ECA message files, lot 53 A 278, box 26, Bonn Toeca: Telegram
The United States High Commissioner for Germany (McCloy) to the Acting Administrator for Economic Cooperation (Bissell)1
secret priority
Bonn, December 18, 1951—8 p. m.
Toeca 1181. For Dept also.
Refs: a. HICOG despatch to Dept 1131, b. Bonn Toeca A–331 rptd Paris Torep A–295.2
Subject: Berlin aid 1952–53.
- 1. We are much concerned with problem already discussed
verbally with Dept and MSA of
obtaining financial support for Berlin programs
[Page 1965]
during year ending June 1953.
GARIOA sources of financing will be exhausted even if DM 120
million is made available for 25 percent counterpart sources, as
was assumed in Part I of HICOG
despatch to Dept 1131. Counterpart funds even if available for
continuation of current dollar aid on grant basis, art uncertain
in amt and will have numerous other claimants of equal priority.
We therefore feel compelled to request dollar appropriation for
Berlin unless you can suggest feasible alternative, which we
have so far been unable to find. Present estimates indicate that
total Berlin requirements for FY
52–53 wld be uncovered to extent of DM 440 million, for which
dollar equivalent would be $105 million, overall aid needs for
FY 52 and FY 53 summarized in following table:
Budget aid FY ’52 765, FY ’53 650.
Aid-financed investment expenditures FY ’52 680, FY ’53 457. Work relief (non-investment portion) FY ’52 75, FY ’53 60. Stockpile FY ’52 55, FY ’53—Working capital guarantee fund FY ’52 10, FY ’53—Totals FY ’52 1585, FY ’53 1167.
(Above figures in DM millions).
- Aid-financed investment expenditures as given above correspond to figures in table on page 32 Toeca A–331. Totals above differ from totals in payments balance deficits page 17 ref b only by amts expected from private capital flows.
- 2. Total Berlin fixed investment requirements in 1952–53 under 4 year program are estimated at DM 1380 million (See ref b), of which private funds wld provide 780, the public budget wld provide 150, and the amt to be filled by other sources wld be 457. Carry over of funds in “pipeline” from previous period wld amt to some DM 192 million if financing for current year is provided as proposed in HICOG despatch 1131, and if DM 115 million is provided from counterpart reserve. Since a carryover of DM 115 million will probably take place into the year 1953, 54, there wld be a net gain of DM 77 million from the carryover. Total new provision of investment funds in addition to difference between carryover at beginning and end of year wld be DM 380 million.
- 3. Work relief program is expected to require DM 120 million in FY ’53 of which DM 60 million wld be of investment character and is included in 457 of aid-supported investment expenditures. For reasons indicated below, we believe it realistic to assume for the present that FedRep will put up only budgetary aid, and that we must supply total funds for work relief. This means another 60 for portion not already included in investment aid (380 after adjustment for carryovers). Total US aid for Berlin wld therefore be DM 440 millions.
- 4. We consider possibility slight of obtaining more than present level of financial support for Berlin from FedRep. We anticipate that [Page 1966] FedRep will as in past finance Berlin budgetary deficit, which, will amount to about DM 650 million in FY ’53. Any amt greater than this wld be considered excessive burden by Finance Min, who is faced with need to provide large addit amt for FedRep defense effort in FY ’53. Only conceivable possibility to obtain addit Fed support of Berlin beyond the budgetary deficit wld be to make specific allowance for Berlin aid in determining level of Berlin defense contribution. Such a solution, which was suggested in Ger 5/4, wld be attractive to the Ger Govt. Bargaining considerations on defense contribution make it undesirable to make such offer to FedRep until more advances stage of defense negots even assuming that tripartite agreement could be reached. Allowance for Berlin can at present only be made indirectly by providing sufficient availabilities within GNP approach to permit reasonable levels of consumption, investment and Berlin aid programs to take place. This wld not, however, solve budgetary problem and inflationary implications of large public deficit resulting. In view of magnitude defense contribution to be negotiated with FedRep for coverage of logistic support allied troops, EDF financing, and infrastructure and other capital costs, and time lag to be expected in tax legislation and revenue accrual, large public deficit is almost certainty.
- 5. A conceivable alternative method to support Berlin programs without substantial dollar appropriation is to attempt to obtain tripartite agreement for financial support. Previous attempts, when Fr and Brit were in better exchange position, invariably failed despite their expressed interest in Berlin recovery. In present defense negots Fr and Brit have flatly opposed any suggestion that allied troop support in FedRep be financed in part by pay-as-you-go because of obvious payments difficulties which might arise from fon exchange liabilities created against them in favor of FedRep. Objection wld be voiced even more strongly where Franc and sterling obligations wld be undertaken in favor of expenditures with lower priority than troop support.
- 6. In view of little immed possibility of obtaining financial support for Berlin investment program, either through shifting investment financing burden to Fed Govt or through burden-sharing on tripartite basis, we see no alternative to solution of Berlin financing by means of specific dollar appropriation. We are fully cognizant of unattractiveness of providing dollar aid for purpose not directly connected with dollar balance of payments deficit and wld welcome suggestion of feasible alternative. However, we are convinced that no realistic alternative exists and that we must therefore request Berlin dollar appropriation of at least $100 million if Berlin recovery program, which has received your full support, is to be continued in originally planned scale in FY ’53.
- 7. We are addressing this both to Dept and EGA because of important nature of request and difficulties of handling problem. Budget deadline makes consideration urgent.
McCloy