EUR files, lot 59 D 233, “Letters—France, Jan.—June 1954”
No. 629
The Assistant Secretary of State for
European Affairs (Merchant) to the Director of the Foreign Operations
Administration Mission in France (Labouisse)1
Dear Harry: I received in Berlin your letter of February 9,2 enclosing a copy of your evaluation of FOA in France and the French situation. Your report will certainly serve as a benchmark for anyone concerned about France.
With regard to the future, I was particularly interested in Section III of the evaluation. I am not very sanguine about the possibilities of much real change in the economic way of life in France, much less our ability to influence the French to bring off any significant internal reforms. We are, however, legitimately interested and concerned about the French external accounts, and it would seem that this is the appropriate avenue for any possible approach to the French since it is the French dollar position that we have been underwriting over the past ten years.
We are all mindful of the serious consequences of any sudden termination of dollar aid to France should the present basis for aid no longer prevail. At the same time it is interesting to note that the French free gold and dollar holdings rose from just over $200 million at the beginning of October to almost $300 million early last month, after the end of year debt settlement and despite the fact that none of this year’s aid had yet been paid out to the French. We realize that the French probably have to thank for this fact that free dollar imports (according to your Tousfo 4483) have been exceedingly light during the past semester, and our military expenditures in the franc zone have continued to increase, although neither of these factors can be relied upon indefinitely.
In this connection, it seems to me that one of the most useful tasks you might consider undertaking now, as a means of forearming [Page 1405] for the future, is a prognosis of the French dollar position over the next several years, in its major elements (such as the level of dollar exports and outlook for expansion into certain areas or in certain commodities, level of dollar imports with analysis of hard core commodity needs and sources, possible changes in invisible accounts, debt service situation, EPU cover requirements and whether an exchange rate adjustment would really help this situation, level of our military expenditures in France and Morocco based upon progress of US and NATO infrastructure programs and our troop strengths, and schedule of future receipts on regular OSP contracts which to date have been very low). We shall do what we can here to work out some projections along these lines, but would hope to be able to rely upon you for an authoritative analysis.
As always, I would appreciate any comments you might have on this suggestion and on any other steps you consider we might usefully take to deal with the French problem, whether in negotiating with the French or in becoming better informed about the dimensions of the French dollar problem over the next several years, and therefore better prepared to deal with it.
With best regards,
Sincerely,