751.5/2–2552: Telegram

No. 506
The Secretary of State to the Acting Secretary of State1

top secret

Actel 9. Webb from Acheson. Please call attention President. No distribution except Lovett, Snyder, Harriman. The following represents an agreed memo of conversations between the representatives of France and the United States at Lisbon. The French Ministers present were Faure, Schuman, Buron, Bourges-Maunoury, Gaillard.2 The American representatives present were Acheson, Lovett, Snyder, Harriman, Bruce, Nash, Draper, Pauley. This English text is now being conformed to French text and is therefore subject to minor changes.

Begin text. Mr. Faure stated that he had reviewed with his Ministers the situation of the French defense budget after the previous exchange of views with the representatives of the United States. He indicated that if a total of expenditures for 1952 of 1,400 billion francs is accepted on the understanding that 1,100 billion francs are already provided in the French budget in accordance with the estimates of the “wise men” on the financial capacity of France and on the understanding that 175 billion francs are to be provided by assistance from the United States, a gap of around 125 billion francs still remains. These 125 billion francs would not correspond to an additional armament effort but would just cover the increase in expenditures resulting from (a) the increase in prices (approximately 50 billion francs), (b) the increased requirements for the war in Indo-China not included in the “wise men” estimates of defense expenditures (approximately 60 billion francs), and (c) the requirements for the French expenditures in 1952 for third-slice infrastructure. Thus, it is to be concluded that a budget of 1,400 billion francs will not make it possible for French to mount adequately twelve equipped divisions. The figure should more reasonably be fixed at ten divisions. If France is to declare itself prepared to attempt one or two divisions in addition to ten divisions, it must be understood that there is no question of these units being placed on a war footing. It is understood that the eighteen month service will [Page 1168] not be reduced although administrative changes may be necessary to keep the number of conscriptees at an appropriate level.

Moreover, under these circumstances France would have to reduce considerably its armament program with all the major difficulties that that implies on both the industrial and political planes. It is indispensible in this regard that an additional effort by the United States should make it possible for France to avoid a drastic cut in its essential defense production.

Even if the suggested financial solution is adopted, the French Government will be forced to ask for supplementary resources in the amount of 100 to 125 billion francs either under the form of new taxes or in the form of reduction of expenditures now programmed. This action would be in addition to the 200 billion francs in new taxes already projected.

The purpose of the French Government is to check the developing inflation in France, but Mr. Faure stressed that he could not disregard the considerable risks being taken by the French Government in presenting a financial program of this magnitude, nor could he disregard the political consequences that might develop from a French crisis at this time.

He continued that the basic source of the French difficulties arose from the war in Indo-China. The French Government now believed that it would be necessary to spend an additional 60 billion francs to meet the requirements in Indo-China but tomorrow an additional 80 or 100 billion francs might be required. Moreover, the best part of the French officers and NCO s are engaged in the Far East. It is becoming more and more apparent that France is not in a position to carry at the same time the burdens imposed by the war in Indo-China and the necessary contribution to defense in Europe. Mr. Faure said he was compelled [to] state that if a special solution to this problem did not soon arrive or if supplementary assistance was not soon allocated, he would be obliged to ask his government to reconsider the program of Indo-China.

Mr. Acheson indicated that the question of the number of divisions was both a military and political program and that he was prepared to discuss the various aspects of the question.

Mr. Bourges-Maunoury insisted on the need of keeping any reductions in defense production in France to a minimum. There are two categories of production:

Production not yet undertaken but which is necessary in order to make the French divisions “operational”, for example, vehicles. This production could either be replaced by end-item deliveries from the United States or by carrying out an offshore purchase program in France.
Production contracts which have already been placed and which must be cancelled if assistance from the United States does not enable these contracts to be taken up under an offshore purchase program.

Mr. Lovett thought that from a political point of view it would be much more preferable for French to plan on twelve divisions in 1952. All the NATO countries in fact envisaged an increase in their number of divisions. It would be very difficult to justify a request [Page 1169] for funds from Congress if France did not follow the general rule. However, Mr. Lovett said he understood very well that the two additional divisions would be “skeleton” divisions.

Mr. Faure indicated that in fact without adequate external aid in end-items the equipment deficit of the French forces would increase by the creation of the additional two divisions.

Mr. Lovett pointed out that military assistance would provide an amount of $300,000,000 from the funds under the responsibility of Mr. Harriman and an additional $200,000,000 which would be used in France for off-shore purchases particularly for arms and equipment for the forces in Indo-China. In order to carry out this program of assistance considerable effort would have to be made to work out the necessary administrative procedures.

Mr. Bourges-Maunoury believed that a misunderstanding existed. In addition to the $200,000,000 off-shore purchase program referred to, the French Government believed that in order to maintain an adequate level of production and to avoid the industrial, social and military difficulties which would arise from an excessive cut-back in French production, it was necessary to envisage the passage of off-shore purchase contracts over and above this $200,000,000 program.

Mr. Lovett replied that it was impossible to give any definite information on what the United States would be able to do to make off-shore purchases over and above the $200,000,000 foreseen, but that the question could be studied by the experts of the two governments. With reference to the $200,000,000, these funds could be utilized for placing new contracts representing production in progress if the French Government could carry out the cancellation of these contracts.3

Mr. Edgar Faure stated that it would be practically impossible to obtain from the French Parliament a considerable amount of new taxes if at the same time he could not refer to a solution which would give satisfaction to France from the point of view of national defense and French defense production.

Mr. Jean Monnet recalled that the work which had been followed by the TCC with a view to determining the defense burdens of the different countries; speaking to Mr. Harriman he declared that there could be no question but that France would be the country in Europe carrying the heaviest burden [of] this war if the financial solution envisaged was adopted. Italy had not accepted the solution of the “wise men”. Everyone knew the position taken by Belgium. The United Kingdom had just declared in a white paper that it would transfer to 1953 a part of its 1952 expenditures which would result in the total of its defense expenditures being approximately equal to those of France even though its national income was one-third higher than that of France. The amount of the French contribution established by the “wise men” at 1,100 billion [Page 1170] francs had been one of the important elements of comparison which was used in the establishment of the German contribution. Therefore, as the situation had now developed, France must accept a burden higher than that of any of her partners. Moreover, the other European countries were able to establish firm military programs and to foresee the basis of their financial position while France must accept the uncertainty of additional expenditures at any time for the war in Indo-China. These expenditures overburdened its economy and placed in peril the continuation and the execution of the French program for European defense.

Mr. Jean Monnet concluded in affirming his conviction that the weight of the military expenditures that France was going to support were far too heavy. Moreover, the expenditures which would result from the war in Indo-China were necessarily uncertain.

Mr. Edgar Faure called attention again to the consequences which would result from the present situation not with regard to the position of his own government,4 but also with regard to the policy of western defense which all the NATO countries conduct in common.

Mr. Schuman, making specific reference to the remarks of Mr. Faure on the need for a special solution for Indo-China, or for supplementary assistance, stressed that the program of Indo-China dominated the situation. It had to be examined first by France but also by its Allies. A solution was necessary this year, if not we will be led into an impossible position. The program will impose upon us the gravest decision that is to be taken in the course of 1952.

Mr. Acheson replied that this program of Indo-China was now the subject of a serious examination by the American administration.

It was understood by the representatives of both governments that the memo of understanding, dated the twenty-fifth of February, 1952, was drawn up on the basis of the above discussion. End text

Text of agreed memo of understanding to be signed this afternoon after conforming French and American texts follows in separate cable.5

  1. Repeated to Paris “for absolutely eyes only Bonsal and Labouisse”. Acheson was in Lisbon to attend the Ninth Session of the North Atlantic Council as well as a series of Foreign Ministers meetings; see the editorial note, supra.
  2. The text of this agreed memorandum indicates that Jean Monnet was also present.
  3. According to telegram Actel 14 from Lisbon, Feb. 26, the last sentence of this paragraph was corrected to read as follows: “With reference $200,000,000 these funds could be utilized for placing new contracts representing production in progress if the French Govt should find itself obliged to cancel such contracts.” (751.5/2–2652)
  4. Telegram Actel 14 from Lisbon, Feb. 26, noted that Faure’s last comment must be changed to read as follows: “which would result from the present situation not only with regard”. (751.5/2–2652)
  5. Infra.