ECA message files, FRC 53A278, Paris: Telegram
The Administrator for Economic Cooperation ( Foster) to the United States Special Representative in Europe ( Katz)1
Torep 2711. Subject: EPU arrangements for 1951/52. Purpose this message is to outline our present thinking on EPU arrangements for 1951/52 for your urgent comments. Following represents elaboration and explanation assumptions used in presentation to Budget Bureau as outlined in Ecato circ. E–47,2 Paras 9–11.
1. General.
Major problems have been to find techniques (a) for assisting chronic debtors to meet their EPU deficits, and (b) for dealing with large expected sterling surplus. Both problems complicated by fact that balance of payments shows no dollar deficit for UK.
[Page 19]Arrangement we have assumed is variant initial position technique. We have requested $374 million to be paid to EPU by ECA on behalf of debtors in settlement of their deficits. This aid would be analogous to present initial credit positions and would be supplemented by $75 million initial credit positions to be extended to debtors by EPU (probably on loan basis). In lieu of initial debit position and conditional aid, UK would receive full dollar payment for $200 million of its 1951/52 surplus. Resulting additional dollar outlay by EPU would be offset by dollars paid in by U.S. on behalf of debtors.
We are attracted by proposal to restrict our EPU aid to Austria, Greece, and Iceland as suggested in Repto 14223 Para 5, leaving EPU and creditors to provide any assistance needed by other debtors. We have not considered it possible to adopt this proposal because of (a) need to provide aid to other countries, especially Germany and Turkey, (b) probable unwillingness EPU or creditors to provide such aid from own resources, and (c) advisability providing special arrangement for sterling.
2. Treatment of creditors.
While UK surplus could be settled by 50% dollar payments under quota, believe special arrangement needed for following reasons:
- (a)
- Net surplus according our estimate $541 million, use existing resources $106 million, leaving $435 million to be settled.
- (b)
- If this surplus settled through 50% dollar payments under quota, fear sterling countries would take steps to reduce surplus by curtailing exports to continent of sterling area raw materials or UK manufactures. Either step would be undesirable.
- (c)
- Settlement through quota would bring quota close to exhaustion by June 30, 1952, with prospect for continued sterling surplus. Doubtful UK would agree to substantial further financing on 50% dollar payment basis.
Accordingly propose UK receive 100% dollar payment outside quota for $200 million of 1951/52 surplus. Remainder of surplus to be settled under quota. (If 100% dollar payment is for first $200 million of surplus, it would of course be necessary to secure UK agreement in advance not to restrict surplus to $200 million by curtailing exports to continent.)
Alternative methods handling sterling problem are: (a) initial debit position and conditional aid, and (b) increase in dollar payment under quota to 75% after June 30, 1952, combined with UK agreement to increase quota so that total UK commitment to extend credit to EPU remains unchanged. (a) considered difficult [Page 20] since b/p estimates show no need for UK aid. (b) involves change in EPU basis of settlement which is not desirable to generalize but would be difficult to confine to special case of UK in 1951/52.
3. Treatment of debtors.
Our estimates assistance required by prospective debtors either through initial positions or variant thereof are (in millions of dollars):
| Greece | 160 |
| Austria | 75 |
| Iceland | 4 |
| Germany | 120 |
| Turkey | 50 |
| The Netherlands | 30 |
| Norway | 20 |
| Total | 459 |
This aid to be provided either through (a) initial credit positions or (b) dollar payment by U.S. to EPU on behalf of debtors. Such payments would be treated in EPU accounting in same manner as initial position, i.e., dollar payment would not be considered as utilization quota and would be in full settlement rather than fractional settlement deficit.
In proposing division total aid to debtors between (a) and (b) we have been guided by following considerations:
- (a)
- desirability leave dollar position EPU about unchanged;
- (b)
- undesirability substantial impairment EPU capital position;
- (c)
- undesirability giving EPU claims on weak debtors.
Solution which roughly achieves these objectives is provision by EPU of initial credit positions of $60 million to Germany and $25 million to Turkey, largely or entirely on loan basis. Remaining $374 million of aid shown above, including half total aid to Germany and Turkey, would be met through dollar payments by U.S. Balance estimated deficits The Netherlands and Norway would be settled under quotas.
Estimated dollar payments and receipts 1951/52 about in balance. Estimated payments to creditors (in millions of dollars) UK $317, Belgium 63, Total 380, without allowance for Portugal, Sweden or Switzerland. Estimated dollar receipts: Payments by U.S. on behalf of debtors as above 374, fractional payments under quotas by Denmark 1, Italy 4, The Netherlands 22, total 401.
[Page 21]4. Special assistance.
We do not plan to request reappropriation unused portion $100 million special assistance fund. Instead we will request authority to permit PC’s to use funds from their regular allotments to meet EPU deficits. Such switches would be subject to ECA approval and total amount would be limited to $100 million. Funds switched in this way could be used either to meet fractional gold payments under quota or to settle deficits in full (as in case of $3 million to be allotted to Iceland in 1950/51 in full settlement EPU deficit) as appeared appropriate in individual cases.