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

751.5–MAP/6–751: Telegram

No. 174

The Secretary of State to the Embassy in France ¹

secret

Washington, July 3, 1951—8 p.m.

61. Toisa. Text draft reply to Fr note² re level of aid follows. Believe note shld be submitted before end present Govt, unless you have strong views to contrary re form or timing (Embtel 7578 June 7, rptd London 1996, OSR unnumbered).³

1. US acknowledges receipt Fr note May 30. In belief Fr note based upon certain misapprehensions US position this matter, US of opinion it wld be advisable restate principles underlying extension economic assistance to Fr 1950/51.

2. Postwar US assistance to Fr has provided dollar exchange finance imports into Fr and Fr Union necessary for reconstruction and economic recovery, which cld not otherwise be financed from Fr dol resources. Aid for Fr has been determined in so far as possible, on basis net dol deficit after all other Fr dol transactions were taken into account on current basis. In accordance these principles, Fr received reconstruction loan from US 1945, balance payments loan 1946, and grant assistance under Interim Aid program 1947. Since April 1948, to Mar 1951, Fr was allotted $2.1 billion loan and grant assistance under ECA program. In Oct 1950 US announced, subsequent to US–Fr Ministerial Talks, it wld make available out of funds appropriated under MDA Act, up to $200 million to Fr during first half 1951. This assistance is separate distinct from value military end-items provided to or scheduled for ultimate delivery to Fr under MDAP. During 49/50 and 50/51 value such end-items programmed for Fr have amounted to almost half of total value entire end-item program for NATO countries.

3. Although it was contemplated during Ministerial Talks October 1950 US would procure military end-items in Fr, US thereafter decided it would not for time being undertake such procurement. In deciding merge ECA and MDA funds and apply ECA procedures to assistance provided as result October talks, US Govt indicated this action should not have effect reducing amount economic aid granted Fr during 50/51.

The US Govt noted, for example, that Fr Govt had accepted the principle discussed during Oct talks and stipulated in aide-mémoire of Dec 18, 1950,⁴ that any such dol receipts by Fr “are to be used, not to increase reserves, but (a) to pay for imports which must be purchased with non-EPU currencies and which are required to assist in preventing inflation which might otherwise result from the increased defense effort, and (b) to meet gold or dol obligations to EPU arising directly or indirectly out of the Fr prod program”. The Fr Govt recognized therein that in effect it wld rec dol assistance only to cover the deficit in its dol bal payments. In agreed minute of discussions of US-Fr econ Working Group in Jan 1951,⁵ the US again emphasized that the result of US assist shld not take form of increases in monetary reserves.

4. As was stated in the Ministerial Talks in Oct 1950, the US Govt was of opinion that it cld not become directly involved in financing internal Fr budgetary outlays associated with rearmament effort. It believed that only by means of an increase in imports into France cld US aid serve to provide increased local currency resources for the Fr Govt. In the agreed minute of the US-Fr Econ Working Group in Jan 1951, the US again stated that US was providing assistance to meet real dol requirements and not for purpose of providing local currency resources to cover Fr budget deficit.

5. In agreeing to the provision of econ assistance in Oct 1950, the US clearly intended, as was stated in its aide-mémoire, that “assistance herein proposed is without prejudice to the level of aid to be provided to the Govt of France under the Ec Act of 1948, as amended, and to any future adjustment thereof which the US may determine is necessary or desirable”. The US Govt, at that moment and on the basis of trade forecasts discussed jointly by the two dels, believed that the proposed assistance wld be necessary to cover a dol deficit in excess of the deficit to be covered by the provision of assistance then available under the regular ECA program.

6. The US has continued to look for revisions in Fr import policy in line with its understanding, as stated in the aide-mémoire of Dec 18, 1950 that Fr Govt intended “to take vigorous measures to combat inflationary pressures by all appropriate means, including necessary adjustments of import and credit policies.” It has been noted, in relation to (b) under para 13 E of the aide-mémoire, that the intra-Eur trade of Fr has not given rise to gold or dol payments by Fr since Oct 1950, but that contrary to expectations Fr has been a net recipient of $65 mil from the EPU during 50/51. The US Govt has also noted that Fr gold and dol reserves have increased by $175 mil in 50/51, thru May 1951; the increase since the exchange of aides-mémoire, in Dec 1950, has been $50 mil.

7. The US never fixed an arbitrary ceiling on the amt of econ assistance it wld make avail to Fr during 50/51. As of Feb 1, Fr had been allotted $195 mil out of ECA appropriation for 50/51. The Fr Govt has indicated, in its note of May 30, 1951, its understanding it wld receive further $115 mil from ECA appropriation, in conformity with so-called Snoy–Marjolin formula, in addition to proposed $200 mil in assistance under aide-mémoire of Dec 18, 1950. It shld be noted that US Govt clearly stated in a communication to OEEC that it did not consider itself bound by S/M formula⁶ subsequent to Dec 1950, in view of fact S/M formula no longer led to distribution of aid in proportion to deficits of participating countries. In addition to formal notification to OEEC of abandonment of S/M formula, ECA in making each allotment for Fr in 50/51 informed Fr Govt that economic aid figure for year as whole had not been fixed.

8. US estimated, early in May 1951, that Fr wld probably require no more than $200 mil in econ aid during period Feb 1–June 30, 1951. This was believed to be an accurate estimate of French dollar requirements during this period. Despite developments described para 6, US Govt decided provide to Fr full amount of $200 mil specified in aide-mémoire of Dec 18, 1950, giving a total allotment for 50/51 of $395 mil. By so doing, US Govt indicated its strong desire assist Fr Govt in rapid implementation its military program, which was of general size and character to warrant provision of econ assistance. Nevertheless US believes that Fr Govt, in failing to take more vigorous measures to admit imports into Fr, had not taken full advantage of assistance available from US during this period.

9. The US Govt hopes that foregoing review will clarify for Fr Govt the basis on which aid has been extended during 50/51.

Acheson

1. Drafted by Beigel and cleared by Treasury, ECA, RA, S/ISA, OFD, the Executive Office, and Defense. Passed to OSR in Paris for Katz, repeated to London for Spofford, and sent to Heidelberg for Handy.
2. Reference is to the French note of May 30, summarized in Document 168.
3. Not printed.
4. For text, see Foreign Relations, 1950, vol. iii, p. 1446.
5. For text of the agreed minute on economic questions, see Annex A to Document 154.
6. Snoy–Marjolin formula for determining economic aid to Marshall Plan countries. For further information, see footnote 2, Foreign Relations, 1950, vol. v, p. 1279.