monetary stability. All the European nations are straining their national budgets. France, for example, even at a proposed increase of 80 billion francs, has a nearly impossible task of finding 500 billion francs in reduced expenditures or increased receipts for the 1951 budget. Possible tax increases are limited. Even the prospects for “patriotic” loans from the public are not encouraging. Diversions from other expenditures like war damage reconstruction and investment can provide some resources but, unless other countries take similar steps, a return to autarchic policies becomes mandatory. The limited possible financial contribution can, however, be maximized, first, if all the nations take reasonably the same risks of inflation, second if means are found to use all resources, and third if duplication in expenditures is avoided by effective common direction.

European contribution in production.

While the margins for financial contributions are small, disposable margins in European factories do exist and can be efficiently used to make additional military equipment. The French in particular do not like the idea of Europe’s providing the “infantry of Europe” without having the opportunity of making the more pleasant and more economically useful contribution of producing military supplies and equipment. European capacity should of course only be used for the production of the most modern and effective weapons, and only in those, cases where the costs of production would be equal to or lower than the costs in the U.S. Such production would also be purchased out of Pleven’s “common budget”. The French officials point out that aside from additional military strength, such production would have two beneficial effects: (1) It would take part of the burden off the U.S. and permit the American people to make a smaller sacrifice in reduced consumption; and (2) by supporting employment in a useful and effective way in Europe, would maintain and even increase the level of economic activity and maximize the tax receipts accruing to the European Government, thereby making an increased military budget more feasible.

European contribution in manpower.

Europe also has disposable margins in manpower. Ministry Finance officials did not use any figures but seemed in agreement on the ability of France to call up additional active divisions and to increase the length of duty. They also speculated on the possibility of substantial contributions from Germany, Italy and other countries where unemployment exists. Their unemployed labor could either be used as troops or could conceivably be transferred to countries now fully employed in order to permit mobilization of additional men in those countries.

German participation.

Aside from all the other advantages of a really “common NATO defense”, the problem of Germany is enough in itself to compel such action. It would be ridiculous for the other European nations to make substantial, additional military efforts and to cut back normal production and consumption while Germany was permitted to manufacture on a “peace time basis” for its internal consumption and for markets abroad. Nevertheless it will remain politically impossible to rearm German manpower or convert German industry to military production as long as the European peoples see in such action the risk of a resurgence of German military might. A truly common effort is the only way out. If Germans are made soldiers in an Atlantic community army or even a European army, the question will then be viewed in a quite different light. The public acclaim of the Schuman proposal⁴ is evidence of the possibility of this approach. Once it is on the books, it should be much easier for the Atlantic community to call on the industrial strength of Germany to help rearm.

Such an approach may run up against the problem that the European nations probably could go much farther than the US and the UK in surrendering control of their defense and rearmament effort to a central body. The French are aware of this fact and acknowledge that it will be more difficult to bury the fear of Germany in a strictly European army than it would be to bury it in an army with a wider basis. However, just as the Schuman proposal or a European federation can be part of a more loosely united Atlantic community, so also could a European army participate in NATO.

French attitude toward rearmament.

Any serious rearmament or mobilization effort must have popular support. This consideration means that French people must believe that we are all really standing together against the threat of aggression. The unanimous view among the French officials referred to above is that the French people will not give real support to a military effort by France if the effort is presented to them as purely French, i.e. a French army, a French navy and a French air force. They have memories of 1939 and even of 1914. While one might criticize this cynicism or despair, it is nevertheless a fact. The majority of French-men do not believe that it would be useful for a purely French army to attempt to defeat a Russian army in Europe. They sense that France can usefully defend herself, or even usefully make an effort to defend herself, only if such resistance is offered by the united armies of an Atlantic group. These officials conclude that over a period of time the indispensable enthusiasm of the French people for an additional military effort can be generated if it is clearly demonstrated that in any war that might come, French soldiers would be dying for something that has a chance to survive.

This is the main reason why the most important plank in French external and Internal policy is now that France only has a future as a part of Europe or as a part of the Atlantic community.

Common European economic policies.

It is generally agreed that the common crisis could and should give an impetus to European economic integration. First, if the NAT nations do not carry reasonably equal military burdens and if they do not follow more or less the same economic policies, certain of the countries will have no choice but to turn again toward autarchy. This would mean abandoning trade liberalization measures and leaving the EPU. Second, the best way to utilize existing margins of manpower and production in Europe would be to press on with the Stikker and Schuman “product by product” Approach. NAT nations would be less hesitant to allocate basic materials and to reconvert certain factories if it were done on a common and equitable basis. Also high demand of rearmament period in many cases could lessen resistance of affected groups to specialization and actually facilitate establishment of common market in Europe. These officials always stress that emergency measures should be such as to prepare way for “single market on a free economy basis” and not contribute to eventual establishment of separate socialized economies “harmonized” by international agreement.

Re-establishment of internal economic controls.

The Ministry Finance officials have serious misgivings about any effort to attempt to hold inflation within bounds by the re-establishment of a complete system of economic controls. First, they doubt whether such controls could be made effective in light of the experience of the continental countries in the past 10 years and second, many months would pass before such controls could be usefully implemented. They do acknowledge that in France and the other European nations the developing urgency will probably lead to certain “channeling” measures, such as postponement of war damage reconstruction and housing except in critical sectors, postponement of investments, reversal of relaxation of bank credit controls, allocations of certain key raw materials and equipment, priorities for armament contracts, and conversion where necessary of physical plants to produce military equipment and supplies. As a minimum, such restrictions should be comparable to those made by the US. They also mention the likelihood of increasing the hours of labor and increasing the length of conscription for military duty. They are concerned with need to slant all measures to create some feeling of “social justice” in sacrifices and to emphasize maintenance or even increase in standard of living of low-income groups, but have not suggested any concrete program. In general they claim that it is also the “game of the USSR” to try to force the NAT nations to place their economies into real “strait-jackets” which would reduce the net addition to the standard of living and to the military strength that could otherwise be obtained.

Sent Department 523, repeated information London 152, eyes only Douglas and Spofford.

Bruce

1. John W. Snyder, Secretary of the Treasury.
2. Maurice Petsche.
3. Telegram 458 from Paris, July 25, not printed, concerning Pleven’s statement of that date before the Finance Committee of the National Assembly regarding the economic and financial implications of an increased defense effort (851.00/7–2550).
4. For documentation on the Schuman Plan of May 9, 1950, for a West European coal and steel community, see pp. 691 ff.