751.5–MAP/6–2851: Telegram
The Ambassador in France (Bruce) to the Secretary of State1
8171. Dept pass urgently to Harriman. Toisa. Part II. Conflicts in US pressures on Fr outlined in part I in preceding cable are not news, but their mere listing underlines how desperately we need a consistent US policy if we are to use influence and assistance in a way which will aid Fr to increase its defense effort to encompass the tasks required. We believe we are aware of most of very difficult problems involved in preparing such a formulation, but we must confess that though many months have passed since Oct talks we feel even less certain of US position than we did at that time. We had hoped that policies, procedures and organizations wld be evolved in US admin, NATO and SHAPE which wld give us guidance as to actual tasks Fr shld and shld not undertake and as to means by which burden of specific and overall tasks was to be carried before 1952 budget discussions in Fr Cabinet were seriously underway. Confusion in our own administration and that in Fr administration have already led to serious misunderstandings and to sharp deterioration in mutual confidence necessary if desired level and effectiveness of Fr defense strength is to be obtained. Relations here cld become further complicated very quickly. For example, when Fr Defense Min realizes that US again appears to have settled on an estimated ceiling upon Fr mil budget far below their present plans. Moch will interpret this fact as being in effect a reply to his memo given to Gen Bradley.2 In such event, Emb–MAAG–ECA team shld be prepared to comment.
In anticipation of these complications Emb and ECA suggest that a consistent set of US policies in matters of Fr rearmament be evolved along lines set out below. It is recognized that these suggestions may further complicate already difficult situation in other countries. Suggestions are nevertheless put forward with conviction that central problem from US security interests in Eur, particularly until polit framework for Ger defense contribution is estab, is to get key Fr defense contribution firmly on the way. If any of US policies being followed in admin of mil assistance or SG NATO are inconsistent with this central objective, it wld appear that those policies shld be modified.
[Page 402](1) During Oct talks, Fr reluctantly undertook to finance a considerably larger mil program from internal inflationary resources on assumptions that US wld cover dollar payment deficiency that wld inevitably be created from induced additional imports and that a “burden-sharing” wld be evolved to cover deficits arising in other NATO currencies.
The Fr Govt included counterpart of aid to cover estimated dol import surplus in 1951 budget as receipt for govt, but there was no certainty that aid and thus counterpart wld actually be recd. It is very doubtful whether Fr officials can again be persuaded to increase mil expenditures in 1952 on this basis.
One basic reason for Fr attitude is that ECA’s “balance of payments” approach has proved to be one in name only. The US Govt, contrary to its Oct promises, administered econ assistance in such way in 1951 that dol imports were artificially reduced and import surplus necessary to offset Fr inflation could not be programmed or created by Fr.
In addition, there is no evidence of any substantial progress on “burden-sharing”. The responsible Fr officials also doubt whether US and other NATO countries wld actually release the resources that shld flow into Fr if Fr is to undertake a disproportionately large mil burden.
A second and more basic reason for Fr attitude up to present has been the protectionist import policy imposed by special interests and desire of mil authorities to expand national defense industry. These attitudes are strengthened by fact that after having very nearly completed program of bringing franc to respectable international status, Fr are now reluctant to see the deterioration in Fr international payments position necessary for a period of heavy rearmament. The US shld continue to press Fr to cast off its autarchic policies.
(2) Problem of mil budget in Fr leads to necessity of deciding which planned mil tasks shld be increased, abandoned, postponed or shifted to another NATO country. The US shld positively discourage Fr from undertaking anything except those specific priority tasks imposed on Fr because of polit and strategic consideration. It wld be preferable if this could be done as result of evaluation of a fully integrated defense plan evolved by SHAPE or NATO. Failing assumption by SHAPE or NATO of this responsibility for stating requirements, US shld indicate firmly on bilateral basis what it considers priority expenditures. Past experience with Fr demonstrates that, during inevitable cut-back from planned mil expenditures low priority expenditures are likely to be continued while certain items essential to quick build up to adequate standards of combat effectiveness are postponed.
Past experience also demonstrates that US at present moment does not have a position as to which expenditures in Fr have a priority and which do not. When we do have a position, the marginal amount of our econ assistance is not the appropriate weapon for the US to use as pressure to influence Fr in this regard. The providing of mil equip itself, again preferably based on a determination by SHAPE or by the US in cooperation with SHAPE, shld be made conditional on appropriate action by the Fr.
[Page 403](3) The minimum Fr mil budget in 1952 will certainly be higher than the $3.2 bill figure if proposed targets are to be met. Whatever the final figure is, the US Govt shld again ask Fr to undertake to finance this increased mil budget in 1952 by inflationary means, but with assurance to Fr that any balance of payments deficit that results therefrom will be covered by econ assistance.
If Fr Govt will agree to carry out mil program on basis this understanding, we will have broken thru the Fr limitation on deficit financing, and policy that each govt shld shoulder initial financing of its own forces can then perhaps be maintained without forcing Fr defense effort far below level required. Fr mins cannot accept this approach, however, unless they can show Cabinet and Parliament a firm commitment in form of earmarked credit which will permit current flow into Fr of resources i.e., a “burden-sharing” contribution from US and other NATO countries. Experience with 1951 budget will make it nearly impossible to handle an increase on another basis.
The right approach is then to force general imports and mil hardware into Fr. The Fr shld be told that they have a firm credit of say for illustrative purposes $400 million for a period of a year. The credit will be available to them to purchase real resources and they can plan to expand their imports accordingly. If import surplus is realized, then Fr will obtain counterpart and thereby be able to reduce inflationary financing.
Whether Fr can use an amount of $400 million or not depends upon amount of dol payments that will be made by US armed forces in Fr for infrastructure and current operations, and on extent to which imports can be further increased to offset increased Fr internal expenditures. Aid in amount of dols 400 million shld be held available until it is absolutely clear that there will be increased dol earnings to pay for part of increased imports. We shld abandon policy of keeping Fr in constant doubt as to whether they will receive new dol aid allocations. Initial financing on generous basis is more important. If financing is not needed, it can be recaptured later by variety of adjustments. From viewpoint of US security interests, the Fr mistrust, uncertainty, and irritation with unjustified intervention leads to situation where “we give more and receive less”.
(4) Some other European countries shld contribute to Fr on same basis. In order to increase available “foreign exchange credit” for Fr, US shld consider forcing “burden-sharing” on countries who are devoting a much smaller effort to defense in relation to resources than Fr thru the admin of our econ and end-item assistance.
(5) US shld support a real integration of rearmament effort on continent armed forces and mil production. The continental countries need and appear to be prepared to agree to a much greater surrender of sovereignty to a central mil authority than are the US or UK. US shld adopt within NATO a firm and consistent policy permitting and encouraging them to do so. It is misleading and even harmful to make illusions to what European nations could do as group of nations and then not push forcefully those policies permitting [Page 404] them to attain level of effort which is possible only if they act as group.
Even partial estimates by Wash now set cost of mil tasks which Fr will have to be prepared to carry each year after 1954 at $3.6 billion. It may well be higher. It is obvious that Fr people may be reluctant to carry such a burden for defense on a purely national basis over a long period of time. If social and polit difficulties do not prevent it, continuous depreciation of Fr franc will.
The only answer is a really integrated continental defense, less expensive thru a better utilization of resources and borne by all who share in the defense. The problem is not only building up defense quickly. The Atlantic community wants Fr and other European divisions maintained in active status or quickly available on a permanent basis not just during present period of great urgency. The approach of a continental defense grouping is the way to accomplish this, provided a militarily practicable plan is agreed upon within a reasonable time.
(6) US shld recognize that a new inflation in Fr is the real hope of the Commies. US shld continue to press Fr to adopt those econ and financial policies which will lead to an expanding economy particularly an import policy oriented to keep down the cost of living for the Fr worker. In general, Fr shld rely on fon competition and increased production to hold down the increase in prices, and on pressure of increased demands from labor to maintain or bring about an increase in real wages.
(7) If reasonable estimates of what it is practical to obtain thru increased Fr fiscal efforts and available contributions to Fr from US and other NATO countries in imports and mil end-items do not bring within manageable proportions the burden on Fr of mil tasks which absolutely must be undertaken on Fr soil, then US shld recognize that basic changes in our present policies shld be considered, such as contribution substantially more in resources to Indo-China or expanding mil end-items program to include “soft” items.
Emb and ECA mission realizes that suggested policies raise many unresolved questions but, until we can be given more definite guidance on US policies and commitments to promote US security interests our influence here will be dissipated in conflicts and confusion.