Foreign Relations of the United States, 1951, Europe: Political and Economic Developments, Volume IV, Part 1

No. 13

ECA message files, FRC 53A278, Paris: Telegram

The United States Special Representative in Europe ( Katz) to the Administrator for Economic Cooperation ( Foster)

secret   priority

Paris, June 9, 1951—5 p.m.

Repto 2705. Ref (a) Torep 2711.¹ (b) Repto 2038.² (c) Torep 3773.³ (d) Torep A–1582.⁴ Subject: EPU 1951/52.

(A). In light interchange reftels (a) (b) (c) believe we are in agreement with you on fundamentals. Accordingly in view pressure time, we plan inform managing board at its June 13 session (probably on June 15) our views re financing EPU 51/52, and provision for interim arrangements. Believe we should present general position as follows. (Note remarks in parenthesis intended as interpretation or for specific ECA/W answer.)

(B). Lines of statement.

1. US prepared finance structural imbalance 51/52 Greece, Turkey, Austria, Iceland, by providing ECA dollars up to certain amounts to enable settlement deficits with EPU. Greece and Austria clearly unable assume repayable credit liability to EPU, and provision for Iceland and Turkey governed by special considerations.

Would inform MB our tentative estimates of possible lump amount required as indicated Congressional presentation. (Pls indicate whether any objection to citing present estimates for confidential use MB only at this time.) Form financing structural imbalance dealt with below para 5.

2. Other possible cases e.g. Neth, Nor, possibly Ger, Den, should be dealt with if and when need arises via other resources available EPU or PC’s. To extent this takes place within framework agreed policy review and program, procedure would strengthen influence MB re policies such countries. (Pls confirm our understanding aide-mémoire to Neth does not preclude adoption this position in case Neth.) Source financing this second group deficits might be (1) temporary EPU credits backed by capital fund as in Ger case: (2) direct capital loans by stronger creditors to debtors, as in recent UK-Nor case; (3) loans by creditors to EPU to offset loans to debtors; (4) whatever other contributions PC’s might make (as loans or grants) outside present quotas; (5) remaining part US special assistance fund carried over from 1950–1951 (Pls inform us your estimate this amount), and (6) right EPU debtors switch small amounts of ECA direct aid to help cover EPU deficits, subject to availability free dollars and ECA approval each case.

Pls note all above sources may also be available finance countries cited para 1.

3. US not planning allot conditional aid or finance any other special arrangements to cover with ECA dollars excess creditor positions. (This means we do not contemplate any special UK arrangement, as indicated para 1 reftel (c). (We would express hope that strong creditors would find it possible to extend intra-Eur aid without receiving dollar compensation.) This position might generate pressure on UK, Belg and Swiss from Nor and Neth especially for such participation, but we are not sanguine about prospect, at least outside NATO burden sharing.)

4. With further ref measures for intra-Eur aid, US hopes and expects NATO study burden sharing will result in resource contribution by some Eur members NATO to others. Position preceding paras wld be subject to such later adjustments as may be required by burden sharing decisions. (We might point out that intra-Eur burden sharing contributions would probably be dealt with by separate technique, e.g. financial grants made bilaterally to conform to agreed multilateral pattern, and included in monthly notification to agent and hence entering multilateral EPU clearing.)

5. US desires achieve greater flexibility in financing EPU imbalances with ECA dollars and hence believes funds made available should be released periodically during year on basis performance and need; therefore technique for IP for full year allotted in advance through EPU as last year should be dropped. We will notify OEEC before June 30 our desire modify procedure and need for revision agreement accordingly. (Our views re techniques, release and application ECA funds discussed separate cable.)

6. In view need for planning and review purposes EPU managing board, as well as individual countries, US plans notify OEEC and individual countries of amounts of ECA intra-Eur aid to be programmed for 1951/52 for four special countries. (Such notification would take place after further review with countries by OSR and missions and after concurrence ECA/W.) Would also notify OEEC and countries actual use much ECA funds would be determined by availability funds as affected by Congressional authorizations and appropriations and exec allotments to ECA and by decisions ECA re needs countries from time to time.

7. Re interim arrangements countries quotas hitherto blocked (Greece, Austria, Iceland) or whose quotas may be exhausted in interim (Turkey), would propose following:

(a) ECA hopes obtain piecemeal allotments funds pending final action Congress, from which it may be able help cover deficits such countries.

(b) However, amounts and availability uncertain. Hence necessary OEEC countries provide some other underlying assurance continuation trade and payments in interim. Possibilities include (a) unblocking quota, or (b) blocking quota, but grant special EPU credit to be repaid as and when final arrangements made. Credit might also be secured by pledge to renounce temporarily equal amount country’s share residual assets EPU capital. US would give assurance that as and when funds available, it will cover cumulative deficits for reasonable amount (to be notified to countries and OEEC preferably for quarterly period).

(c) If you agree, we will proceed on above line at managing board meeting and if time permits will also discuss plan before mtg with UK, Neth, Belg, and secretariat.

(d) In later discussions with MB, believe may be desirable indicate our present estimates intra-Eur positions all countries, if MB feels such info would be useful to it in appraising effect payments trends on capital fund and convertible assets. Problem comes up also with FEB work and discussed with Cleveland here. Pls advise what info on illustrative estimates we can give FEB and MB and when. In meantime, appreciate being kept fully informed any changes in estimates.

(e) Re specific questions reftel (a) your para 7 answered by paras B–2 and B–3. Re ur para 9 my para B–5 above and forthcoming cable on techniques. Re “ultimate position” in para 9, we had intended generally imply US aid applied flexibly and not committed far in advance of actual need, but will avoid use of term hereafter.

(f) Cleveland concurs with above.⁵

Katz

1. Document 6.
2. Document 8.
3. Telegram Torep 3773, sent by Foster to Katz on June 5, reported that ECA Washington had reconsidered EPU arrangements in light of telegram Repto 2038 and other factors and was now planning to make major changes in Congressional presentation as outlined in Torep 2711. (ECA message files, FRC 53A278, Paris)
4. Not printed.
5. In early August, the Managing Board of the European Payments Union submitted its first annual report to the Organization for European Economic Cooperation. This report included a study of continuing problems of both a broad and a country-by-country nature and discussed at some length the deficit problems faced by Greece, Austria, Iceland, and Turkey and the growing deficit problems of Belgium. An extensive summary of this report is in Department of State Policy Report, Current Economic Developments, No. 318, August 13, 1951, Economic Affairs files, lot 70D467, “Current Economic Developments.” Throughout the latter half of 1951, the concern of both the EPU and ECA became centered upon the problem of Belgium’s growing deficit. Extensive documentation on this issue and on similar problems regarding Austria and Turkey is in ECA message files, FRC 53A278, Paris Repto and Paris Torep series.